The Comeback (6 page)

First, they were developed by American ingenuity. Americans are the world’s innovators. Our supremacy as innovators is at risk, and we must recognize why we are innovators and focus on preserving the conditions that foster innovation. This book is about what it takes to keep America the world’s leader in innovation.

Second, innovation challenges the status quo. Old businesses and jobs don’t like being threatened. They fight back. If they are smart, they also innovate. The cable industry innovated when satellite came along. They succeeded and survived because they expanded cable to embrace another innovation—the Internet—and quickly became the broadband provider to most of America. By adopting
a new innovation, cable ensured its survival in the satellite age—at least until
wireless
broadband becomes a viable alternative. And so the steamrollers roll on.

Now compare cable’s response to the broadcasting industry. Rather than adapting, the broadcasters often meet new competitive threats by lobbying government for more protection. For example, broadcasters have been urging Congress to pass a law mandating that all cell phones come with radio tuners. This absurdity would penalize the innovation of the cell phone with the antiquity of the FM radio and antennae.

Third, innovation creates jobs, even as it destroys others. Think of the news media, particularly the newspaper industry. The advent of the Internet has radically upended the newspaper business model. From the loss of subscriptions to classifieds, newspaper simply haven’t figured out how to make a buck from selling news anymore. Entire newspapers have had to shut down or end their “dead tree” service.

Most major newspapers have experimented with different pricing models—only to see profits continue to fall. Some, like
The Wall Street Journal
, have prospered through sheer journalistic excellence. Sadly, the newspaper industry, as we knew it, is gone. But don’t confuse my sadness for any hesitation that innovation and its twin, change, are healthy for the overall economy. Few would contend that the destruction of the newspaper industry cancels out the wealth-creating and job-producing effects of the Internet. It’s not even close. The industry is merely a casualty of innovation, at least for now. Who knows what some pioneering, innovative mind will come up with to save newspapers and reverse their decade-long decline? Believe me, many are trying, and someone will succeed.

These past thirty years, I have been at the center of some of the most fundamental changes in the technologies that consumers use and enjoy. I have participated in various ways in the development
and launch of dozens of new technologies and products. Some, like the VCR, are museum relics. Others never even made it that far. But through it all, I have fought those seeking to maintain the status quo and protect their sliver of the market. On the other hand, I have also seen numerous examples of industries embracing change and adapting on their own.

It has been a joy and privilege to be at the pinnacle of an industry that has dramatically increased the world’s pace of innovation. American innovators have opened billions of people to a richness of experience and knowledge that wasn’t imaginable to the world’s wealthiest a generation ago. Along the way, we created millions of jobs.

Innovation is our most important and uniquely American asset. Innovation
is
America. We didn’t invent innovation—but it is our brand. It is what we do best.

But are we protecting our brand? In the next decade, will the United States remain an economic leader, or will it be forced to take a backseat to rising global powers from other corners of the world? It is the general thesis of this book that we are in serious danger of losing the very thing Americans do better than anyone else—and have for two hundred years.

At least, that’s what I think.

In 2010, the Consumer Electronics Association commissioned a poll from Zogby International of almost 4,000 American adults. Our chief concern was discovering just what Americans think about innovation. Is it on their minds? Do they care? Are they worried?

What we found confirms that most Americans believe we are at a crossroads when it comes to innovation. While we have a strong
innovation economy today, Americans are uncertain if we will be able to maintain our competitive edge—especially in the face of untested policy decisions and the rising national debt. Consider some key findings:

Innovation is the key to future U.S. economic success.
Ninety-six percent of Americans said that innovation was important to the U.S. being a world economic leader in the future. Young Americans, more than any other age group, felt the most strongly about the role innovation should play, with 87 percent of eighteen- to twenty-four-year-olds saying that it was “very important.”

Innovation provides the key to U.S. competitiveness.
A plurality, 44 percent, of Americans said that “remaining the most innovative country in the world” is the most important thing the United States can do to ensure its future success as a world leader. Twenty-two percent said it would be “remaining the largest economy in the world,” while 15 percent said military power was most important.

Innovation will impact future careers.
Sixty-eight percent of Americans believe that innovation is important to the future success of their place of employment, with 50 percent saying that innovation was important for their job remaining in the United States.

Young Americans look to the tech sector for future jobs.
When asked which sector of the economy has the most potential for future job creation, nearly 50 percent of those aged eighteen to twenty-four said technology would lead the way over other sectors.

The next Bill Gates is most likely to come from India or China.
When asked where the “next Bill Gates will come from,” 40 percent of Americans predicted either India or China.

So we know where most Americans stand on innovation. But for the United States to lead the global economy, we need to pursue national policies that encourage innovation, creativity, and new ideas. For the United States to rise out of its current economic doldrums, we need to invest in technological innovation and create an environment where entrepreneurs can challenge, improve, and strengthen our society.

This book presents a plan to do just that. Spurring economic growth and maintaining a competitive edge require more than just tax cuts or onetime incentives. It is also not just about jobs. It must become our goal as a nation to ensure that we have created the necessary conditions to maintain our innovative dominance in the world, which is the only realistic chance we have of keeping the United States the strongest economic power in the world.

In short, we need to ensure that not just the next Bill Gates but the fifty who come after him or her will innovate in America. English doesn’t have to be their first language, but let’s hope the United States of America is on their passports.

