Bill Gates has a favorite author, Vaclav Smil, who has an understanding on how most innovation takes place.
“You also say that manufacturing is crucial to innovation.
Most innovation is not done by research institutes and national laboratories. It comes from manufacturing—from companies that want to extend their product reach, improve their costs, increase their returns. What’s very important is in-house research. Innovation usually arises from somebody taking a product already in production and making it better: better glass, better aluminum, a better chip. Innovation always starts with a product.
Look at LCD screens. Most of the advances are coming from big industrial conglomerates in Korea like Samsung or LG. The only good thing in the US is Gorilla Glass, because it’s Corning, and Corning spends $700 million a year on research.
I wrote about this over at Traders Crucible when right before I switched to Monetary Realism. The Unappreciated Effects of Making Stuff remain unappreciated.
- Making things gives you feedback on how to make them better
- Lots of people making things in the same area gives easy access to expertise
Capitalism is a great way for innovation to take place, but there are two components which are required for this to happen. The first component is actually making stuff, and the second component is the profit motive.
But we only hear about the profit motive part – we do not hear as much about the making stuff part. It’s a true tragedy here in the midwest, where generations of innovation and a giant geographic innovation hub was shipped overseas in exchange for cheap toys from Japan and China.
We get a direct benefit from running a current account deficit. We get free stuff in exchange for our credible currency. However, we miss out on the subsequent innovation which can only happen when you make stuff.