Archive for external fatigue
The Summer 2010 issue of American Educator (a publication of the American Federation of Teachers) ably illustrates one of the lessons we teach in Conquering Innovation Fatigue: metrics to drive performance can have unintended consequences that may actually hurt rather than help. Indeed, unintended consequences are a major theme of our book, as we explore the problems arising from metrics, corporate and government policies, corporate innovation initiatives, laws, taxation policies, and other factors, all of which can contribute to innovation fatigue.
In terms of education and the danger of improper metrics, Linda Perlstein’s article, “Unintended Consequences; High Stakes Can Result in Low Standards,” examines a highly celebrated school in Annapolis, Maryland that received media attention and praise for seemingly miraculous success in education. The new principal arrived in 2000 to find Tyler Heights Elementary School in a dismal state with only 17% of its students getting satisfactory scores on the state test. She began redirecting efforts in the school to address this problem. Eventually her laser-focus efforts paid off, delivering the stunning success of 90% of third-graders performing well on the Maryland State Assessment, when only 35% of third-graders did so two years before. Several newspapers recognized the amazing turn-around and people at the school celebrated the success. But was it real success?
To achieve good performance on the Maryland State Assessment, education for the children was largely focused on how to do well on the test. Students learned how to write BCR’s (“Brief Constructed Response”) to deal with expected questions about poems and plays, and practiced writing these short answers for many hours, without actually studying poems or plays. “What gets tested is what gets taught,” the principal told the teachers, even if that meant leaving behind the material that was supposed to be taught according to state standards. Bins of equipment for studying science were largely unused.
Tyler Heights’ third-graders got only the most cursory introduction to economics and Native Americans, and much of the curriculum was skipped altogether. The students were geographically ignorant. . . . The third-graders had heard Africa mentioned a lot but were not sure if it was a city, country, or state. (They never suggested “continent.”) At the end of the year, the children in Johnson’s class were asked to name all the states they could. Cyrus knew the most: three. He couldn’t name any countries, though, and when asked about cities, he thrust his finger in the air triumphantly. “Howard County!”
The state standards required a broad curriculum, but the metrics for assessing that were based on one particular test and all the incentives were for helping students pass that test. In spite of the praise for the miracle at Tyler Heights, had the children really been helped?
Campbell’s Law
The problem with unintended consequences from metrics such as tests is hardly unique to Tyler Heights. Daniel Koretz, also writing in the same issue of American Educator (see page 3 of the PDF file on unintended consequences), explains that in education and other fields, score inflation is a common and well known but widely overlooked problem. In the social sciences, a phenomenon that leads to score inflation is known as Campbell’s Law. While widely applied to education, it was developed while looking at business. Donald Campbell, a prominent social scientist, examined the role of corporate incentives on the performance of employees. His research led to this general formulation: “The more any quantitative social indicator is used for social decision making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor.” (Donald T. Campbell, “Assessing the Impact of Planned Social Change,” in Social Research and Public Policies: The Dartmouth/OECD Conference, ed. Gene M. Lyons, Hanover, NH: Public Affairs Center, Dartmouth College, 1975, p. 35. See also Can New York Clean Up the Testing Mess? by Sol Stern.)
Campbell’s Law is at work when schools game tests to get better scores, at the expense of education. It is at work when cardiologists choose not to operate on patients who might need surgery rather than risk hurting their own published statistics on mortality rates among their patients (Koretz refers to a 2005 story from the New York Times reporting the shocking results of a survey of cardiologists). It is at work when a company tries to boost innovation with metrics or incentives that result in game playing, while leaving the real problems from culture, systems, and vision unaddressed.
In our experience, metrics and incentives can play a valuable role in driving innovation, but only when the corporation has a culture that genuinely encourages innovation, when there is a shared vision of innovation and success, and when sound systems are in place to advance innovation. Without those, you can not only waste a lot of resources in attempting to drive innovation with metrics and incentives, you can actually make a weak culture become pathological and lethal, sometimes exacerbating fatigue factors like the Not Invented Here syndrome, theft of credit for innovation, and breaking the will to share. Adding incentives linked to metrics without the right culture and systems can be sort of like throwing raw meat into a school of sharks or piranhas. You can generate a lot of activity, a lot of exciting thrashing and splashing, but in the end there will just be a lot of blood in the water and fewer thinkers and producers in your school.
