An interesting article in the latest issue of Business Week by its resident economist, Michael Mandel, makes the case that the Great Recession, as it is known, reflects not only excessive borrowing and financial collapse, but inadequate innovation in previous decades.

Mandel argues persuasively,

 “…there’s growing evidence that the innovation shortfall of the past decade is not only real but may also have contributed to today’s financial crisis. Think back to 1998, the early days of the dot-com bubble. At the time, the news was filled with reports of startling breakthroughs in science and medicine, from new cancer treatments and gene therapies that promised to cure intractable diseases to high-speed satellite Internet, cars powered by fuel cells, micromachines on chips, and even cloning. These technologies seemed to be commercializing at “Internet speed,” creating companies and drawing in enormous investments from profit-seeking venture capitalists—and ordinarily cautious corporate giants”. 

“…one thing is abundantly clear… The commercial impact of most of those breakthroughs fell far short of expectations—not just in the U.S. but around the world. No gene therapy has yet been approved for sale in the U.S. Rural dwellers can get satellite Internet, but it’s far slower, with longer lag times, than the ambitious satellite services that were being developed a decade ago. The economics of alternative energy haven’t changed much. And while the biotech industry has continued to grow and produce important drugs—such as Avastin and Gleevec, which are used to fight cancer—the gains in health as a whole have been disappointing, given the enormous sums invested in research. As Gary P. Pisano, a Harvard Business School expert on the biotech business, observes: ‘It was a much harder road commercially than anyone believed.’ If the reality of innovation was less than the perception, that helps explain why America’s apparent boom was built on borrowing.'”

When pieces of paper, and the fortunes they created, attracted the best brains, rather than the tough road of technological innovation, and when those pieces of papers became detached from the underlying innovation that drives profits, the collapse was inevitable.

When will see see ‘green shoots’, in America and the world?  Perhaps, when powerful new innovations reach the market, driving new waves of consumer spending and investing — a result that followed after every major Depression, and will likely follow after this one as well. Perhaps America will rediscover, and reinvent, its innovative energy.