Creative Class

As we saw yesterday, Michael Mandel argues that commercial innovation in the U.S. has slowed in recent years. To shed light on this, my team and I tracked U.S. patent data for the past decade – and for the entire 20^th century.

The first graph above tracks patent applications and patents granted from 1980 to 2005. Overall, the trend-lines are up. The line is steeper for patent applications, but it also tracks consistently upward for actual patents granted. There are significant dips after the tech-crunch of 2001 and in the wake of the financial bubble, even before the economic crisis of 2008. But those dips do little to throw off the basic upward trajectory of American innovation. In 2007, the overall level of patents granted was significantly higher than a decade earlier.

The second graph below controls for population, tracking the trend in patents per 10,000 residents. The trend-lines tell much the same story. Despite two recent dips, the overall trend in patenting is up considerably over the past decade.

The evidence here does not support the notion of an innovation shortfall. The overall level of innovation is up over the past decade. The most we can say is that the rate of innovation has leveled off in recent years when we control for population. Nonetheless, the trajectory of American innovation remains consistently up.

As we will see tomorrow, the picture gets a bit more complicated when we parse patents by U.S.-born (resident) and foreign (non-resident) inventors.

Interesting article in the latest Milken Institute Review which argues that the fiscal policies of the New Deal lengthened the Great Depression. It seems like a thoughtful critique without the right wing polemic that flavors so many of these discussions.

The current economic crisis has made some nostalgic for Franklin D. Roosevelt’s New Deal, an era that we are now inclined to remember as a grand – and successful – struggle to bring the economy back from the brink of chaos. After all, Roosevelt’s social insurance programs, including Social Security, unemployment compensation and the WPA did aid millions of Americans.

But despite the benefits of the New Deal safety net, and despite the success of Roosevelt’s financial reforms – notably, the creation of the Federal Deposit Insurance Corporation and the Securities and Exchange Commission – this nostalgia is misplaced. The central component of the New Deal – the programs aimed at restoring private-sector jobs – was highly problematic, and largely accounts for why the Depression ground on through the 1930s.

I’m not convinced, but I’m not an economist either. Today, as then, we’re in uncharted waters. You can download the article as a PDF here.

In a widely read cover story published earlier this month, Business Week’s chief economist Michael Mandel asks, “To what degree has American innovation been ‘interrupted’?” Mandel argues that the economic crisis is partly the result of America’s failure to generate high-impact commercial innovations.

What if, outside of a few high-profile areas, the past decade has seen far too few commercial innovations that can transform lives and move the economy forward? What if, rather than being an era of rapid innovation, this has been an era of innovation interrupted?

The crux of his argument is that many, if not most, of the big breakthrough innovations that were supposed to occur over the past decade or so have failed to materialize. His article provides a raft of compelling examples of once-heralded innovations – in areas from biotech to micro-machines – that have simply not panned out. This failure to commercialize and diffuse these new breakthrough innovations – America’s inability to set in motion the great gales of “creative destruction” identified long ago by Joseph Schumpeter as key to capitalist growth – he argues, is a key contributor to both the financial bubble and the economic crisis.

But since there is compelling evidence that the figures are overstated by the credit bubble and statistical problems, we can construct a plausible narrative for the financial bust that gives a starring role to innovation-or rather, to the lack of it. It goes something like this: In the late 1990s most economists and CEOs agreed that the U.S. was embarking on a once-in-a-century innovation wave-not just in info tech but also in biotech and many other technologies. Forecasters upped their long-run growth estimates for the U.S. economy. Consumers borrowed against their home equity, assuming their future incomes would rise. And foreign investors lent America money by buying up U.S. securities, assuming the country would come up with enough new products to pay off the accumulated trade deficit.

Mandel lists four areas in which America’s recent performance has been lackluster: stock market performance in the pharmaceutical, biotech, and life-science sectors; declining real wages for highly educated workers; a mounting trade deficit in high-tech sectors (which grew from $30 billion U.S. surplus in 1998, turning into a $53 billion deficit by 2008); and little improvement in the death rate (which he sees as a measure of the failure of breakthrough medical technologies to materialize) as evidence for the failure of American innovation.

