Innovation Drives Our Economy

The Business Roundtable recently proposed that the United States is the world’s innovation leader because of a commitment to basic research, a world-class workforce and a climate that rewards innovation.

This sense of pride has been eclipsed by a feeling of economic pessimism manifesting itself in a perceived lack of innovation from our private sector, and especially by our entrepreneurs.

Let’s look back to one of America’s greatest entrepreneurs: Henry Ford. He revolutionized automobile manufacturing and helped turn Detroit into the envy of the world. At one time, it was our 3rd largest city and one of the most prosperous in the world.

He gave his workers unbelievably high wages, a shorter workday, a shorter workweek, vacations, healthcare, daycare, education and endless upward mobility opportunities.

It is all gone today. A perfect storm between weak management, a corrupt municipal government and unions.

And while they were busy fighting over money, Detroit lost its spirit of innovation.

Detroit is now bankrupt. Its population once 2 million strong is now 700,000 and shrinking. It has the highest unemployment rate of any U.S. city, and large portions of the city remain vacant.

It is so bad that the last vestige of Detroit’s prosperity — its world-class art collection — is being sold off as a short-term fix to pay union pensions. How sad that this proud city is turning its back on the successful Detroit entrepreneurs that donated these works to a city that they believed was ushering in a new renaissance.

It’s hard not to mourn Detroit and the plight of other large cities being overwhelmed by ill-advised pension programs. But America should be able to recapture its dormant embrace of innovation and genius.

For example, measured as patents per capita, the United States takes first place by a large margin. The late Steve Jobs at Apple held 317 patents himself.

The United States has won more Nobel prizes for physics, chemistry, physiology or medicine and economics since World War II than has any other country, by a wide margin. At least one American has won a prize each year since 1935.

While we continue to win Nobel prizes, our innovation prowess has become shaky. We need our private and academic sectors to continue research and development spending. But how can they if our confidence to invest continues to erode?

It may surprise many that during the Great Depression, while 5,189 banks failed from Jan. 1, 1929, through Feb. 28, 1933, this level of bank distress saw a rise in aggregate productivity, and, in fact, statistics show that the 1930s was the most innovative decade of the 20th century

In 1934, J.F. Cantrell created the laundromat. In 1929, U.S. Army Lieutenant Colonel Jacob Schick invented the electric shaver. In 1933, Paul and Joseph Galvin invented the first car radio. In 1930, Michael Cullen opened the first supermarket.

What’s the message? We need to believe in America again and stop fearing the future. Our heritage of innovation is not dead. It just needs an economic environment that creates the willingness for small businesses to take the risk to innovate and re-enter the marketplace. If even the Great Depression spawned innovation, then we should be able to embrace innovation in every sector of our nation.

We don’t want to emulate the Great Depression, and we aren’t anywhere near that, but if we were able to innovate ourselves out of the 1930s, we should be able to innovate ourselves out of our current economic mess.

What is missing is leadership. The CATO Institute has proposed that the secret to the quick recovery of the Great Depression was “that the government generally stood aside and let the market recover by itself — wages and prices adjusted, resources shifted to new areas of growth, profits recovered, business optimism returned and investment rose.”

Our past and future innovators don’t need anyone looking over their shoulder — least of all the government. They need to know that they will have the resources to create the kinds of businesses that generate jobs and rebuild the economy.

As Henry Ford once wrote: “If everyone is moving forward together, then success takes care of itself.

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