2012-03-13

Co.Exist

The New Rules Of Innovation: Bottom-Up Solutions To Top-Down Problems

In his new book, Vijay Vaitheeswaran argues that we’re thinking about worldchanging innovation all wrong: It’s not going to come from where we expect it.

The world is currently standing “on the cusp of a post-industrial revolution.” So writes Vijay Vaitheeswaran in his new book, Need, Speed and Greed: How the New Rules of Innovation Can Transform Businesses, Propel Nations to Greatness and Tame the World’s Most Wicked Problems, out March 13. Vaitheeswaran, a 20-year veteran correspondent for The Economist and adviser to the World Economic Forum, wrote the book, he says, as a way to inspire bottom-up solutions to top-down problems like resource depletion, climate change, and growing income inequality. We spoke with Vaitheeswaran about the importance of disruptive technologies, social entrepreneurship, and embracing China’s rise.

Co.Exist: As you point out in your book, modern humanity has arrived at the first phase of an unprecedented “innovation revolution,” yet many are being left behind. Why is that and what are we gonna do about it?

Vijay Vaitheeswaran: First, I think it’s a wonderful time to be alive. Shockingly, this might be the best time to be in the bottom billion because of transformations like mobile telephony and micro-credit. But it’s getting much harder to be in the middle class in places like America. The principal reason for this, I think, is that educational systems are increasingly out of touch with the needs of the ideas economy. The current education system that our and other countries developed was suited to the industrial revolution, a one-size-fits-all model for education that treats people as commodities. But we’re in an innovation age where creativity, individual initiative, willingness to think out of the box and disrupt established business or even lifestyle patterns is much more important than simple manual tasks that produce the next widget. So I think the great challenge for developed economies like the U.S. is to reinvent education. The challenge for each one of us is to keep relearning how to learn.

You alluded to the growing income disparity in this country. How do you counter the growing sentiment that capitalism itself is responsible for our economic woes and government is the solution?

It’s fashionable today to say that capitalism is to blame for our problems--especially things like the middle-class squeeze. Or to say that China is eating our lunch and blame overseas competitors. We live in a dynamic world. We’ve always had overseas competitors as we were to countries like Great Britain before us. And capitalism is the greatest engine of wealth creation and improvement of the lives of ordinary people that the world has ever known. So I will actually argue that we need more capitalism, not less, but that we need a better kind of capitalism. One where we go from “greed is good” to “greed for good.”

Rather than the Wall Street style of capitalism with perverse incentives that rewards an industry that sucks up a lot of resources while producing little social or economic value, i.e., the Wall Street banks, I want to see us reward the productive economy: entrepreneurs and innovators who are combating the wicked global problems we have like climate change and pandemic threats and so on. We should give more rewards to capitalist entrepreneurs and the new breed of social entrepreneurs who are motivated not only by money but also by social capital, by wanting to do good by society.

So what should the role of government be in all of this?

I think government has an absolutely essential role in enabling the innovation future, but it’s different from what we’re seeing right now. I think the wrong role is industrial policy, that is government bureaucrats deciding which industries are strategic, picking technology winners, subsidizing specific companies with favored kinds of technologies--even if they’re attractive or cuddly like solar energy. And history shows this. China’s new breed of state capitalism is a very dangerous and pernicious way of approaching the role of government by funding state-owned enterprises that in effect crowd out the private sector and hog up the credit that’s available. These businesses are not subject to anti-trust laws so they prevent a level playing field for private enterprise, be that domestic or foreign. The right way forward for government is to level the playing field by funding, for example, government and academic R & D. That’s a role for taxpayer money. It’s also making sure there’s a proper rule of law among other things like bankruptcy laws. We have the best bankruptcy laws in the world since they enable a culture of risk-tasking, entrepreneurship and failure, but also a second chance. These are very important pre-conditions for innovation to flourish.



So which of the Presidential contenders offers in your view the most hope for innovation?