As always, innovation success requires that you carefully monitor for harmful unintended consequences from the policies, programs, and incentives you have in place. Innovation metrics, incentives of all kinds, and employee performance evaluation systems and other tools associated with metrics can backfire. Unless you are tuned to the voice of the innovator and understand the impact of unintended consequences, you can be like the company we treat in Chapter 8 of our book that felt like it was a rock star of innovation while they were actually squelching it. Don’t let the unintended consequences of well-intended policies and metrics crush your innovation success.
The BP Oil Disaster in the Gulf: Innovation Fatigue in Full Force
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Spill Cam View
The problem in large organizations, and the US federal government is pretty much the world’s largest, is that numerous entities have their own turf and their own advancement in mind, and without special efforts being taken will naturally work in ways that cause conflict and delay. Leaders must carefully work to align these interests and incentives toward organizational objectives, but this can be almost impossible when an organization gets out of control. Adding a new committee or bureaucracy in addition to everything else will rarely be the most effective path forward. Meanwhile, those who may have the answer and want to bring their expertise to the table find themselves discouraged, worn down, ignored, and ultimately punished for their passion to innovate and help. Welcome to organizational innovation fatigue, and welcome to the Gulf Coast disaster.
Several voices have discussed the need for innovation in dealing with the disastrous oil leak in the Gulf Coast. There are so many intriguing opportunities for technology–oil absorbent materials, new chemistries for dispersing or attacking the oil, controlled burnoffs, skimming and oil collection systems, barrier technologies to keep the oil away, materials that coagulate oil, and a host of proposed technical solutions for addressing the root cause and stopping the leak. Many of the proposals should be considered and tried. This is not the time for bureaucracy. This is not the time for the government to be shutting down efforts with its bureaucracy. If the Coast Guard is worried about inadequate fire extinguishers, round up a batch and take them over to the relief effort to help, not hinder the State of Louisiana as it tries to protect itself. But what the Coast Guard did in this case is akin to what happens thousands of times each day in companies and government around the world, contributing to the innovation fatigue that stymies much needed efforts at innovation and progress.
The V16 Separator of Ocean Therapy Solutions
Kudos to Kevin and his team! He certainly has an advantage with his name recognition and extensive networks–without that, he may have been viewed as just another voice in the wind claiming to have something. There are others with technologies and potential solutions. May they also find their way to make a difference. May all the innovation fatigue factors remain far from Kevin Costner and all others seeking to bring something new to help us fix the Gulf Coast disaster.
Job Growth Through Sound Intellectual Property Rights and a More Efficient Patent System
Posted by: | CommentsGene Quinn’s article, “ Proposal: Unlocking Job Growth with Patent Acceleration” over at IP Watchdog, reminds us of the powerful link between IP rights and economic growth. It’s an issue we take up in Conquering Innovation Fatigue when we discuss Hernando de Soto’s findings (countries with respect for property rights have much better economic growth than those that don’t respect property rights). It’s an issue that Congress needs to take up if they really want to stimulate economic recovery and growth. As Thomas Jefferson said, innovation needs encouragement, and a strong, efficient patent system is one of the best encouragements.
Gene offers some specific suggestions that could help stimulate innovation, entrepreneurship, and job growth through a more efficient patent system. Change is needed. The years of waiting to get a patent and the other inefficiencies of the US system in recent years need addressing immediately. Strengthening our system and making it more manageable for start-ups and lone inventors would be an important step forward in mitigating innovation fatigue.
The lifeblood of innovation is capital. Investment of capital is the primary difference between great ideas and great teams that go nowhere and those that change the world. From the airplane to the iPod, from wonder drugs to wonder software, innovation requires invested capital to bring concepts to commercial reality. Angel investors play a crucial role in the ecosystem of invention, but they may soon be shut down by Congress in their efforts to “protect” Americans from financial risk.
Risk is a dirty word for those who don’t understand business. Wouldn’t it be nice if government could just protect us from the risk of failure and ensure that we are always safe? But this kind of thinking means stagnation, captivity, and the death of innovation, for the opportunity to succeed inevitably is shadowed by the risk of failure. If success is guaranteed, why put forth the effort to create and innovate? If a venture is protected from failure, we are also protected from the kind of success that inspires innovators and their backers to undergo risk.