It’s no secret that I’m a big fan of Mandel and I find his general thesis about lagging U.S. productivity and job growth over the past decade or so to be both intriguing and plausible. And since so much of my own work focused on the relationship between innovation and American competitiveness was flagging, I find myself particularly drawn to his most recent “innovation-interrupted” thesis.

My first book, The Breakthrough Illusion, written with Martin Kenney in 1990, argued that the U.S. system of venture capital-backed breakthrough innovation was skewed to encourage short-term super-returns from new breakthrough innovations, and was structurally ill-suited to capturing the longer-term wealth derived from developing these innovations into successful products and industries. That work drew upon the intriguing thesis of innovation theorist Henry Ergas, who argued that the U.S. had developed a shifting system of innovation geared to near-constant development of new products through new firms, as opposed to a deepening system (think of German cars) which continuously adds technology to upgrade existing industries. According to Ergas, the key to long-run prosperity lies in synthesizing both strategies – cultivating an economy which could deploy new technologies in new sectors while at the same time deploying them to upgrade and revolutionize old ones.

I opened my 2002 book, Rise of the Creative Class, with a time-traveler experiment. Someone traveling from 1900 to 1950 would be blown away by the varied technical marvels that surrounded them from televisions to airplanes. But while someone who time-traveled from 1950 to the 2000 would see a few new technologies, like the personal computer and the cell phone, he or she would likely be much more amazed by sweeping social changes. And in my 2004 book, Flight of the Creative Class, I argued that America’s innovative edge in the late 20^th century was inextricably tied to its ability to attract foreign scientists, technologists, and engineers. The combination of mounting U.S. immigration restrictions and growing efforts by foreign countries to retain their own best and brightest (and attract others from around the world), I suggested, was an under-appreciated threat to U.S. competitiveness and prosperity.

In fact, I found Mandel’s essay so compelling that I decided to take a look at the actual data. Mandel rightly says that we currently lack a comprehensive “innovation index” that tracks commercial innovation: “There’s no government-constructed “innovation index” that would allow us to conclude unambiguously that we’ve been experiencing an innovation shortfall. Still, plenty of clues point in that direction.”

True enough. But research into the economics of innovation has discovered at least one reasonable measure of innovation – patents. There are problems and biases with using patents as a measure of innovation, as economists who specialize in the subject have pointed out. Patents measure certain areas of technology more than others. In some areas of commercially important R&D, patents are rarely used. Other areas, including less commercially relevant ones, are awash in patents for minutiae. And patents are not synonymous with commercially relevant innovations. That said, patents do provide a consistent, broad-gauge indicator of the level and rate of innovation – one that can be tracked over long periods of time and be broken out by nation, city, and region, and by U.S. resident versus non-resident or foreign inventors.

With my Prosperity Institute team – Charlotte Mellander, Scott Pennington, Dieter Kogler, and Patrick Adler – I’ve taken a look at the trends in U.S.-patented innovations. In a series of posts this week, I will report our findings. Tomorrow we’ll look at the trends in U.S. patents over time. Wednesday we’ll explore patenting by U.S. resident versus non-resident (foreign) inventors. Thursday we’ll examine the geographic distribution of innovation – tracking the rise of some innovative regions and the fall of others. And Friday we’ll discuss the longer-run historical relationship between innovation and economic crises.

A new study finds that housing prices have had a big effect on recent mobility. Here’s a snippet from Real Time Economics.

Housing affordability has played a greater role in prompting residents to leave one state for another over the past decade, according to a study released by the Federal Reserve Bank of Boston.

This is a change from the past, when jobs were the primary economic driving factor behind state-to-state migration. The study helps explain why migration has fallen off so sharply in this recession — with the drastic fall in housing prices, many people are staying put not for work but because they are tied to a home they either cannot sell or refuse to sell at today’s prices.

