By all appearances, we're in a golden age of innovation. Every month sees new advances in artificial intelligence, gene therapy, robotics and software apps. Research and development as a share of gross domestic product is near an all- time high. There are more scientists and engineers in the U.S. than ever before.
None of this has translated into meaningful advances in Americans' standard of living.
Economies grow by equipping an expanding workforce with more capital such as equipment, software and buildings, then combining capital and labor more creatively. This last element, called "total factor productivity," captures the contribution of innovation. Its growth peaked in the 1950s at 3.4% a year as prior breakthroughs such as electricity, aviation and antibiotics reached their maximum impact. It has steadily slowed since and averaged a pathetic 0.5% for the current decade.
Outside of personal technology, improvements in everyday life have been incremental, not revolutionary. Houses, appliances and cars look much like they did a generation ago. Airplanes fly no faster than in the 1960s. None of the 20 most-prescribed drugs in the U.S. came to market in the past decade.
The innovation slump is a key reason the American standards of living have stagnated since 2000. Indeed, absent a turnaround, that stagnation is likely to continue, deepening the malaise that has left the middle class so dissatisfied.
Economists hotly debate the reasons, but there are several clear forces at play. The hurdles for transforming ideas into commercially successful products have grown. The low-hanging fruit in science, medicine and technology has been harvested and new advances are costlier, more complex and more prone to failure. Innovation comes through trial and error, but society has grown less tolerant of risk.
Regulations have raised the bar for commercializing new ideas while directing a growing share of innovative effort toward goals with benefits, such as cleaner air, that don't translate into gross domestic product. Meanwhile, a trend toward industry concentration may have made it harder for upstart innovators to gain a toehold.
The innovation drought isn't insoluble. Capital is plentiful, and some of the hype is valid: Old-line companies and upstart entrepreneurs alike are making high-risk bets on cars, space travel and drones, and some policy makers are trying to tolerate more risk so that these bets succeed.
More-optimistic economists note it can take years for breakthrough innovations to transform the economy. Some 40 years elapsed after the introduction of the electric lightbulb in 1879 before electricity had a measurable impact on national growth. It took some 20 years after the introduction of the personal computer in the 1970s for information technology to lift productivity.
"There has been a burst of innovations recently, especially in artificial intelligence, that we will see come to fruition in the next five to 15 years," predicts Erik Brynjolfsson , an economist at the Massachusetts Institute of Technology . "You can easily imagine that as these come to maturity and pervade the economy, the effects will be staggering."
Still, apart from information technology, the hurdles to innovation are getting higher, not lower, and nowhere more acutely than in medicine.
In the past century, vaccines, antibiotics and clean water vanquished humanity's biggest killers. Early researchers were aided by reliable theories for how to attack common diseases, which made it easy to figure out which compounds might yield a cure. Most of those diseases now have therapies.
"There is no longer either a commercial or scientific reason to search for any more anti-stomach-ulcer drugs," says Jack Scannell of Oxford University's Center for the Advancement of Sustainable Medical Innovation .
What's left, he says, are diseases such as Alzheimer's for which scientists lack a useful theory of treatment, leaving them with multiple dead ends so far. Mr. Scannell and several co-authors estimate the number of new drugs approved in the U.S. per dollar of research and development has fallen by half every nine years between 1950 and 2010. Approvals have risen since, though 40% are for "orphan" drugs which address diseases that afflict fewer than 200,000 people.
The declining payoff to medical research is starkly illustrated by a new study by Charles Jones of Stanford University and three co-authors. It found that in the decades before 1985, years of life saved through breast cancer treatment rose steadily each year, along with the volume of research. But since 1985, improvements in mortality slowed. They calculate that each new published trial added 16 years of life per 100,000 people in 1985, and that fell to less than one year by 2006. They found the same pattern across agriculture and semiconductors: steadily declining productivity per researcher.
