Innovation Blog

Great Depression, Great Innovation: Will We See a New Wave of American Innovation?

By Shlomo Maital


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 Recent scholarly research reveals a surprising fact about the Great Depression, 1929-1939.  It was an era of unprecedented innovation.  According to Alexander J. Field, *   “The years 1929-1941 were, in the aggregate, the most technologically progressive of any comparable period in U.S. economic history.”

   Examples?  (cited by Nabar and Nicholas) **:  Dupont scientist Wallace Carrothers invented synthetic rubber (neoprene), creating an entire new industry (tires, etc.) that created American jobs, rather than Malaysian rubber-tree plantation jobs.  Dupont scientists also invented rayon, enamels and cellulose, generating 40 per cent of Dupont revenues in 1937 from products that did not exist in pre-Depression 1929.  Automobile innovation forged ahead, especially in the improvement of internal-combustion engines, also creating a massive job-creating industry.  Television and FM radio were introduced by RCA (though their introduction was somewhat delayed by lack of money).  Catalytic cracking for complex hydrocarbons was introduced, creating huge refineries that employed many thousands.  And the early jet engines were developed, building on newly developed titanium alloys.

   What is it about hard times that spurs innovation?  Nabar and Nicholas, economists, offer a convoluted jargon-ridden theory:   “we show that firms with imprecise sector-level priors on payoffs to innovation updated their beliefs and responded stronger to sector-level signals than firms holding more precise priors. “  Translation: Firms less locked in to strategic plans (i.e. major cutbacks) could move faster to innovate and seize emerging opportunities”.

   I think the reasons lie elsewhere.  The legendary former mayor of the Brazilian city of Curitiba once said, “if you want true creativity, slash two zero’s off your budget”.  He meant that resource scarcity spurs innovation, rather than hampers it.  He was right.  Desperation, poverty, lack of funds, all these create a can-do creative atmosphere in which innovators seek ways to save resources and improve existing technologies, simply in order to survive.

   I do not see the same atmosphere in today’s America.  As an observer once said, “a crisis is a terrible thing to waste”.  The 2007-9 crisis was wasted.  By reassuring Americans that the crisis is over, America’s political leaders are a) wrong, and b) are wasting an opportunity to leverage the enormous energy that Depressions foster, as happened in 1929-39.  There ARE innovations.  iPads create jobs for Asians.  Facebook creates a few jobs but not industries, as happened in the 1930’s.   What is vitally needed are innovations that create breakthrough products spurring creation of massive new industries [synthetic rubber, refineries, car plants] with equally massive job creation, at home in America, not in Chungking or Nanjing. Here are some suggestions.  Cleantech: alternative energy breakthroughs. Medical devices: lowering soaring medical care costs. Transportation: New technologies for public transportation.  Education: ways to deliver high-quality education to the masses, using technology.   Alas, I see few signs this is a national objective.  It should be.  Wake up, America!  This Depression may end before you reap its potential benefits.

* Field,  Alexander J., “”The Most Technologically Progressive Decade of the Century,””American Economic Review, 2003, 93(4) 399-1413

** Malhar Nabar,  Tom Nicholas “Uncertainty and Innovation During the Great Depression” Harvard Business School, January 14, 2010