It’s hard to say there’s an innovation candidate. I would offer one note of caution though: This mindless China bashing or denunciation of trade and rivals overseas coming from all the candidates, ignores basic economics. Innovation is not a zero-sum game. And China rising does not mean America has to decline. On the contrary, you can see this as a rising tide that will lift all our boats, just as the rise of Japan was a peaceful and prosperous endeavor that made America richer as well. To close our market and enter into a trade war is a beggar-thy-neighbor policy that would make everybody poorer, especially a trading nation like the U.S. that depends on open markets.

You devote some time to Clayton Christensen’s notion of disruptive innovation.

I think we’re entering a disruptive age in the global economy. There are phases in economic history and we’re entering one in which we have many mature industries in the U.S. that are in desperate need of renewal. The auto and steel industries are great examples. I think that we’ll even see the Googles--the Internet 1.0 industry--being disrupted by the social media industry and the wave of big data. That’s an industry that knows how to deal with disruption and famously argues that you have to eat your own lunch rather than have your competitors eat it. I think that kind of mentality needs to be more widespread among the traditional heartland industries like medical devices or traditional industrial products. If they don’t reinvent their business models to be more frugal and cutting edge in terms of technology and customer needs, guess what? The Chinese, Indians, and Brazilians are going to do it and they’re going to do it cheaper and maybe even better. So the disruption is coming; the only question is whether the disruptive innovators are going to use forks or chopsticks.



Regarding energy, you counter those who say the best way to move toward a clean energy transformation is through government initiatives like the Apollo lunar mission.

The idea of a moon shot to solve the climate and energy problem is actually a dangerous idea. Here’s why: Talking about getting a man on the moon in a decade, costs be damned, was a wonderful way to galvanize a nation towards a goal and, yes, it got the country rallied; it got lots of kids interested in science and engineering. However, the challenge of bringing affordable clean energy in a sustainable way to 7 billion people around the world is the exact opposite problem of sending a rocket to the moon once, regardless of cost. Getting to the moon was a national security issue better suited to a top-down government approach where costs don’t matter and national pride was really at stake. But we need a markets-entrepreneurs-consumers business model to solve this problem. You could fill textbooks with the number of white elephant projects that government has tried to fund in energy. I understand the appeal of wanting a rallying cry, but let’s not confuse that with how we’re actually going to solve this.

One obstacle is the growing numbers of non-believers of climate change.

I’ve written a couple of books on the topic and it disheartens me to see the anti-science arguments gaining ground in recent years. We know there’s a finite quantity of fossil fuels in the earth, whereas the energy from the sun is infinite. So it’s just a question of getting renewable energy costs down which is starting to occur rapidly. Again, what we need more of is a level playing field. The external costs are not incorporated into the price of burning coal or oil, so the dirty polluters get a free ride putting clean energy at a disadvantage. My radical proposal is to abolish all subsidies for energy, including solar and wind--so no subsidies for anybody. The biggest losers would be nuclear and coal--not the wind or solar guys. So environmentalists are wrong to lobby for subsidies because they’re getting a few crumbs off the table. It’s the big dogs who actually end up with the meal. Instead they should argue for policies like carbon taxes or trading systems that make dirty energy pay its way at a fair price.



You devote a lot of space to the quintessential techno-optimist Ray Kurzweil’s singularity theory, yet you don’t hold much stock in it?

I’d put it this way. I think the trends identified by the techno-optimists are actually right. If you stick to the facts, we are really entering a new golden age. But discovery doesn’t always lead to value creation. Once it enters the marketplace and changes our lives for the better, and you can find some sort of business model or societal value, then it’s innovation, not just a gadget or clever thought. Now we have not only Moore’s Law, but an even faster rate of expansion of genomics, considering how costs for sequencing the genome are collapsing. And if you look across the range of health, energy, and other areas, you not only see exponentially growing technologies but a convergence of these techs leading to new paradigms for personalized medicine that were unimaginable 10 years ago. So we can look forward to a wonderful few decades ahead where wonderful new industries will be formed. Whether this will transform humanity into a post-biological era is to me a bit more spiritual and mystical so I’m not gonna go down the road of the Singularitarians as they call themselves. But I think the facts on which they base their arguments leading to their inspirational thinking are certainly undeniable.