Tom Still of the Wisconsin Technology Council has boldly and bravely weighed in on Congressional plans to protect us from risk, plans that would give them even more control over the things they seem to understand least while making it more difficult than ever for innovators to succeed. Tom Still challenges the financial reform legislation proposed by Senator Dodd and points out that his efforts to protect us will crush angel investing, which in turn will stop many innovators from having a shot at success. Ultimately, Dodd seeks to “protect” people from investing their own money the way they want to, and the unintended consequence will be a painful blow to innovation. Tom Still’s article is “Angels on the head of a sharp pin: Financial reform bill poses threat,” published April 21, 2010 at Inside Wisconsin by the Wisconsin Technology Council. Here is an excerpt:
The financial sector reform bill being pushed by U.S. Sen. Christopher Dodd, D-Conn., takes direct aim at the wings of angel investors for reasons that defy explanation. If passed, this “Washington-knows-best” attempt to regulate some of the nation’s most productive risk-takers could destroy the entrepreneurial economy.
Angel investors are often entrepreneurs who hit a home run in their own start-up businesses and who want to reinvest in other young companies. Angel investors are generally strong business executives with an eye for innovation, and they’re not afraid to take a calculated gamble on companies that are too new to get financing from venture capitalists or too risky for banks.
They usually invest close to home and most often as individuals or within a family, but increasingly angels invest as members of angel networks or angel funds that offer some safety in numbers and more partners to screen potential deals.
In Wisconsin, angel investors have been in the vanguard of fostering the state’s early stage economy. Five years ago, there were only a handful of angel networks in Wisconsin. Today, there are nearly two-dozen networks and funds – and they’re not shy about rolling the dice on Wisconsin companies in sectors such as biotechnology, information technology, medical device, advanced manufacturing and “cleantech.” …
But if Dodd has his way, these individualistic investors will be regulated out of existence.
The Restoring American Financial Stability Act, of which Dodd is the chief sponsor, would tighten regulation of the nation’s financial system in ways large and small. It contains three provisions that would effectively kill angel investing in the United States:
- It would require start-up companies to register with the federal Securities and Exchange Commission, and wait at least 120 days for SEC review, before trying to raise money. Currently, fledgling companies can raise money from accredited investors without regulatory approval. Four months is an eternity in the life of a start-up company, and most would die in the vine before they ever get a chance to grow.
- It would redefine who is an angel. Accredited investors, who are people deemed wealthy enough to invest in start-ups, would be limited to those individuals with more than $2.5 million in assets (up from $1 million today) or a personal income of $450,000 per year (up from $250,000). This will dramatically decrease the supply of angels, which the University of New Hampshire’s Center for Venture Research estimated at 259,000 in 2009. Those angels invested $17.6 billion in about 57,000 deals.
- It would subject investors and start-up companies to state-by-state rules versus a single set of SEC standards. Along with the new SEC filing requirement, that would add red tape, time and cost to the investment process.
In its frenzy to clamp down on Wall Street, Congress is threatening an investment community that fosters innovation, mentors young companies and generally cares about how the economy is faring where they live. Angels have helped to create some of today’s biggest companies – Apple, Amazon, Google and many more – usually without putting anyone’s money at risk other than their own.
Angel investing isn’t perfect; the average return on investment proves that. But it’s precisely the kind of bottom-up, largely self-regulated economic activity the nation needs as it struggles to create new companies and jobs. Only those federal lawmakers intent on a top-down, command-and-control economy would think otherwise.
We have enough innovation fatigue factors on our backs already. Clamping down on one of the major arteries that provides capital to start-ups and entrepreneurs is not going to enhance circulation in the atrophying limbs of this economy. We need to back down and let the private sector thrive on its own, taking on both risk and failure, and when we fail, let us fail instead of taking from those who succeed to prop up failures deemed “too big” to fail. The free market offers powerful solutions to some of the problems we face and powerful incentives for innovation, if we can stay out of the way.
Kudos to Tom Still for his insights into the risks Dodd’s bill poses.
More on the Experiment in Brasilia
Posted by: | CommentsI recently shared a presentation about the economic innovation in Brasilia, where bold actions to reduce the size of government and strengthen the climate for private sector growth have resulted in record unemployment and social progress. I have some additional information I’d like to share on some of the foundational work that has been done since 2006 to create the ecosystem for economic and innovation success in the future.
