Innovation Calls for More Than 'Short-Termist' Thinking

Commenting on Apple, Fareed Zakaria ignores how today's companies avoid far-sighted projects and the years required for invention


I had high hopes listening to Fareed Zakaria on CNN when he began to comment on Apple and innovation, as in this transcript:

[N]ow in the 21st century, we are falling behind. And fast. So how do we get our innovation groove back?

First, let's take a step back and look at just what innovation means and what makes a good innovator.

Take a look at Apple. Most of us would say this is one of the world's most innovative companies. It has transformed whole industries, it's changed our way of life and the market has rewarded it. Apple is now the second most valuable company in the world after Exxon.


ZAKARIA: But Apple spends very little of its revenue on research. Only half of what Sony spends, for example. A quarter of what Microsoft spends. Its products rarely use new path breaking science or technology.

That seemed like a great start, though I wish Zakaria had said "you're welcome." At last, a leading pundit was ready to point out that what is good for the shareholders of one corporation may not have corresponding benefits for the economy or society as a whole, that companies that use the common stock of basic scientific and technological knowledge have an obligation to give back -- once a commonplace in corporate America, now a despised heresy. But what followed -- unless you're an Apple shareholder -- was anticlimactic.

Zakaria turned to the venture capitalist Len Baker, who cited Isaac Merritt Singer:

If you look at the most innovative and the most valuable companies, they're much more about creating new business combinations than they are being scientifically driven companies.

ZAKARIA: Such as? What do you mean?

BAKER: Well, so our -- my favorite historical example is Isaac Merritt Singer who invented the sewing machine in 1850 or so and he invented the sewing machine but the real fortune and the real benefit to society was, he was the first person to sell to women because it was thought that women couldn't operate machinery.

He invented the installment plan. He invented the trade-in. And he invented the idea of selling internationally.

It's true that Singer was a marketing genius, as I've written about here. But he was also a skilled mechanic and inventor in his own right. And was it really assumed "that women couldn't operate machinery?" Tell that to the Boston industrialists who had recruited the Lowell Mill Girls in the 1830s. Since even middle- and upper-class women with servants were brought up to do some of the sewing of the household, of course they were the end users at home as well as in factories. (There was already a huge piecework hand sewing garment industry in New York City when Singer's sewing machine appeared, and it originally was for commercial use.) Finally, Samuel Colt, not Singer, was the first major American inventor-entrepreneur to begin international production, in 1851. Singer didn't open his own overseas factory until over 25 years later.

In his blog, Zakaria elaborates:

Apple's innovations are powerful and profound, but they are often in the realms of design, consumer use and marketing. This is hardly unusual. In fact, the application of technology in service of a consumer need or business objective is what true innovation always has been.

Of course our definition of innovation is limited to ideas that pay off in some way. When they cease to be profitable (like eight-track tape decks), they're struck from the list of innovations. And what does it mean to "serve a consumer need"? Does it include James Bonsack's 1880 cigarette-making machine that created the modern tobacco industry?

Big innovations that create big jobs are usually the result of years of sometimes-harrowing work. Economic historians consider the 1930s to be the greatest decade of fundamental innovations, for reasons that still are not completely understood. Think of Wallace Carothers and nylon at Du Pont. Or how Procter & Gamble scooped the German chemical giant Bayer in developing synthetic detergents, creating its flagship Tide brand while the economy was still struggling. (P&G's brand management system, key to its later marketing, was also a thirties creation.) Or Thomas J. Watson's decision to invest in research after the crash nearly killed IBM. Or the physicist Chester Carlson's strategic brilliance in developing dry photocopying -- and the patience of the Haloid Co. and Battelle in years of troubleshooting before the launch of the Xerox 914 in 1960.

As the economics Nobel laureate Edmund S. Phelps has written:

In established businesses, short-termism has become rampant. Executives avoid farsighted projects, no matter how promising, out of a concern that lower short-term profits will cause share prices to drop. Mutual fund managers threaten to dump shares of companies that miss quarterly earnings targets. Timid and complacent, our big companies are showing the same tendencies that turned traditional utilities into dinosaurs.

Meanwhile, many of the factors that have long driven American innovation have dried up. Droves of investors, disappointed by their returns, have abandoned the venture capital firms of Silicon Valley. At pharmaceutical companies, computer-driven research is making fewer discoveries than intuitive chemists once did. We cannot simply assume that, when the recession ends, American dynamism will snap back in place.

Let's moving beyond blessing -- and dissing -- Apple to looking more closely at the values-and-time horizon of American investors and financiers. And of overseas actors, too. After all, there are no breakthroughs comparable to nylon or the Xerox 914 coming from Europe or Asia, either.

Image: Wikimedia Commons.