What passes today as innovation is really pretty trivial.
That’s the view of Robert Gordon, noted macroeconomist and Stanley G. Harris Professor of Social Sciences at Northwestern University. And he uses 784 pages in a book published last month entitled “The Rise and Fall of American Growth“ to make his case.
There are 5 “great inventions,” he says, that are the real deal – game-changing and transformational: electricity, the internal combustion engine, urban sanitation, modern communication (telephone/telegraph) and chemicals/pharmaceuticals.
Gordon says that those 5 innovations totally changed all facets of life and society between 1870 and 1970. And that nothing created since can, or will, even remotely replicate their impact.
At first blush, Gordon’s central thesis makes a ton of sense.
Someone born in 1870 in the U.S. could expect to live, on average, to the ripe old age of 40. The most common cause of death then was tuberculosis and diseases caused by unsanitary living and working conditions. The main mode of transportation was horse, and the most common occupation, the blacksmith, who earned about $450 a year. Communication was by letter delivery on horseback unless you lived close to a telegraph station.
By 1970, life expectancies had increased by 30 years. TB and other maladies like whopping cough, consumption and cholera that killed people often before they could even celebrate their 40th birthday were a thing of the past. People lived in houses with indoor plumbing. One in every two people owned a car and drove them to work. Ninety percent of the population had a landline phone. Airplanes with jet engines carried more passengers farther, opening up new opportunities for business and leisure travelers. The most common occupation was a farmer, teacher or machine operator with an average annual income of ~$6,700.
In the 36 years since then, Gordon says, life has hardly been transformed.
Sure, we have faster airplanes and more of them. And we use computers, smartphones and apps to conduct business. As a result, there is an expanding array of employment options that create more pleasing and professional career options for most people. Most people don’t work on farms or in machine shops anymore; they work instead as nurses, software programmers, Web developers, marketing execs and network administrators.
But as much progress as that intimates, inflation-adjusted wages, on average, have remained flat over that period of time. Our educational system has saddled students with more debt than they can ever repay. And worker productivity, Gordon proves in his charts in the book, hasn’t really improved much either.
But perhaps most damning, Gordon says, is that the stuff that we collectively hold up on innovation’s pedestal – and that the VCs in Silicon Valley throw billions of dollars at – is hardly game-changing.
In fact, he contends, it’s downright trivial, incapable of moving the needle of progress and innovation forward in any sort of material way.
And he’s right.
At the same time, he’s also very, very wrong.
It’s sort of hard to argue against Gordon’s theory if you eyeball the list of 151 unicorns, worth collectively more than half a trillion dollars.
Maybe you can help me understand the transformational impact of social communications app Snapchat, a $16 billion social communications platform in search of revenue and revenue model. I confess that I have totally missed it.
Ditto the multibillion dollar market caps of delivery companies that are unicorns, too. Sure, being able to get my groceries delivered by Instacart (valued at $2 billion) is convenient, but clearly not life-altering. And maybe not even sustainable as a stand-alone business concept. The barriers to entry for delivery companies seem pretty low, as evidenced by the fact that there are now hundreds of them in existence.
Then there’s the $9 billion self-professed transformational diagnostic company, Theranos, that made the unicorn list. But not because its innovation was proven or even potentially transformational – which we now think it probably isn’t. Rather Theranos is “innovative” because lots of high-profile people and VCs poured money into it, therefore, it had to be awesome.
That same groupthink, of course, has driven the massive investments – and the inflated valuations that go along with them – of lots of other “innovations,” too. Investments united by one common theme: these game-changing innovations are so incredible that only the cool kids sitting at the cool kids’ table can truly understand them right now.
Like bitcoin and the blockchain and the hundreds of millions of dollars that have been poured into bitcoin wallets, and debit cards, and processors. All, of course with the promise of innovating financial services by creating a global currency and reinventing the economics for how money is moved around the world. And ignoring the cold hard reality that bitcoin now and the blockchain rails that it rides on, may be clever, and may be technologically fascinating, but is hardly the stuff that innovations in financial services is made of.
Then there’s ad tech.
There’s little evidence that the $2.5 billion that’s been plowed into the more than 350 deals over the last two years alone has done much more than fatten the bank accounts of agency execs and VCs. Second only to the “check is in the mail,” the “grab eyeballs now and we’ll monetize them later through advertising” remains one of the greatest lies going in that business. And hardly the stuff that breakthrough innovations are made of. There are, of course, only so many eyeballs to go around. And they are all being courted by now countless media platforms, that only dilute the value of those eyeballs as the available supply of media outlets expands. Build it and they probably won’t come is the more likely mantra.
Sadly, that’s even true of the big and publicly traded ad platforms like Facebook, Twitter and Instagram.
I know that it’s probably very transformative for some to finally know that Facebook’s made it possible for them to be 3.57 degrees of separation from Kevin Bacon. And that Twitter makes it easier for Kim Kardashian to communicate with her 40 million followers in 140 words or less and for Donald Trump to use it to continuously ridicule anyone who crosses his path. And, who can’t now sleep well at night knowing that Instagram has innovated to solve one of the world’s biggest crises – making sure that all of Taylor Swift’s 47 million followers catch every single picture there is of her interacting with her cat.
But is it really “innovation” when all we are doing is selling sponsored posts in a news stream?
