Does consumerism drive innovation?

Current events, Personal finance

I’m traveling today so instead of writing something long here, I’ll turn your attention to an interesting contrarian paper that claims the US is in great position to continue to lead innovation thanks to our insatiable appetite for buying new gadgets. The academic paper, presented in late July, was mentioned in last week’s Economist under the title , but you can read the full original text at the author’s website as well.

While the paper might be light on hard data, I always like giving a chance to ideas that go against prevailing beliefs (in this case, that the US is dangerously lagging in math and science and up to our eyeballs in debt, and nothing good can come of either situation). Here’s an extended quote from the article:

[The] sort of upstream innovation (the big ideas of those scientists and engineers) most celebrated by those who fear its movement to China and India is the hardest to keep locked up in the domestic market [because innovation is not constrained by national borders].

The least internationally mobile innovation, on the other hand, is the downstream sort, where big ideas are made suitable for a local market. Mr Bhidé argues that this downstream innovation…is the most valuable kind and what America is best at. Moreover, perhaps the most important fact overlooked by the techno-nationalists…is that most of the value of innovations accrues to their users not their creators — and stays in the country where innovation is consumed. So if China and India do more invention, so much the better for American consumers. The most important part of innovation may be the willingness of consumers, whether individuals or firms, to try new products and services.

The article doesn’t mention if Bhidé addresses how we’ll pay other countries for driving all this high-tech innovation our way, but I’ll share my thoughts on this later once I’ve read his paper and given him a chance to explain.


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