In terms of U.S. productivity growth, optimists and pessimists may disagree on a whether renewed resources and innovation are just around the corner. But the one thing they should agree on is that new ideas are getting more expensive.
Consider that during the 1950s and 1960s, the U.S. and Europe enjoyed productivity prosperity to the tune of 4 percent annual growth. Those numbers took a nosedive in the 2010s, spiraling down to the 2 percentiles. Every time a pessimist declares that the finite amount of oil or another resource has been tapped, deep offshore and shale discoveries prove them wrong. But the glass half empty side of those discoveries is that these ideas and innovations seem to be coming at a higher cost.
The high cost of great ideas
Oil is a good example of how ideas are costing more and more. Companies have tapped the vast majority of easily accessible resources. That means each new underground reservoir tends to be in difficult to reach areas. The innovations required to extract those fossil fuels becomes more complex. It also becomes a driver for emerging technologies and equipment to be more expensive. In a way, that all points to there being no new game-changing ideas, just more costly ones built on the cheaper originals.
Research and development costs across industries are suffering the same cost fate. Studies concerned with why R&D costs appear to have a greater financial drag on the economy point to the growing number of researchers behind end-result productivity.
During the 1930s, productivity far outweighed the number of R&D people needed to support continual growth. That began to shift during the late 1940s and before 1950 researchers became a significant load to bear against productivity. By the 21st Century, the number of R&D workers had grown exponentially, and they are now a major financial factor across industries.
Using the simple oil analogy. The handful of geologists it took to locate oil in the Alaskan wilderness, now looks like a scientific army. Their terrific ideas and innovations cost big bucks.
Research, development and diminishing returns
Confounding the R&D of many industries is the business necessity that company's must have high-level intelligence on numerous fronts. Online resources, social media, computers, applications and a hub for inter-personnel communications add up. Orchestrating new ideas means having full mastery of several bodies of knowledge. Basically, those couple of geologists kicking around the wild now require massive tech support. R&D requires a vast infrastructure all its own.
While the latest device and app seems like it will create opportunity, the ever-shifting technologies add costs to industries that produce meat-and-potato things like oil and lumber. The high price of ideas can have a negative impact on economic growth. On the other hand, the next truly "new idea" could be just around the corner.
At Fergus, A Law Firm, located in San Francisco, we hope these ideas proved food for thought for your next entrepreneurial venture.