The FRB study focuses on New England, which for years has seen a net outflow of residents to other states. The author, Boston Fed economist Alicia Sasser, shows that job growth (or lack thereof) and housing prices played equal roles in New England’s out-migration between 1997 and 2006. Between 2001 and 2006 about 100,000 additional people left Massachusetts either for a job or to seek lower housing prices, according to Ms. Sasser’s research. Roughly 60% of those people left for housing affordability …

Mr. Sasser’s study may give a glimmer of hope to states that have lost people, at least high-cost states like Massachusetts that have lost people to places with lower-priced housing (cities like Buffalo that have lost jobs will likely continue to lose residents.) When the economy eventually picks up, lower housing prices may bring the balance between jobs and home prices back into equilibrium, prompting more New Englanders to stay where they are or even move back.

In Canada, the number of self-employed people has been rising month after month during this recession. Recently, the thousands going into business for themselves have mitigated many of the employment losses and made the Canadian job numbers look reasonably rosy in comparison to the declines happening in the U.S.

The Globe and Mail referred to this as “The Do-It-Yourself” recovery.

On the one hand, this seems logical in a recession – losing a job can be the spark that pushes people into business for themselves. Yet, on the other hand, the same phenomenon does not appear to be happening in the United States. So, what’s happening and what’s significant?

The divergent self-employment trends may be an indicator of different employment, economic, and workplace trends in the two countries.

It should be noted that some economists argue that self-employment is inferior to full-time, salaried employment and thus should be considered an indicator of economic weakness rather than strength in Canada. However, because the numbers of self-employed are growing so early – when collecting EI benefits would still be an option – it suggests this shift to self-employment is more of a deliberate choice than a move made in desperation.

Also, the 55+ age group has been the dominant demographic group shifting into this category in Canada – it may be that well-educated baby boomers are seeking more flexibility and the option to “cash in” on their years of experience and extensive contacts made over the years. Because basic health care coverage is universal in Canada, the aging baby boomers may feel more free to leave their large employer (or not seek another if their employer laid them off).

Implications:

Could this give the Canadian economy the productivity boost (to catch up to American levels) that has been lacking? That is, in pure economic productivity terms, would it be more efficient for many corporations to hire the talent they need when and as they need it via contracting the self-employed?

From the talent’s perspective, could this be the style that allows much better control over work and life balance?

Can salaried staff and free agents work together on teams (when the free-agents might be working on several projects simultaneously for different companies)?

Flipping the coin, does it matter that the U.S. self-employment rate is not growing?

Your thoughts?

…Cassandra is universally disliked (h/t to Bob Eberhart).

What are we to make of this poll that shows Obama rapidly losing altitude with voters, particularly the Independent voters? Just as Obama was being inaugurated, and immediately afterward, I wrote a number of posts on this blog warning about his mistakes in taking ownership of the Bush mistakes. After taking heat from my friends and the incredible (the root word here is credit, which means trustworthiness etc.) rise of the stock market, I decided to keep my mouth shut.

Now we are nearly six months into the new presidency and what do we have? Obama has invoked Bush era Imperial Presidency secrecy rules, signing statements, and even willingness to torture. The CIA has admitted lying to Congress, the direct representatives of the people, and there are no prosecutions. Unemployment that is reaching ever new highs, and the green shoots the Administration promised shriveling and dying. Wars in Afghanistan and now Pakistan are spiraling downward. For those who admonished opponents of these wars that there was no choice, I can guarantee you that the war will be lost and we will be worse off for having gotten involved. It is existential bad faith and terrible politics to say there are no choices. The Iraq War continues on. Our treasure is being squandered even as we are going bankrupt as a nation.

The real catastrophe that threatens to swamp Obama are the bailouts without end to Wall Street and, even more important, the increasing perception among Americans that Wall Street has become a rigged casino where citizens, pension funds, and 401Ks go to be sheared. Whereas Obama should have begun prosecuting executives who lied materially about the status of their companies, e.g., Lehman Brothers, Bear Stearns, and AIG, they have so far been given a free pass. There are stock market rumors about front running in on a massive scale, tip-offs from the Federal Reserve to selected banks about forthcoming actions that allow the equivalent of insider trading, etc. This is serious stuff.

It was these abuses that were the core of the Roosevelt clean-up of Wall Street. There have been massive bailouts, but no programs such as the Civilian Conservation Corps etc. to put people back to work.