Below is a 14-minute Pixetell presentation prepared for Innovationedge.com which further describes some of the good news coming from Brasilia. (Click on the full-screen icon for better viewing.)
If you are interested in taking advantage of the economic opportunities in Brasilia or in better understanding the future of innovation there, let me know. And if you have perspectives that we might be able to share in our next book on some international aspects of conquering innovation fatigue, please contact me. Contact information us at the the end of the Pixetell video, or email me at jlindsay at innovationedge dot com.
Brasília: Lessons from a Brilliant Economic Experiment
Posted by: | CommentsBelow is a Pixetell recording to share some new information about the economic revolution in Brasília, Brazil, wherein a government in tune with the “voice of the innovator” has worked to get out of the way of business success and to do provide the infrastructure and educational opportunities needed for long-term success. Amazingly, the local government there has had the courage to do more than talk about being efficient and cost-effective, but has actually gone through the painful process of “debureaucratization,” reducing bureaucratic jobs by 20% and the number of government agencies at the state level by 59%. The results of this experiment over the past four years have been dramatic and are paving the way for further innovation and increased quality of life.
Special thanks to Adriano Amaral, Secretary of State for the State Department of Economic Development in Brasília for meeting with me and sharing his insights and experiences. Like many of the leaders in Brasília, Adriano is not a career politician, but an experienced business leader who has led successful startups, stepped in to bring struggling businesses to life, advised large and small companies, and taught some of the best MBA students in the world. The success of the Federal District of Brasília demands further attention, and will be covered in our next book. We continue to look for further experts to interview as we explore the many stories and lessons from this region and from Brazil in general. Let us know if you have experiences and expertise to share! Email me at jlindsay at innovationedge.com, or use the contact page on this blog.
The Pixetell below is set to 640 x 480 pixels). To see the full-sized presentation in higher resolution, click on the full-screen icon in the lower right-hand corner, or to view this in a new window, use this Pixetell link. Pixetell, by the way, is an incredibly easy and extremely innovative tool for sharing information from your computer.
Related resources include the Brazilian Studies Association, AboutBrasilia.com, and CETEB.
One of the most interesting patent attorneys on the blogosphere is the inimitable Gene Quinn of IPWatchdog.com. His top five patent stories of 2009 are especially noteworthy. He doesn’t exactly hold back on his opinions about these stories, and for the most part I have to agree. All of these stories fit in with the theme of innovation fatigue in some way.
Quinn’s Top Story #4, “USPTO Allowance Rate, Backlog and Pendency” is a topic we address in our book and one of grave importance for the economic welfare of this nation. We bemoan the sharp drop in allowance rates and the increased time it now takes to get a patent allowed. We worry that this adds further discouragement to innovators and harms the economy. Quinn makes even bolder statements:
I think the allowance rate, backlog and pendency issues deserve their own place in the top 10 because of the toll that it has had on the US economy, which is inexcusable and darn near treasonous during a recession as bad as anything we have seen since the Great Depression, and perhaps on par with the economic troubles of the late 1970s.
During the first quarter of 2009 the allowance rate for patent applications dipped to 42%. At the end of fiscal year 2009 there were 1,207,794 patent applications pending at the US Patent Office, with 735,961 of those still awaiting first action by a patent examiner, which means that 735,961 patent application had yet to be picked up and even looked at substantively. At the end of FY 2009 the average length to first action by a patent examiner was 25.8 months, and the average total pendency of a patent application was 34.6 months, up from 25.6 and 32.2 respectively for FY 2008. [Quinn then explains that the real pendency may be 50% higher because people often need to file a new application, a Request for Continued Examination, after the first gets a final rejection. This restarts the clock and obscures just how long it takes on average to get a patent issued.]
To put this into some historical perspective, take a look at the chart [see Quinn's original article]. You can see that the backlog started its upswing noticeably in 1998, and just went out of control over the last decade. Under the Bush Administration the USPTO held innovation hostage, prevented small businesses, start-ups and entrepreneurs from getting investor funding and that created a drag on the economy, prevented the creation of new jobs and then when widespread economic disaster hit the Patent Office was unable to play a part in recharging the US economy.
Ouch! But as an inventor and former Corporate Patent Strategist familiar with the pains and burdens of delay, I can’t bring myself to disagree! As I continue working with inventors, both within corporations and lone inventors or small teams in start-ups, I have seen a great deal of discouragement when people learn just how long it takes to obtain a patent, and just how difficult it has become. Bold, original, brilliant concepts that need intellectual property to better secure investment are held up and may die due to the ever growing backlog and increasing delays from the PTO.
