Recession as a Catalyst for Innovation

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Start-Up NationMany Americans have lost their jobs or struggled to find employment during the Great Recession, but economic hardship has not, it turns out, kept U.S. entrepreneurs from thinking, innovating, or taking risks on new businesses. During the toughest months of the financial downturn, start-up activity actually surged. Nationally, more than 550,000 new businesses launched in 2009 and indexes of entrepreneurship rose as well.

Instead of thinking of this period as a recession, Atlantic senior editor Richard Florida suggests using the term "reset," arguing that the innovations spurred by hard times will fill the landscape of the post-recession economy. It is not just a period of economic decay; a reset is a chance to start over.

Florida writes:
Economic crises like the current one have devastating economic and social costs, but they also give rise to major rounds of technological innovation. That's why I call them Great Resets. There was a significant spike in patents in the wake of the Panic and Long Depression of 1873 -- and subsequent decades saw the rise of major new innovations from the light bulb, phonograph, and telephones to systems innovations like electric power, telephone systems, and urban transit (i.e. street cars, cable cars, and subway systems). The Great Depression was far and away the most "technologically progressive decade of the 20th century," according to the detailed research of economic historian Alexander Field, outpacing the high-tech boom of the late 20th century by a considerable margin.
Joseph Schumpeter long ago showed how economic crises give rise to the gales of creative destruction -- as new entrepreneurial individuals and enterprises seize the opportunity to forge new business models, and new industries revolutionize and transform the economy. The British economist of innovation, Christopher Freeman, found evidence that innovations not only accelerate but bunch up during economic downturns only to be unleashed as the economy begins to recover, ushering in powerful new waves of technological change.
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Brian Resnick is a staff correspondent at National Journal and a former producer of The Atlantic's National channel.

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