Consider the observed pecking order of bailouts: Wall Street gets trillions; GM and Chrysler 100s of millions; state and local governments tens of millions; ordinary citizens very little. If Obama is to save his presidency, then he needs to fight as hard for the Main Street as he has for Wall Street. Let’s hope the newest polls give him the message.

How are you folks feeling? Has the Obama Administration been doing the right things? Is this the way forward for the country?

Why do people buy green products? A new study (h/t: Charlotta Mellander) finds that green purchases are less about energy savings or cost savings and more about image. Prius owners pay a significant premium over many conventional fuel-efficient cars. When asked about the top motivating factors behind their purchase, the comment, “makes a statement about me” was at the top of the list, while “higher fuel economy” came in third, and “lower emissions,” fifth. The authors argue that status plays a big role in green purchases.

Because biologists have observed that altruism might function as a “costly signal” associated with status, we examined in three experiments how status motives influenced desire for green products. Activating status motives led people to choose green products over more luxurious non-green products. Supporting the notion that altruism signals one’s willingness and ability to incur costs for others’ benefit, status motives increased desire for green products when shopping in public (but not private), and when green products cost more (but not less) than nongreen products.

I may be an urbanist with a love for cities, but I am one of those people who get lost a lot. I have trouble reading maps and depend on my GPS. It takes me a few years in any city (or in my own neighborhood for that matter) to intuitively grasp how to get around.

Now this new book,You Are Here: Why We Can Find Our Way to the Moon, but Get Lost in the Mall, by Waterloo University psychologist and behavioral neuroscientist Collin Ellard, explains why. Centuries of development of locational aids have sapped our instinctive ability as a species to find our way around.

Check out Ellard’s website and his amazon.com page which has these and other great factoids.

• According to a survey of 12,500 people in 13 countries conducted by Nokia, 93 percent of people reported becoming lost on a regular basis. 30 percent blamed their partners. Almost half of respondents admitted to giving wrong directions on purpose.

• One out of 10 people have missed a job interview, an important business meeting, or a flight because they lost their way.

• Men may not ask for directions because they have greater difficulty following them. Women navigate using routes and men navigate using compass orientation.

• A poorly designed you-are-here map can actually make it more difficult for you to find your way than no map at all.

• The top five cities in which residents report becoming lost are (in order) London, Paris, Bangkok, Hong Kong, and Beijing.

Here’s a snippet from Johan Lehrer’s review in the New York Times Book Review.

One of Ellard’s best chapters focuses on urban planning. He starts by picking on an easy target: the massive, concrete public housing projects that were, once upon a time, championed by visionaries like Le Corbusier. (The architect wanted to replace much of central Paris with residential skyscrapers and highways.) Sadly, the modernist dream quickly turned into a grim dystopia, as the inhuman scale and “poor arrangement of space served to break down social networks.” The end result was isolation, litter and crime.

Ellard’s hero is the activist and author Jane Jacobs, who championed wide sidewalks, short city blocks and mixed-use zoning. According to Ellard, the advantage of such a setup is that it creates vibrant streets that reflect the needs of human beings, and not just their cars. Furthermore, because life attracts life — people want public places that are filled with other people — these organic neighborhoods create a positive feedback loop of livable density. We don’t need to print out directions because most of what we need is nearby.

The larger lesson is that the form of an urban space is often more important than its supposed function. Odd as it seems, Ellard writes, “I can predict exactly where you will go based on how the streets are connected together without needing to know that you have set out to, for instance, buy a pair of shoes.” Because our spatial instincts follow a few simple rules, scientists who use “space syntax analyses” are able to envision how a place will be used before it exists.

In an unexpected turn, the economic slump may lead to healthier eating habits for Americans, especially lower income people. A number of trends are coming together including more people using emergency food banks, the growth of farmers’ markets and community gardens, Alice Waters’ edible schoolyard, the White House garden, etc. One thing I’ve noticed in my grantwriting class at Portland State is a number of students looking for funding to start or expand school, community, or food bank gardens.