If we want to conquer innovation fatigue in the United States, we need to give the U.S. Patent and Trademark Offices the resources it needs to provide rapid examination and swiftly reduce the disastrous backlog in cases.
Are we headed in the right direction now? No, I’m afraid not. When our book went to press early in 2009, I expressed relief that past Congressional siphoning of funds from the PTO had ended. Unfortunately, I spoke too soon. What is essentially a tax on innovation came back in the closing days of 2009, as we learn from the nation’s leading investigative reporter on patent topics, John Schmid of the Milwaukee Journal Sentinel. In his story from Dec. 29, 2009, “ Congress Deals Funding Blow to Patent Office: Budget Strips $100 Million Provision for Backlogged Agency,” he shares the disturbing news that Congress has again acted to take money away from this essential and underfunded office.
The $1.1 trillion spending bill that Congress passed this month bankrolls thousands of pet projects: the World Food Prize in Iowa, a farmers market in Kentucky, and a 12-mile bike path in Michigan, among many others.
And to pay for a fraction of its largesse, Congress added one late change to the budget: It slapped a restrictive spending ceiling on the U.S. Patent and Trademark Office, further cramping an agency that was already incapacitated by more than a decade of congressional raids on its fees.
A Journal Sentinel investigation published in August documented how congressional diversions of the agency’s income from 1992 through 2004 left the Patent Office incapable of keeping pace with the volume and complexity of the applications it receives. The backlog has grown to more than 1.2 million applications, which the agency has said could take at least six years to get under control – assuming it receives the funding to hire and train new examiners.
But a budgetary provision that could have allowed it to spend up to an additional $100 million during the current fiscal year was stripped on Dec. 9, the final day of budget negotiations.
“We are currently operating on a barebones budget that makes it very difficult to attack our application backlog,” said Sharon Barner, the agency’s deputy director.
The last-minute move further frustrated critics who say the Patent Office has become dysfunctional because of mismanagement and underfunding.
Washington’s policy-makers fail to recognize that innovation – which the Patent Office is designed to encourage and protect – has become the key driver of competitiveness and job creation, said Hank Nothhaft, chief executive of chipmaker Tessera Technologies in San Jose, Calif., and a prominent advocate to repair the years of damage at the Patent Office.
“Everyone in Washington is talking about job creation,” often to justify stimulus projects and automaker bailouts, Nothhaft said. “And then they turn around and take money from the agency that can create high-value jobs.”
Read the full story and let your Congressional representatives know how you feel. This tax on innovation is a terrible step in the wrong direction. We need to be adding fuel to this critical engine of economic growth, not siphoning it out of the gas tank.
To conquer innovation fatigue, a healthy and efficient patent system is needed.
The Forest Bioproducts and Paper Industries: The Need to Conquer Innovation Fatigue
Posted by: | CommentsThe North American paper industry suffers from a largely undeserved image problem. Many view it as an antiquated smokestack industry, when it has been a leader in exciting areas in technology and business practice. Fans of biofuels and green energy, for example, should know about the pioneeing efforts from the forest bioproducts industries, including many paper companies. “Green energy” from forest biomass has been the basis for economic success in pulp production for decades. A kraft mill burning black liquor is a stellar example of recovering useful energy from the byproducts of a renewable resource, coupled with smart recycling and regeneration of chemicals.
The industry has also been an important part of advances in practical aspects of RFID technology, in supply chain management, in green labeling and packaging, and in many other area. In nanotechnology, papermakers have actually been dealing with nanoparticles and complex colloids for decades, producing increasingly useful and practical products built with nanotechnology employed at a massive scale. In plant genetics, crop management, and stewardship over bio-resources, the forest products industry have demonstrated world-class capabilities and results. Industry stewardship has led to more trees and forest lands in the United States than we had a century ago. Advances in plant management have led to almost miraculous results such as the ability of carefully managed plantations of eucalyptus trees in Brazil to yield trees that can be harvested after just five years – and perhaps even less in the near future.
But with the proud history of innovation and leadership that I see in the forest products industry, it pains me to see how little recognition it received, and how little sense of that tradition seems to be alive in the industry today. On too many counts, the industry appears to be seized with innovation fatigue.