This chapter began with my experience in the VCR wars and how that experience has shaped my views on the importance of innovation to our continued economic success. But the VCR wars—and subsequent battles I’ve fought since then—have also helped me see the process of innovation; namely, how a product goes from being an idea to being in your home. It’s a long process, to be sure, full of obstacles and pitfalls and headaches and late, late nights.

I don’t pretend to know the secrets of innovation itself. You’ll have to ask a Steve Jobs about that. But I do know what it takes to
ensure that what a young innovator imagines becomes a reality— and how that reality creates wealth and jobs for millions of others.

What must we do to maintain and expand our innovation environment? What should we do as individuals, parents, schools, and legislators to maintain America’s top position in the world? The rest of this book will provide answers.

If we want to guarantee our children the chance to live the American Dream, then we have to protect what is best about our nation: We have to save American innovation. Enough with the generalities, on to the specifics.

“[I]f it should ever turn out that the basic logics of a machine designed for the numerical solution of differential equations coincide with the logics of a machine intended to make bills for a department store, I would regard this as the most amazing coincidence that I have ever encountered.”

—COMPUTER PIONEER HOWARD AIKEN, in congressional testimony in 1956

A
S RECOUNTED BY
Nathan Rosenburg, a professor of economics at Standford University, in a 2004 paper for the OECD, this is precisely what happened.
¹²
Those “machines designed for the numerical solution of differential equations” (i.e., computers) coincided quite nicely with what a teller machine did at a department store—not to mention innumerable other machines.

But it wasn’t a coincidence. Rosenburg’s point is not to ridicule Aiken, who was in fact a pioneer in computers, but to show that sometimes even innovators themselves don’t appreciate the real-world (i.e., economic) value of the very thing they innovated.

Again, this isn’t the fault of the innovators, whose minds aren’t necessarily on getting rich. As Rosenburg writes, “The impact of a technological innovation will generally depend not only on its inventors, but also on the creativity of the eventual users of the new technology.”

Sometimes the process is instantaneous, as with the Internet, whose economic appreciation occurred lightening-quick, relatively speaking. It took years for innovators and scientists to find an application for the laser.

Even economists have only in the last fifty or so years appreciated the full importance innovation has on the economic growth of a nation. Rosenburg traces this understanding back to the 1950s, when his colleague Professor Moses Abramovitz decided to measure the growth of output in the U.S. economy between 1870 and 1950.

He then made what were thought to be reasonable assumptions about how much a growth in a unit of labour and how much a growth in a unit of capital should add to the output of the economy. It turned out that the measured growth of inputs (i.e., in capital and labor) between 1870 and 1950 could only account for about 15 % of the actual growth in the output of the economy. In a statistical sense, then, there was an unexplained residual of no less than 85%.
¹³

In other words, what Abramovitz’s models couldn’t account for was the increase in output given the same number of inputs. Ignorance of the importance of innovation was also partly due to the generally inadequate data economists had to work with prior to the modern age. But Abramovitz’s “residual” had intrigued other economists.

In 1957, American economist Robert Solow defined a breakthrough analytical model of the U.S. economy that attributed over 80 percent of the growth in economic output per worker to “technical progress.” Nevertheless, it took thirty more years before Solow was awarded the Nobel Prize in economics for his work.

Writes Rosenburg: “It was precisely the size of this residual that persuaded most economists that technological innovation must have been a major force in the growth of output in highly industrialised economies.”

This is the primary reason why the U.S. must remain the most innovative nation on earth: because innovation is the fuel that powers economic growth. Most important, only innovation produces the type of growth that increases our national standard of living, officially known as growth in real gross domestic product (GDP) per capita. Unfortunately, this fundamental economic truth is not well understood by many of our citizens, including our politicians.

In large part, this is due to widespread ignorance of basic economics that has persisted since our nation’s founding in 1776. Indeed, in that year, Adam Smith noted that “many improvements [in nations’ wealth] have been made by the ingenuity of the makers of machines.” Smith made this observation in his pioneering 1776 treatise known familiarly by its short title,
The Wealth of Nations
, one of the foundation texts of modern economics and well known to many of our founding fathers.

However, even though economic thinkers had no clear concept of innovation until recently, fortunately our innovators didn’t notice. Eli Whitney’s invention of the cotton gin in Georgia in 1793 fueled early creation of a massive national cotton and apparel industry. The building of a transcontinental railroad, completed in 1869, connected our vast continent and fostered growth in commerce among the states. Thomas Edison’s invention of the incandescent light bulb and his efforts to build the electrical industry created the essential electric platform for industry development to the present
day. The introduction of television in the early 1950s revolutionized entertainment, family life, and cultural habits, first here and then in most of the civilized world. In 1959, the first integrated circuit patents were filed in the United States, setting off a technology explosion that continues to this day.

So Americans were innovating from the very earliest days of our republic. But before examining the reasons the U.S. populace has been so creative, we should better understand what “innovation” actually means, in a strict economic sense (as opposed to the more general definition I used in the previous chapter).

One business dictionary defines it as the “process by which an idea or invention is translated into a good or service for which people will pay. To be called an innovation, an idea must be replicable at an
economic
cost and must satisfy a specific need.” Thus, essential to the concept of innovation is that it must create incremental economic value. As the joke goes, a so-called innovation that does not create incremental value is generally called a failure.

The popular understanding of innovation focuses on new technologies such as those offered by major corporations like Intel, Microsoft, Apple, and Google, but innovation is much, much broader than that. Consider for example such relatively new firms as Starbucks, eBay, Staples, and PetSmart. In each case, the innovation was in the company business model and in how the company operated to create and serve its customers.