What Happened to Innovation?

July 24, 2009 — -- Where has innovation gone?

I had an odd moment earlier this week. For many years now, I've been involved in the creation of a historical museum in my hometown, Sunnyvale, Calif. In fact, you can say that I've been part of this project since I was 12 years old, when, in researching a Boy Scout merit badge, I happened to leave some library books lying around … and my father read them.

That set my old man on a quarter-century quest to build Sunnyvale a new museum, which continued after his death -- with my mother as one of the lead benefactors -- until last fall. That's when, to great ceremony, the new Sunnyvale Historical Museum -- built as a replica of the city's (and essentially, California's) first American home -- finally opened. It was quite a day, not least because of the unforgettable sight of my youngest son escorting his 87-year-old grandmother into the exhibit room named after her and his grandfather.

Like most community museums, the Sunnyvale museum struggled to the financial finish line. As a result, the museum task force had to make some tough decisions about exhibits. It chose, wisely, to fill the first floor with exhibits from the early Indian/Mission/Orchards era of the city (and Santa Clara Valley) and leave the second floor -- to be dedicated to modern Sunnyvale as the heart of Silicon Valley -- empty until enough money could be found.

Helping to create the first exhibit on the second floor was what brought me to the museum this week. The goal is to create a massive timeline of the history of the electronics revolution that will cover one 30-foot-long wall with key milestones in everything from semiconductor chips to avionics to software -- noting the many inventions (such as the microprocessor, the video game and the Apple computer) that had roots in Sunnyvale.

The two Silicon Valley "experts" on the task force are myself and Regis McKenna, the valley's most famous marketing and PR guru (think Intel and Apple). McKenna, who is now retired, is a generation older than me and someone I've always considered -- I've known him as a neighbor since I was a teenager -- to be fount of wisdom and advice, especially about the sociology of high tech. As you can imagine, from the guy who introduced both the Intel 8080 and the Macintosh, McKenna has a lot of experiences to share.

The Lopsided Timeline

It was my job to design the timeline and populate it with the 100 or so major milestones of the electronics/digital revolution, from the programmable jacquard looms of the late 18th century to the iPhone. And as I laid out the grid and began to populate it with items, my biggest concern was that the ancient end of the timeline would be so empty and the modern end so stuffed with events that the layout would look distorted and visually unbalanced.

And indeed, one part of the chart did look stuffed with milestone inventions. It wasn't in the present, but rather, during the era from about 1967 to 1977 -- containing the microprocessor, the Internet, calculators, video games, the personal computer, the cellular phone, etc. The fact that history seemed to be building up to that era -- especially technology's "annus mirabilus" of 1969 -- came as no surprise. What did surprise me was how in the years after that, right up to the present, the efflorescence of innovation seemed to fade.

I remarked on this to McKenna, reminding him that 15 years ago he warned me that the U.S. wasn't making sufficient investment anymore into basic scientific research, that we were "eating our seed corn," and living off the hard work done in solid state physics, fiber optics and networks decades before. Perhaps, I told him, we are looking at evidence that his worst fears have come true.

McKenna didn't entirely agree, suggesting that some of today's tech innovation is simply less visible, not hardware but software code and clever new algorithms.

Perhaps, but I'm not convinced.

After all, it seems to me that even in software, most of the really important innovation happened, as well, during those 10 years beginning in the mid-'60s, as well as before that during the mainframe computer era.

What software innovation we're seeing today is largely in the form of applications … and one would be hard-pressed to name, say, an iPhone app that will leave its mark on history the way the vacuum tube or oscilloscope did.

What didn't need to be said between us -- McKenna is, after all, a veteran angel investor in new tech start-ups -- is that, between growing government regulation and the current economic crisis, there simply isn't money out there to finance the next generation of hot new entrepreneurial start-ups and high-risk corporate "skunkworks" projects that produce the really great inventions and products. Venture capitalists these days are running scared, their business model ruined in a world without initial public offerings, putting their money in only the safest, low-risk/low-return deals. And that isn't how you fund the next tech revolution.

A Future in Medical Tech?

By coincidence, a couple days later, I had lunch with another Silicon Valley pioneer and legend, Federico Faggin, co-inventor of the microprocessor and the man behind the computer touch pad on which my thumb now rests.

I told him about my surprising findings with the timeline. Is it possible, I asked, that I was missing something? Yes, said Faggin, you need to keep in mind that most of the sectors of what we consider to be electronics, such as semiconductors, have already passed through their phases of great innovation and are now mature industries dedicated to perfecting their inventions, not replacing them. Where you should look now, he suggested, are in places like nanotechnology, biotech and medical technology that are still on the steep part of the innovation curve.

Once again, perhaps. But even if that is true, I don't find it particularly consoling about our future. For one thing, are those industries of sufficient size and importance to make up for the stagnation of all of the rest? Can they keep our economy healthy and vital?

Now, add to this the fact that these new industries are hardly immune to the dry-up of capital taking place everywhere else -- not to mention the loss of the crucial liquidation event once made possible by "going public" -- and it is hard to see how, no matter how creative their scientists and entrepreneurs, those businesses are going to fund the great innovations that are supposed to lie in their futures.

Even more disturbing is the possibility that this economic downturn will be dragged out through mismanagement by Washington, while other, more rapidly recovering, nations such as China (which applied its stimulus package quickly and decisively) will use the opportunity to race ahead.

But the coup de grace to American innovation may be health care reform. As a growing number of pundits have begun to point out: Whatever the merits of the Obama health care plan, it is hard to make the case that it will do anything but suppress innovation in medicine, pharma and biotech.

What no one seems to have noticed yet -- and which just struck me this week -- is that this loss of innovation will occur in precisely those industries in the U.S. economy where we are depending upon innovation to occur. It is in just those fields (nanotech aside) that we are likely to depend upon for our economic growth, job creation and competitiveness.

That's a very frightening scenario, suggesting a kind of living death economic recession from which we never fully emerge. Shouldn't we at least discuss this unforeseen danger before we ram through a trillion-dollar bill that nobody seems to have read?

TAD'S TAB: Created by Jess Bachman, "Death and Taxes" is a magnificent, online, interactive poster that details the workings of the U.S. tax and budget system. Each branch of government, right down to the most obscure agency, is presented with its budget and revenue. Although the majority of the information is statistical, the vastness of the system is fascinating. Check it out at http://www.wallstats.com/deathandtaxes/, (you can also order it as an actual printed poster).

This is the opinion of the columnist and in no way reflects the opinion of ABC News.

Michael S. Malone is one of the nation's best-known technology writers. He has covered Silicon Valley and high-tech for more than 25 years, beginning with the San Jose Mercury News as the nation's first daily high-tech reporter. His articles and editorials have appeared in such publications as The Wall Street Journal, The Economist and Fortune, and for two years he was a columnist for The New York Times. He was editor of Forbes ASAP, the world's largest-circulation business-tech magazine, at the height of the dot-com boom. Malone is the author or co-author of a dozen books, notably the best-selling "Virtual Corporation." Malone has also hosted three public television interview series, and most recently co-produced the celebrated PBS miniseries on social entrepreneurs, "The New Heroes." He has been the ABCNews.com "Silicon Insider" columnist since 2000.