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Avoiding Annihilation

A prolonged economic crisis could wreck the ecology of innovation. Here are five ways to avoid annihilation during a global downturn.

Will the world economic crisis lead to a world innovation crisis? Let’s hope not. Innovation spurs economic growth, but, more important, it raises living standards by delivering improved health care and new ways of satisfying human needs and desires. During the current economic crisis, innovation is especially important. Indeed, innovators are probably the only people who stand between a world in prosperity and a world in depression.

This is a big claim, but I think it’s justified. The flow of innovation almost surely guarantees that the United States, and the world, will suffer no economic catastrophe. For out of new technologies come productivity gains and the opportunity to provide new goods and services. Innovation, in short, is the true source of wealth.

Hence, a puzzle: If innovation is so important, why do so many people take technological change for granted? Why is it seen as a given, as predetermined?

Consider the handwringing over the economic meltdown of Russia and the collapse of growth in Asia and parts of Latin America. Policy-makers and pundits have worried about a raft of dire possibilities: massive debt write-offs killing banks and drying up credit; tens of millions of people sinking into poverty; the breakdown of social order in many countries; and the spread of disease and ignorance as health-care systems and public schools deteriorate for lack of funds.

These are real concerns. Yet big thinkers have been curiously silent about what I see as an equally grave threat: that economic instability will stymie the world’s innovators. So worried are investment bankers, politicians and CEOs about the specter of a global financial implosion that they’ve given nary a thought to the chance that a sustained downturn could hurt, or even halt, technological innovation.

One reason for this seeming indifference is that the best and the brightest have been spoiled by the torrent of innovations that has poured forth over the past two decades. As a result, they assume inventions and breakthroughs are produced automatically, regardless of business conditions.

Not so. To flourish, innovators depend on a healthy economy and a vibrant society. Whether engineers, scientists or inspired tinkerers, innovators are part of a societal ecology that shapes the nature of technological breakthroughs. Much as salmon thrive under the right river conditions, and disappear under the wrong ones, so the ranks of innovators wax or wane depending on the signals and support given by their environment.

What this means is that the current economic crisis could deal a body blow to innovation. Those who ignore their deteriorating environment do so at their peril. Here are five steps innovators and their patrons can take to avoid annihilation during what could be a prolonged global downturn:

Think Big. When business is booming, innovators are rewarded for small improvements in their products. Customers are eager to buy and have the money to spend on minor advances. That isn’t the case during a downturn. It may seem smart, during a crisis, to grow more cautious, but the opposite strategy will reap bigger benefits. Throw off restraints and think big. Simplify Organizations. During the 1990s research and development became a global proposition. The best companies opened engineering labs around the world, using networked computers to share information among far-flung teams. This approach worked well when companies were cash-rich; it is a liability in times of austerity. To stretch research dollars, simplify organizations. Break Bottlenecks. It’s been nearly 15 years since makers of semiconductors, computer systems and software have suffered a business slump. During this long boom, bad habits have proliferated. Consider software makers who have been accused of slowing innovation with clunky programs that consume too much computing power. Product cycles have so shortened, meanwhile, that customers can’t adapt to the latest model before it is superseded. In flush times, many customers will take a chance on frustrating technologies. Not in a downturn.Get Help. High-tech tycoons eschew government assistance except when they want to bash Microsoft. This animus toward government is a luxury high-tech innovators can’t afford in a time of economic turbulence. Government and industry should hold a summit meeting to discuss how cooperation between the two might partly offset weaker business conditions.Stick Close to Home. Foreign sales have carried U.S. high-tech companies to new heights. But the domestic market remains the world’s biggest and the least expensive to reach. In the recent past it has been routine for even the tiniest new venture to open its doors simultaneously in the United States, Europe and Asia. With Asia in a slump and European business complicated by the arrival of the “euro” currency next January, it makes sense for American innovators to court the customers they know best. The United States isn’t immune to an economic downturn, but it probably will suffer less than any other part of the world.

For U.S. innovators, that’s the good news.

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