In the new book from John Wiley and Sons, Conquering Innovation Fatigue by Jeff Lindsay, Cheryl Perkins, and Mukund Karanjikar, we identify sources of innovation fatigue factors in three primary areas: the behavior of individuals including innovators themselves and the people around them (“people fatigue”), organizational-level flaws such as flaws in vision and decision making (“organizational fatigue”), and external factors such as challenges in IP law, burdensome regulations, tax policies, and trade policies. It is easy to point fingers at management and criticize their lack of courage or willingness to invest, but we must recognize that the forest products industry have faced unusually painful burdens due to external factors which have only strengthened systematic incentives to cut back on innovation and focus on cost-cutting.
There is a need for policy makers to consider the “voice of the innovator” and the unintended harmful impact that some laws and policies can have on long-term innovation. Policies are needed that put manufacturing industry on a more equal footing relative to global competitors who are generally free of the numerous burdens North American industry faces. Policies are needed that reduce the many disincentives corporations may face to be innovative and more visionary here on North American soil.
Meanwhile, there are other things that North American industry can do. Innovation, whether in business models, products, or processes, must be viewed not as an expense to avoid, but as a necessity to survive. The key may not be to conduct detailed research related to the commodities now being produced, but to boldly explore adjacencies and new product spaces as MeadWestvaco did. We see some of this in the biofuels area, such as creative approaches to integrated biorefineries using technologies suited for local biomass and other local resources and markets. We see this in many of the packaging innovations created by innovators in paper-related companies. We see this in the example of companies like Kimberly-Clark that transformed themselves from commodity makers to producers of world-class high-value consumer products rich with innovation and intellectual property.
The most exciting innovations of the future will come at the intersection of disciplines. Building the right relationships and networks across companies, innovators, and institutions will be needed to be aware of the possibilities and to seize them. The technologies we are using today and the know-how we have developed in the forest products industries may be the foundation for rich innovations in nanotechnology, health care, electronics, and various emerging fields, if only we have the courage to explore wisely, with talented minds empowered and motivated to find the paths forward, unhindered by the chains of innovation fatigue.
This post is related to a longer article written for Tappi360 magazine, Dec. 2009.
Beware Unintended Innovation Killers from Laws, Regulations, and Corporate Policies
Posted by: | CommentsIn the game of chess, experienced players know that a move that looks tempting can often open up fatal weaknesses that deliver swift defeat later in the game. With experience, discipline, and solid strategic skills, good players can look several moves ahead and be aware of broad patterns and principles that can give one an improved position with options for success in endgames too far away to calculate in advance. Novices look for easy fixes to threats and quick attacks based on looking just a few moves ahead. Many times they are surprised at how their moves to solve a problem or gain an advantage make them easy prey. Their style of playing is fraught with moves that bring unintended consequences later in the game.
One of the great tragedies of human decision making is the pernicious inability to consider far-reaching implications of an action. To avoid harmful unintended consequences of a decision, there are two possible solutions: 1) get assistance from experts providing guidance from many difference perspectives and do the best to consider new areas and issues that were previously overlooked, and 2) follow proven principles and strategies that increase the odds of success in spite of the impossibility of calculating everything. Both of these principles can be and probably should be used.
Innovation, for all the voices hyping it, is one of the least considered factors when policy makers start shaking things up. Whether it’s a new law, a tax policy, a regulation, or corporate policies, decision makers easily overlook innovation–real innovation, not just money spent in the name of innovation–because they tend to overlook the individuals who are the source of innovation. Real innovation begins in the minds of individuals with a vision and must be nurtured to succeed. The voice of innovators, including the voice of entrepreneurs, inventors, university professors post-docs, corporate R&D staff, etc., is rarely heard. The voices of CEOs or other top leaders from big companies may be heard. The voices of direct reports to a CEO may be heard. The voices of celebrities and activists may be heard, but who actually seeks out and listens to the real innovators or prospective innovators in our economy? Who considers what impact a law or policy will have on those individuals and their incentives to innovate or their ability to succeed? They are among the voices that should be carefully considered when making policies to avoid unintended consequences that might crush innovation and economic growth.
