What we silently miss in the GDP: Innovations add to the GDP of the future

Joel Mokyr, the Yale economist born in Netherlands, brings us to the central question of our times. The technology innovations of today do not add to the GDP as a straight correlation. Well, it never did in the past as well, as his paper is replete with examples as cited in the WSJ article.

When the telescope was invented, it did not correlate to the GDP of the world or when Einstein postulated the Special Theory of relativity. But some centuries after, the entire astrophysics and cosmology must bow down to the marvel of the telescope, which originally was just about optics. Similarly Special Theory makes us understand that there is no absolute frame of reference and the applications of it can be found from GPS, to electromagnetism, understanding black holes and super-nova to a whole range of things in cosmology. Einstein himself may not have realized the full potential of his discovery.

Advancements in bio-sciences have been tricky; it is sometimes difficult to find an immediate correlation with GDP. If I become healthier today, whether it would add to the GDP is questionable. But surely over time and generations this will act positively.

There is much of creative destruction at play in innovation, one iPhone can replace eleven other devices, the net value-add must account for that, but it seldom does for many innovations. 

The Human Genome Project was aimed at determining the sequence of chemical base pairs which make up human DNA, and of identifying and mapping all of the genes of the human genome from both a physical and functional standpoint. When the project started we may not have fully grasped the implications of the research, today the benefits would extend to genotyping of specific viruses to direct appropriate treatment; identification of mutations linked to different forms of cancer; the design of medication and more accurate prediction of their effects; advancement in forensic applied sciences; biofuels and other energy applications; agriculture, animal husbandry, bioprocessing; riskassessment; bioarcheology, anthropology and evolution. Another proposed benefit is the commercial development of genomics research related to DNA based products, a multibillion-dollar industry.

Let us think of genetic farming. It started off in the 1980s with some scattered innovation. Today the biggest beneficiary is the farmer who can produce crops faster, have less crop diseases and therefore less losses and better nutrients are possible to be inserted in the food. The method is simple and it involves injecting genes that resist diseases and produce crops that have higher protein concentrations, higher levels of vitamins and minerals and could be responsible for delayed fruit ripening. In United States 40% of the crops are genetically modified and about 80% of corn and cotton and 93% of soybeans that are produced are genetically modified. The impact of this in crop productivity is immense.

I wonder how the GDP measurements miss out to get this. But if we grow healthier food, the immediate impact on GDP would be small, but over time it is only normal to believe that better health of human beings would add to the prosperity and economy of the world. On the other hand adding a lot of pharma would add to the GDP for sure, but may not improve health. 

A small innovation could be just a spark of an idea, but it could lead to a path breaking change later, adding to a million jobs in the future.Imagine the small room from where the first ideas of a search engine got created by Larry and Sergey. Today that search engine makes it possible for a billion people to transact ideas and businesses, many of which could not have been possible without the speed and accuracy that the search engine provides. The search engine today contributes directly for the internet commerce that could be worth several Trillion dollars of business for the global economy.

Think of a technology driven by the marvels of internet and in the first glance it would appear as if the technology is one that replaces an existing business practice with an internet driven version. You can start from Uber, Tesla to driverless cars or trucks. Yes, in the first glance they do not appear to be an earth shattering idea of a steam engine or an airplane that changed locomotion fundamentally. But what these innovations are doing is fundamentally challenging the existing paradigm; that which was entrenched in the seemingly inapposite idea that we can keep on pulling from the earth’s resources as if it was an endless minefield.  

What the technologies of today are doing is replacing this mindset with one that believes that resources are limited and we better move towards better sharing and towards renewable resources than deplete the already limited stock of things remaining in this world. These two apparently diametrically opposite views conflict in today’s world and the GDP numbers do not account for the future-less denouements for some business models who operate in the non-renewable area. For them it is somewhat like a steadily growing graph till it reaches an abrupt end falling to naught.

Our fixation on GDP should not be so short-sighted that we pursue those goals that appear great in the short term but would be non-existent in our own lifetime. Rather moving towards technologies that give us that faint chance that we could create a sustainable business forever is what should drive our thought and action.

Like the photograph: Making the future of our children secure is what we should be caring about in every innovation.