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The Price of Innovation

Recessions are always tough, and during a recession it’s hard to avoid talking about it.  I see a lot of innovation practitioners pondering the question of whether a down economic climate is good or bad for innovation. The funny thing is that we have been through these boom-bust cycles before, and we will see them again.  What’s more is that history teaches us something very important about these cycles.  By their very nature, the boom-bust cycle is an engine of innovation. 

Recessions are always tough, and during a recession it’s hard to avoid talking about it.  I see a lot of innovation practitioners pondering the question of whether a down economic climate is good or bad for innovation.

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The funny thing is that we have been through these boom-bust cycles before, and we will see them again.  What’s more is that history teaches us something very important about these cycles.  By their very nature, the boom-bust cycle is an engine of innovation. 

During a bust segment of the cycle, the constraints of the moment surface the very needs and challenges to which innovation is the response.  This is the core stimulus of innovation.  As the value of the innovation works its way through the system, it supports the advance toward the boom.  However, the boom creates anti-innovation forces as organizations begin to either prioritize not around new value creation but around value preservation, or become too cavalier in their risk tolerance.  This shift creates an instability which eventually leads to the next bust.  Completing the cycle, the new bust lays the foundation for the next wave of innovation.

Some might argue that the social impact and cost of boom-bust cycles is too great and that it is better to eliminate these cycles through tight economic regulation.  I would argue that the cost to society of foregoing the boom-bust cycle is too great as it would forever stifle innovation and the great advances that it brings.

Rather than go into this argument myself, I’d like to point out a great blog post on this topic written by Fred Frankel, Vice Chairman of The Beacon Trust Company.  Give it read and see if you don’t agree with Fred that “The cost of eliminating the cycles and government assuming the role of the allocator of capital is nothing less than the extermination of entrepreneurial spirit, innovation and yes, increasing standard of living for all citizens.”