There are several general principles that should also be considered by policy makers. Innovation at the personal level, which is one of the themes of Conquering Innovation Fatigue, requires personal liberty. It requires a system in which individuals and companies are motivated to take on the high risks of innovation because there are incentives to succeed. These incentives for many require a form of government in which intellectual property rights are respected as well as property rights in general. When property can be seized capriciously, or when the fruits of one’s innovative labors can be taken on a whim or taxed to death, why bother innovating?
Every law, every policy, every act of government should be constrained by general principles, such as those espoused in the US Constitution, and done with care to avoid harming the economy with unintended consequences that trample on the delicate flower of innovation.
Beware the Unintended Innovation-Killing Consequences of Laws and Policies
Posted by: | CommentsThe road to innovation fatigue is paved with good intentions embodied in laws, regulations, and even corporate policies. Leaders at all levels must be aware of uninteded innovation-killing consequences that may follow from their good intentions. Staying in touch with the “voice of the innovator,” as we advocate in Conquering Innovation Fatigue, is vital in avoiding such pitfals.
The Wall Street Journal from Dec. 4 offers two columns with examples of innovation fatigue factors that can be introduced by well-intended actions. The first article I wish to mention is “Near-Zero Rates are Hurting the Economy,” an opinion column from David Malpass, president of Encima Global, LLC. He argues that the artificially low interest rates created by the Federal Reserve Bank in the name of rescuing the US economy have actually been driving capital overseas and starving small companies–the leading sources of most innovation, economic growth and job creation, as studies from the Kaufmann Foundation and others have shown. Here is an excerpt:
[M]ore than a year after the heart of the panic, the Fed is still promising near-zero interest rates for an extended period and buying over $3 billion per day of expensive mortgage securities as part of a $1.25 trillion purchase plan. Capital is being rationed not on price but on availability and connections. The government gets the most, foreigners second, Wall Street and big companies third, with not much left over.
The irony of the zero-rate policy, coupled with Washington’s preference for a weak dollar, is a glut of American capital in Asia (as corporations and investors shun the weakening U.S. currency) and a shortage at home. For gold and oil, the low-rate policy works, weakening the dollar so commodity prices go up and providing traders with ample funds to buy into the expanding bubble. Those markets are almost daring the Fed to try to break out of its zero-rate box.
But for small businesses and new workers, capital rationing is devastating, spelling business failures and painful layoffs. Thousands of start-ups won’t launch due to credit shortages, in part because the government and corporations took more credit than they needed (because it was so cheap).
Already countries with higher interest rates, Australia for one, are viewed as less risky because they have room to cut rates if there’s another emergency. This wins them capital and jobs that might otherwise be ours.
According to International Monetary Fund data, U.S. GDP has fallen to 24% of world GDP from 32% in 2001. And as U.S. capital escapes the weak dollar and high tax rates, the U.S. share of world equity market capitalization has fallen to 30% from 45%. This leaves the U.S. alone with Japan at the bottom of the monetary heap, with rate expectations so low they repel investment.
When single individuals or organizations make policies that affect millions, it is far too easy for good intentions to translate into new problems, unless the decision maker is essentially omniscience. Failing ominiscience, perhaps market forces should be given a try, allowing the invisible hand mediated by the mechanism of price to determine the right allocation of resources. But even with a reluctance to use market forces to set interest rates and allocate capital, wiser decisions could be made by policy makers if they understood the personal side of innovation and the barriers faced by the innovators seeking to propel our economy forward. Unfortunately, the real innovation engines of the future aren’t likely to be powerful, highly connected people today, but may be a lone entrepreneur or president of a small company today that could grow and create many thousands of jobs, if only given a chance. Giving credit and bailouts to well-connected dinosaurs can be based on good intentions, but it may be a misallocation of resources that only makes things worse for the most important prospective innovators and job creators out there.
A second article in the Dec. 4 Journal is “Sarbanes-Oxley on Trial” (p. A24), an op-ed piece that briefly mentions the economic burdens this 2002 law has imposed, and urges government to modify its implementation to be more accountable. There is much more that could be said, some of which we discuss in our book. Sarbanex-Oxley is especially burdensome on small, innovative companies and has driven many innovators to look outside the United States in launching a start-up. Intended to make businesses safer and more accontable, it has slowed job creation and economic growth, in the eyes of some experts. Unintended consequences. It’s something every policy maker and business leader needs to be worried about. Are you listening to the voice of the innovators who have to live with your decisions? That could be the difference between success and innovation fatigue.