Drugs are symptomatic of the rising value affluent societies place on human life. In 1960, 7% of U.S. R&D was devoted to health care. By 2007, it was 25%, according to another study by Stanford's Mr. Jones. Thus, health research is displacing R&D that could have gone toward more mundane consumer products. Indeed, Mr. Jones predicts the rising value of human life virtually dictates slower growth in regular consumer goods and services -- and they constitute the bulk of measured GDP.
Undoing the damage that past innovations -- the burning of fossil fuels, for example -- have done to the environment and human health is also gobbling up more innovative effort. This directly eats into the consumer's pocketbook. The portion of a car's price that pays to meet federal safety and fuel efficiency mandates has gone from zero in 1967 to 22% now, or $5,500 on a $25,000 car, according to Sean McAlinden , an economist at the Center for Automotive Research , an industry-supported think tank.
These have delivered genuine benefits: Highway fatalities fell from the late 1960s until recently, and the air is cleaner. Mr. McAlinden notes consumers may not have bought those features if given the choice.
A California mandate first introduced in 1990 now aims to make one in seven cars in the state emit zero emissions, which means powered by hydrogen or electricity. So while the purpose of the mandate, less pollution, is broadly shared, it achieves it by forcing car makers to favor certain technologies over others that may be commercially more viable.
Electric cars, for example, cost more and perform worse than equivalent gasoline cars; the batteries subtract space and add weight, and mileage is limited especially in extreme temperatures. Even with significant federal subsidies, sales have been hammered by low gasoline prices. Electric and hybrid vehicles together made up 1.9% of national sales so far this year, the lowest since 2006, according to Edmunds.com .
Electric cars don't yet offer a "value proposition that resonates with the mainstream customer," says John Viera , head of sustainability at Ford Motor Co. He contrasts that with EcoBoost, a Ford-developed gasoline injection technology that achieves the same power with fewer cylinders. "The beauty is you get the fuel economy improvement with no loss in performance," he says. "It does add cost, but the customer is willing to pay for that technology unlike with the electrified vehicle."
Innovation proceeds by trial and error, and errors sometimes kill people. Plane crashes, toxic waste spills and financial crises routinely lead to new regulations that make the world safer, but raise the bar for future innovation. The postcrisis imperative to prevent another has led to toughened financial regulation that has limited the supply of home-equity loans, credit cards and business loans that are often how new businesses finance themselves.
Joel Mokyr , a technology historian at Northwestern University , says innovation is "a messy process inevitably with some negative bite-back. But I have this sense we have become more risk-averse; we are less willing to accept the fact that things can go wrong."
Hobbyists and the military have operated drones for years, but drones didn't offer much commercial advantage over manned aircraft. Then, in the past decade the cost of one critical component, the gyroscope that keeps the vehicle level, plunged as the devices were developed for smartphones. Yet commercial drone operation was illegal, with some exemptions, because it required Federal Aviation Administration approval, which is designed for manned aircraft and requires a licensed pilot.
The FAA , at Congress' request, introduced new rules last year that still restrict the operation of drones. They must generally stay within sight of the operator, below a certain altitude, to avoid collision with manned aircraft. Eli Dourado , a scholar at the Mercatus Institute , a free-market think tank, thinks that is overkill. Birds vastly outnumber drones. Yet in 25 years there have been just 12 fatal collisions between an aircraft and wildlife, and the only one involving a commercial airliner didn't involve birds: it struck a pair of deer while landing.
The continued restrictions on commercial drones not only limit their use for consumer delivery by the likes of Amazon , but potentially lifesaving roles. U.S. railroads must regularly inspect their track, tunnels, bridges and signals, often in remote territory, usually from the ground, notes the Association of American Railroads . It is labor- intensive and sometimes dangerous. In remote regions, manned aircraft can't fly low enough to spot problems. Drones would thus be ideal. The association notes such use is limited by the requirement that drones remain in the operator's line of sight, stay below 500 feet, and not fly over people: "At a major derailment, for example, there potentially will be numerous railroad personnel on the scene."
Despite these burdens, innovation is continuing, and in some fields, at an astonishing pace, nowhere more so than on the internet and on smartphones.
