Business: Schumpeter: Techno wars
An earlier sunny mood about technology and innovation has given way to pessimism.
The most striking battle in modern business pits the techno-optimists against the techno-pessimists.
The first group argues that the world is in the middle of a technology-driven renaissance.
Tech CEOs compete with each other for superlatives.
Business professors say that our only problem will be what to do with the people when the machines become super-intelligent.
The pessimists retort that this is froth: a few firms may be doing wonderfully but the economy is stuck.
Larry Summers of Harvard University talks about secular stagnation.
Tyler Cowen, of George Mason University, says that the American economy has eaten all the low-hanging fruits of modern history and got sick.
Until recently the prize for the most gloom-laden book on the modern economy has gone to Robert Gordon of Northwestern University.
In “The Rise and Fall of American Growth”, published in January, Mr Gordon argues that the IT revolution is a minor diversion compared with the inventions that accompanied the second industrial one — electricity, motor cars and aeroplanes — which changed lives profoundly.
The current information upheaval, by contrast, is merely altering a narrow range of activities.
Now a new book, “The Innovation Illusion” by Fredrik Erixon and Bjorn Weigel, presents a still more pessimistic vision.
Messrs Erixon and Weigel write that the very engine of capitalist growth, the creative destruction described by Joseph Schumpeter, is kaput.
Aside from a handful of stars such as Google and Amazon, they point out, capitalism is ageing fast.
Europe’s 100 most valuable firms were founded more than 40 years ago.
Even America, which is more entrepreneurial, is succumbing to middle-aged spread.
The proportion of mature firms, or those 11 years old or more, rose from a third of all firms in 1987 to almost half in 2012, and the number of startups fell between 2001 and 2011.
People who extol free markets often blame such stagnation on excessive regulation.
That has certainly played its part.
But the authors argue that stagnation has most to do with the structure of capitalism itself.
Companies are no longer actually owned by adventurous capitalists but by giant institutions such as the Vanguard Group (with more than $3 trillion under management) which constantly buy and sell slivers of ownership for anonymous investors.
These institutions are more interested in predictable returns than in enterprise.
It is not all Mark Zuckerbergs at the top, the authors posit.
The big firms are answering the call for predictability by hiring corporate bureaucrats.
These people shy away from risky investments in new technology.
After rising relentlessly as a share of GDP in 1950-2000, investment in IT began declining in the early 2000s.
Instead of shaking up markets, bureaucratic CEOs focus on squeezing the most out of their sunk costs and fight to defend niches.
They hoard cash, buy back their firms’ shares and reinforce their positions by merging with former rivals.
The gloomsters’ case is true to some extent but it is overstated.