Any number of studies say that Americans eat too much meat, fat, sugar, and salt and too few vegetables. This is especially true for poor families who live in neighborhoods without good grocery stores, or don’t have decent kitchens or time to cook, or can’t afford fresh produce. Chronic preventable diseases like diabetes and hypertension, which are epidemic in many poor and minority communities, can be prevented or controlled with diet.

Getting more vegetables into Americans’ diets would have major health benefits and note that most of these aren’t government programs. However, nonprofit Food Banks have for years overused government surplus foods, largely subsidized agricultural products, without regard to their health benefits.

This is from the Oregonian:

“We have a hunger crisis in Oregon. It’s just expanding,” explains Multnomah County Commissioner Jeff Cogen, who’s just set up a vegetable garden on the empty cropland, fertile with irony, of the former county poor farm. “My hope is this is the first of many.”

Up at the Vancouver Vineyard Church food pantry, David and Andrea Walker are looking to their third summer harvest. Clark County is part of the Oregon Food Bank area, and in its first year the operation received an OFB award for excellence in client service.

This year, the Walkers are hoping for 5,000 pounds of produce from the 3,000-square-foot garden out behind the church. It’s not a rolling or pastoral stretch; it’s off to the side of an alley-like casual road, just some cultivated acreage — or more precisely, yardage — in the midst of a weedy lot. At some point in the future, the space could turn into a small apartment court, like so many around it.

The New York Times Magazine had an article last Sunday about Growing Power in Milwaukee.

Like others in the so-called good-food movement, Allen, who is 60, asserts that our industrial food system is depleting soil, poisoning water, gobbling fossil fuels and stuffing us with bad calories. Like others, he advocates eating locally grown food. But to Allen, local doesn’t mean a rolling pasture or even a suburban garden: it means 14 greenhouses crammed onto two acres in a working-class neighborhood on Milwaukee’s northwest side, less than half a mile from the city’s largest public-housing project.

And this is why Allen is so fond of his worms. When you’re producing a quarter of a million dollars’ worth of food in such a small space, soil fertility is everything. Without microbe- and nutrient-rich worm castings (poop, that is), Allen’s Growing Power farm couldn’t provide healthful food to 10,000 urbanites – through his on-farm retail store, in schools and restaurants, at farmers’ markets and in low-cost market baskets delivered to neighborhood pickup points. He couldn’t employ scores of people, some from the nearby housing project; continually train farmers in intensive polyculture; or convert millions of pounds of food waste into a version of black gold.

Another Times story tells of a consultant who works on sustainable food in Oakland, CA:

With its high crime and poverty rates, Oakland doesn’t have nearly the same precious food culture – or produce – that defines nearby Berkeley and San Francisco. But Fernald and Sardo’s home is a modern homestead, preserving the larder for leaner (and busier) times. Every summer they host tomato-canning and jam-making parties; fall is for pumpkin-processing events and butchering pigs with 10 guests invited to make sausage, which Fernald cures in a modified wine fridge in a closet. Splitting a steer with friends? Their chest freezer contains a beefy ode to their vacuum sealer.

Fernald, 34, a former family-farm advocate, was the executive director of last year’s Slow Food Nation event. Now she combines her activism and her acumen with Live Culture, a consultancy that helps companies create sustainable food practices and products. Projects range from developing a line of artisanal cured meats in Shasta and an agritourism in Belize to helping an Alabama barbecue chain source better pork; from working with nonprofits to develop value-added food businesses to organizing the Eat Real Festival, an August fund-raising event that involves 20 taco trucks serving sustainable street food to an estimated 20,000 (plus a butchering contest and home-canned and foraged-food exchange). Fernald is also intent on spreading the urban homesteading bug throughout the Bay Area, having organized the recent Yes, We Can (Food) event, which taught 80 people to make jam.

Here’s a story about the garden on the old Multnomah County poor farm, mentioned above.

On the county’s eastern outskirts where Northeast Halsey Street meets 244th Avenue, prime farmland waited for a new calling. What if the county took even a few of its dozens of vacant acres, Madrigal wondered, and asked the community to work a farm that could help feed hundreds?

