In the last two articles, I pointed out how innovation drives progress. One form of progress is economic growth. Now researchers have quantified the relationship between innovation and economics.
Researchers from Northwestern University examined over nine million patents filed with the US Patent Office since 1836 to determine how much innovation drives productivity. Not all patents have the same impact, however; so they had to rate how innovative each one was. They did so by examining whether the patent introduced any new terms, and then by how often those terms were repeated in other patents. So the first patent that mentioned electricity was deemed highly innovative, whereas patents without any new terms were considered less so. Using this approach, they found that innovative patents were generally followed by periods of high productivity growth. Productivity is the value a company creates per dollar of investment or labor hour. Substantial productivity gains were seen during the Second Industrial Revolution of the late-19th century (railroads, electricity, the internal combustion engine), in the 1930s (plastics, electrical appliances), and in the 1990s (computers, communications, and genetics).
This research also echoes work performed by Robert Solow, the Nobel Prize winning economist, who found that 80% of economic growth comes from factors other than population growth or capital investment. He found that innovation was the primary driver of economic growth in America during the first half of the 20th century. Innovation and productivity enabled American household incomes to rise for more than a century, despite a shorter workweek.
Innovation has driven wealth creation not only in modern America but also throughout history. (Ancient Sumer became fabulously wealthy after inventing bronze smelting.) So societies that want to increase wealth and make progress need to keep-on innovating.
Reference:
“How Much Does Innovation Drive Economic Growth?” KelloggInsight, 4 March 2019 retrieved from https://insight.kellogg.northwestern.edu/article/measuring-innovation-patents-productivity
Peter Dizikes, “The Productive Career of Robert Solow,” MIT Technology Review, January/February 2020, retrieved from https://www.technologyreview.com/s/614860/the-productive-career-of-robert-solow/
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