What about the other end of the spectrum, the eco pessimists like Paul Gilding who in his TED Talk last month questioned the notion that technology is going to prevent us from enduring some really tough times ahead.

Human advancement has always been a great race between development and degradation, between progress and regress or chaos and so I don’t posit that technology is going to solve all our problems. On the contrary, I acknowledge, in the “Need” part of my book, the argument that we live in an era of wicked global problems and tremendous challenges, opposed by the rise of the BRIC economies, by the growing population and the urbanization of the species. But to suggest we’re all going to hell in a hand basket misses the other half of the equation. The problems themselves stimulate a response and this is where The Club of Rome and other pessimists from the 1970s got it wrong. There are huge challenges with water and other resources, but the other side of the ledger is the innovation piece of the puzzle. When we have scarcity, you trigger investment, innovation. This is because development is a dynamic dance. Straight-line trends don’t actually last in real life; rather, you end up with dynamic responses. And that’s the beauty: markets, policy, and society responds. So Guidling’s concern is legitimate, which is why I’ve written a book arguing that the other half of this great race--the solutions part--needs to be done with far more vigor. In a sense my book is a call to arms for embracing a vision for innovation that is much more ambitious or disruptive and more democratic. If we can get 7 billion brains involved in solving these problems, then I think we have a lot better chance of succeeding using the new tools of innovation, than if we simply stick with business as usual.

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7 Comments

  • Jeanineguido

    This is a great article with great perspectives that one has to be blind not to have been perceiving for a while. I think Vijay is 100% right when he says our education system is outdated and it needs to change to align with 21st century needs. This is at the core of our transformation as it is going to take a while for the education system to change and, in the meantime, thousands of students are graduating without the skills necessary to succeed. Furthermore, the current leaders at many of the companies with the most need to change, don't comprehend fully what's going on nor do they have the skills necessary to steer the companies into new territories.

    Vijay is right, we are lucky to be living in such exiting times but it takes courage to embrace them.

  • CitizenWhy

    The reason it's getting harder to be in the middle class in America is the war being waged by the corporate elite and the super-privileged on jobs, wages, and pensions.

  • Poonam Jayant

    Frugal Innovations are needed, moreso, the bottom -up approach is needed as you've rightly said.

  • michael kelly

    I'd like to focus on "Greed for Good".  

    Wonderful, thank you for saying that out loud.   I think that the quickest way to solving many of the world's ills is by improving the living standards of the billions who struggle everyday for healthy food, good education, healthcare, fresh water, and decent housing.

    These people have the luxury of being able to skip the outdated means of communication and energy production.  They skipped landlines for mobile phones, they should also skip carbon outputting power generation.  

    Back to greed...An investment by those with the most to gain (corporations and wealthy states) in developing nations will result in an increased "actual individual consumption", thus an increase of wealth to not only the corporations selling stuff, but also those individuals buying.

    For this to work "stuff" (energy, goods, food, transport) cannot continue to be produced in the fashion it is today (non-sustainable).  According to Paul Gilding, we are at 150% of Earth's limit.  I don't subscribe to that point of view (sorry Sting).  We already have to capabilities to house the current global population at living standards that the poor of First World Nations would envy.  

    The problem is the lack of an initial investment towards future profits.  Focusing on quarterly or annual reports and kowtowing to stockholders is not the game to play.  Long term investments are good for stockholders (not traders), and the world.

    So Thanks Vijay!

     michaelkelly

  • Douglasw

     Vaitheeswaran's perspective is short-sighted and mechanistic. To imply, as he does, that energy independence is not a national security interest is ludicrous. Tell it to all the American armed forces personnel who have died in Iraq. That's just one example; I'm not going to waste my time and your time with more.