The idea not only is part of a local and national trend to return to the earth, but it also brings the county back to its historical roots. The land picked for the farm is part of a sprawling tract that once fulfilled the county’s state-imposed mission to care for its indigent: the Multnomah County Poor Farm.

For practical reasons, she says, gardening makes sense. The county garden will cost about $22,000 to clear, irrigate and plant this year. That could buy a lot of prepackaged food — but not the 20,000 to 40,000 pounds of fresh organic produce that Stone estimates could be grown on the two acres each year.

That produce will go to the Oregon Food Bank and will feed what food resource manager Mike Moran calls a desperate need.

Here’s another farm dedicated to a food bank.

Formed in May of 2000, the Mother Earth Farm is an eight-acre organic farm located in the lush Puyallup Valley. The Farm produces over 150,000 pounds of fresh fruits and vegetables each growing season-all of which is distributed directly to local food banks and hot meal programs. Produce from the Farm is in the hands of food bank clients within eight hours of being harvested. In 2008, the Farm again reached full cultivation of all eight acres producing more than 149,000 pounds of fresh produce, herbs and honey.

Then there are Community Gardens, where neighbors share plots, usually on vacant land or a park. If you Google community gardens you get results for probably all major American cities, and that’s just for starters.

The American Community Gardening Association (ACGA) was founded in 1979 in order to help gardening programs share their limited resources and thereby benefit from each other’s experience and expertise.

ACGA staff, board members, and volunteers answer thousands of requests for information each year about community gardening and greening. They offer support, coach fledgling groups, and promote networking and information sharing on all levels. Through our networking, publications, trainings and annual conference held in a different part of the country each year, ACGA:

• promotes the formation and expansion of national and regional community gardening networks,
• develops resources in support of community gardening and greening,
  encourages research on the impact of community greening, and
• conducts educational training programs to further community gardening and greening.

Another model is school gardens, where students plant and tend the garden, with produce being used in the cafeteria or shared with families. Pioneered by uber- restaurateur Alice Waters in Berkeley, there are now school gardens in hundreds of communities. A quick Google search turned up four networks promoting school gardens: Kids Gardening, City Farmer, Growing Gardens, and School Garden Network.

Then there’s Michelle, who’s in a sort of class by herself in inspiring American gardeners. From a NY Times article on the White House veggie plot:

Twenty-three fifth graders from Bancroft Elementary School in Washington will help her dig up the soil for the 1,100-square-foot plot, in a spot visible to passers-by on E Street. (It is just below the Obama girls’ swing set.)

Students from the school, which has had a garden since 2001, will also help plant, harvest and cook the vegetables, berries and herbs. Virtually the entire Obama family, including the president, will pull weeds, “whether they like it or not,” Mrs. Obama said with a laugh. “Now Grandma, my mom, I don’t know.” Her mother, she said, will probably sit back and say: “Isn’t that lovely. You missed a spot.”

Most people think the biggest threat to globalization is mounting economic nationalism and trade protectionism. That may well be true. But in a thoughtful and provocative article in the Harvard Business Review, George Stalk argues that globalization faces another threat – a looming infrastructure crisis that is creating huge bottlenecks in the flow of global products and services.

As supply and distribution chains have become longer and more complex, companies have begun to realize that increased logistics costs can reduce or even eliminate the benefits of manufacturing where labor is cheap. The congestion and bottlenecks of a transportation system strained beyond capacity compound the problem, making supply chains seem even longer and more unpredictable.

There’s a lot of talk about improving transport times for people, but at this time of rapidly falling imports and exports, there’s not much talk of increasing capacity for goods. High fuel prices are not the only issue here. It’s also the other costs of congestion: higher cost of inventory for goods that are locked up longer in transit; the costs of uncertain, more variable transport times; and the inability to react to changes in consumer demand.

Stalk argues that while the crisis provides a temporary reprieve, the stimulus is not addressing this looming longer-run economic threat.

If pre-recession trends reappear when the economy recovers, lack of infrastructure capacity, in combination with rising oil prices, will constrain global trade and drive up costs. The U.S. stimulus package, with its focus on “shovel-ready” projects that quickly create jobs, will produce newly painted bridges and newly paved roads but is unlikely to address the capacity problem.