Innovation cycles in an economic downturn

I am a student of history, and it seems innovation accelerates during economic downturns. Innovative technologies blossom as the economy recovers, serving as a catalyst to increasing our productivity. California was in a serious recession in the early 90's, but that backdrop merely served as a precursor to the adoption and pervasiveness of the internet. What followed was an unprecedented boom in technological innovation (and equity market capitalization). While California was in the depths of a recession, researchers in university labs and private industry were busy bringing interconnectivity to the masses. Innovative high-tech companies, especially forward-thinking incumbents, were increasing their R & D budgets, while their competitors were merely trying to hold market share. Startups by nature, were continuing to develop the next great mousetrap.

You could probably follow the timelines of breakthrough technologies for the transistor, integrated circuits, PC's, biotech, software, databases, web technology, etc. and see similar trajectories of mainstream adoption and penetration.

Unfortunately, we are entering one of the steepest economic declines in quite a while, due to the mortgage lending crisis, rampant abuses and over-speculation (that's polite-speak for greed--does this sound familiar?). I am hoping that the silver lining is that our industry overall will be allocating more resources to develop the next gee-whiz technology. The companies who slash their R & D will suffer relative to their competitors when we turn the corner--whenever that is. Increasing research expenditures may be unpopular during a downturn, but it is absolutely crucial in order to thrive in the next upcycle.

University research labs need to deepen their relationship with private industry. I have visited several campuses recently, trying to get a glimpse of the next new, new thing. I believe UCSB, my alma mater, and other university engineering departments are doing the right things, increasing their fund raising efforts, as well as collaborating with private industry. They still need to maintain their academic integrity and independence, but by working closer with private industry, they can make a bigger impact and monetize their research efforts quicker. Time to market still matters even in academic ivory towers. It takes initiative and commitment.

The promising technologies I predict will be in sustainable technologies (greentech), nanotechnology, and biotech. Moore's or Metcalfe's Laws won't be invalidated, as we continue to make tools and products faster, smaller, and cheaper. These incremental improvements will be crucial to nurturing nascent industries. But the "Blue Ocean" industries will be spawned from breakthroughs developed in labs where pocket protectors are fashion accessories. I'm enthused that UCSB's Engineering departments share my vision, and that they are applying a multi-disciplinary approach to solving our society's pressing needs, engaging with other departments on campus, as well as corroborating with other universities.

I've made visits and taken tours of Cal Tech and plan on doing so at Stanford and UCI, as these outstanding institutions map out how we all will live years from now. They are corroborating with private industry more than ever, and raising their visibility among influential alumni in private industry. Many faculty members continue to create and invest in promising, innovative early-stage companies.

My fear is that myopic legislators and technocrats do what is traditional and popular--cut R & D spending, which will portend very bad outcomes for our country, because the rest of the world isn't standing still. If the US wants its citizens to continue enjoying our high standard of living, we have to remain competitive as a technological power. Terrorism isn't our only foe: so is poverty.

My next blog will dispel the myth that the US is not in a recession...