CHAPTER 9JEDIDIAH YUEH

ON THE BEHAVIORS OF COMPANIES OF THE NEW ECONOMY

The Wall Street Journal ran in 2016 an article entitled, “The Economy’s Hidden Problem: We’re Out of Big Ideas.”1 How can a journalist pose such a stark assertion when we all feel we are living in a world full of innovation?

The preeminence of Apple, Facebook, Google, and Amazon; the breakthrough of nanotechnology and biotechnology; the start-up boom; and the growing power of artificial intelligence and virtual reality give us the impression that innovation is omnipresent. And yet, technology industries and others born of the Internet represent only a fraction of the economy. They will encompass much more in the future, but until then, the companies of the new economy cannot compensate for the insufficient rate of innovation of the other so-called traditional companies. This is the case for companies in many sectors such as food, cosmetics, pharmaceuticals, banking, and insurance.

American statistics show that in the past 10 years the rhythm of innovation in these kinds of companies is greatly inferior to that of the previous 10 years. It may seem counterintuitive but, according to an MIT estimate, research productivity in the United States has dropped by an average of 5.3 percent2 per year over the past 10 years. The “Vitality Index,” which is the percentage of total revenues generated by new products and services, is in net decline in the quasi-totality of sectors. The return on investment coming from ...

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