It seems hardly the stuff that Professor Gordon – or any of us — would argue true transformation is made of. In fact, the massive increase in intrusive advertising, everywhere, all day, that has been spawned by the Internet is maybe even a big step backward.
But maybe that’s using the wrong measuring stick. And maybe, just like a lot of things, the stuff that is truly innovative today – particularly when applied to payments and commerce – needs a little more time to reach its full potential.
Take Uber.
Uber has transformed the transportation and ride-sharing sector, and its platform is now being leveraged by others to complement their own business objectives – like delivering packages from retailers and helping event venues monetize last-minute inventory. Sure, making it easy to catch a taxi pales in comparison to Edison’s invention of electricity, but Uber’s platform has changed the transportation game in a material way in the seven years it has been around and is helping others solve pressing business problems of their own.
Or SpaceX.
It may sound sort of nuts to be talking about colonizing Mars, but Elon Musk and his SpaceX venture is beavering away at much more than that. Like how to use his technology to do a bunch of other things, including how to send up a constellation of satellites in order to cover the world with cheap Internet access. And via the Hyperloop, how to efficiently and effectively travel between cities.
How about the card networks and the payments ecosystem that envelops it?
When Visa and MasterCard created the rails for a global network for physical commerce to happen and the ecosystem that now surrounds it, that was transformative – for businesses and people and the global economy.
There’s PayPal.
When PayPal made it possible for buyers and sellers to exchange value online 17 years ago, that was transformative, too. It made it possible for commerce to happen, securely, and in a totally different way that it had happened the decades before its founding.
How about Western Union?
When Western Union made it possible for money to be sent from one person in one country to Mom and Dad back home, that was transformational for Mom and Dad and the villages and countries in which they lived, as well.
There’s Amazon and Alexa.
When Amazon’s Alexa makes it possible for people to talk to a device and enable commerce – possibly people who are visually impaired or incapable of interacting with a mobile device or a keyboard – that’s transformative for that person and for the businesses that want to serve them but have no other way to reach them.
And feature phones and M-Pesa.
When people in Kenya have the ability to use standard, run-of-the-mill feature phones to send and receive money to their relatives in the villages instead of putting bags of cash on busses with disreputable bus drivers, that’s transformational.
Even Square.
When Square made it possible for small merchants to accept cards when it was impossible for them to do so before, that was transformational for the person who got to expand their customer set, but also the ecosystem of payments, who saw an opportunity to serve a new merchant in a totally different way.
And Google.
When Google pours billions into its “big bets” in the hopes of using data and technology to deliver Internet access to people in the parts of the world that don’t have infrastructure of any kind available to them, or find cures for the diseases that do kill people today, that’s transformational. And judging from the reaction of Wall Street two weeks ago, so do investors.
Now, of course, none of these things can hold a candle to the “five big ones” that Gordon describes as once-in-forever innovations.
And I guess if your only measuring stick is whether it’s possible now to walk the streets of NY without stepping in or over foot-high piles of horse manure or living and working in dwellings with indoor plumbing and not having to think about dying of TB, then it’s hard to argue against Professor Gordon’s theory that the best days are behind us.
But perhaps we need a new measuring stick for what’s truly transformational – and capable of moving the needle.
And a framework for knowing when to measure things.
Gordon says that we’ll never ever again see the same kind of transformative economic impact that his five innovations drove over that 100-year period. That it’s all downhill from here and that the best we can hope for is a long slog of incremental improvements that won’t have the kind of impact that our parents and grandparents experienced.
I haven’t looked, but I suspect some “experts” probably said the same thing around 1820.
Uber’s been around for 7 years. PayPal’s a teenager, not even old enough to vote. Amazon’s going to turn 21 this year. Who knows what transformation we’ll see over the next several decades from each of them or the innovators waiting in the wings. We have the benefit of 20/20 hindsight now in looking at the massive transformation that the 100 years between 1870 and 1970 delivered. Future generations might say the same thing when they write about the hundred years between 1970 and 2070. Check back on PYMNTS then – we’ll, of course, be all over it. <smile>
But I also wonder whether Gordon’s view of the world is based on him sitting in his office in tony Evanston, Illinois.
Maybe none of this Internet-stuff has really changed his life or the folks he hangs out with. But billions of people around the world stand to benefit enormously from the massive spread of mobile phones and mobile broadband.
I mentioned Kenya above.
Between 2007 and now the country has gone from a place where hardly anyone had access to basic financial services to one where almost everyone does — all because of the spread of mobile feature phones. And where M-Pesa as a platform is expanding to include lots of other necessary services like microlending. Those sorts of revolutionary changes are happening at different paces almost everywhere in the lesser developed countries. Facebook and Google and SpaceX and others are trying to accelerate the penetration of Internet for these billions of people to open up even more of the world – and the world’s opportunities for them.
Professor Gordon might want to dwell on the fact that long after the development of all his “big five” in the U.S. and Western Europe, still a large fraction of the world doesn’t have much of the benefit from them. Indoor plumbing is still a luxury, children still drink dirty water, and people still die of cholera. That’s changing and it’s largely due to the mobile and Internet revolution. And as it does, that in turn, on a global basis, will unleash massive productivity growth as more of the world’s labor force becomes educated, can join the middle class, and participate in global markets.
I don’t know about you, but I’m pretty upbeat about the next 100 years.
Now if someone could just develop that pill for eternal youth. Maybe that’s Theranos’ next move.
If so, I’ll put my money there. Right after I do my diligence, of course.
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