What we don’t know about innovation and productivity*

A few interesting comments on productivity have crossed my path recently. This blog post in The Economist addresses Robert Gordon’s habitual scepticism about technology-driven productivity growth, expressed again in a recent paper (pdf). I agree with the blog’s point about the inadequacy of traditional metrics when it comes to capturing the implementation and experience of innovations, which is what productivity growth consists of.

A few days earlier came Plan I from NESTA and a comment by Mariana Mazzucato about the specific role of public funding and strategic leadership in innovation. The former report usefully captures the wide range of influences that turn innovations into economic growth. The latter focuses on one of those influences, the co-ordination (and funding) role of the state – arguing strongly for the government to back innovation more actively in the UK.

It all sent me back to a great book of essays by Richard Nelson from 1996,

. One of his themes is the need to look at firm-level behaviour and data to analyse innovation and productivity growth. As firms are different, and rivalry between them drives innovation (in an evolutionary framework in his mind), aggregates disguise what’s happening. He also argues that standard marginal analysis is inappropriate outside decisions or outcomes at the margin – one can look at small changes sensibly, but not at big changes of the kind that come from important innovations.

He also adds a cautionary note about concluding either that innovation is solely a private, profit-driven business, or that public intervention is essential. Countries differ in important ways, he argues, and at present we do not understand well enough the innovation system as a whole in any single country, never mind across all of them.

[amazon_image id=”0674001729″ link=”true” target=”_blank” size=”medium” ]The Sources of Economic Growth[/amazon_image]

* The answer is – a lot