The rising returns to R&D: Ideas are not getting harder to find
papers.ssrn.com141 points by surprisetalk 6 days ago
141 points by surprisetalk 6 days ago
They show R&D is effective and R&D spending is up, and conclude obsolescence must be the reason this is not reflected in productivity pretty much by process of elimination. However there is an alternative - that for reasons unrelated to R&D, productivity is actually being driven down, and ever increasing R&D output is necessary just to maintain current levels of productivity.
In particular, they are looking at US manufacturing. While this is a diverse industry, it's clear that in many subfields there is quite a bit of saturation. When everyone has a car, and cars last longer and longer, the need for new cars goes down. Once you get to a point where your industrial capacity can provide enough to satisfy demand, further R&D only reduces the costs of satisfying that demand, not increased output, and in some cases improvements to product quality may even further reduce demand. In the US, light vehicle sales peaked in 2000, and while the numbers dipped during various market downturns, they keep coming back to roughly the same asymptote. The numbers are even more striking if you break it down further - the annual demand for personal vehicles has fallen by a factor of 4 since 1965, and by a factor of 3 since 2000, the difference being made up by increased commercial vehicle demand. Looking at other industries like steel paints a similar picture.
This would only decrease productivity if there was no other demands for people to do something; if this was a simultaneous saturation across everything that a company could do with their current resources.
> if this was a simultaneous saturation across everything that a company could do with their current resources.
That's exactly what I am describing. It's not that a particular style of vehicle is no longer in demand due to a shift in preferences and factories would need to be retooled to create a different type of vehicle, demand for all vehicles has fallen. Yes, the people who once worked on those auto assembly lines will generally go on to do something else, but it won't count as an increase in productivity in car production.
More generally, demand for pretty much all US domestic manufactured goods has flatlined or fallen. Production capacity is not the limiting factor in almost anything mass produced nowadays. Even dramatic reductions in manufacturing cost aren't going to induce any demand. Throw in demographic changes where there are fewer people who have needs to be satisfied, and better products which don't need to be replaced as often, and we ought to expect falling demand across the board.
What happens if the prices of cars are depressed by the increasing efficiency, competition and product longevity, and the people displaced through efficiency are taking lower paid jobs.
If you measure output as GDP - wouldn't GDP have gone down - even if actual production of goods and services has gone up?
Not sure how they measure productivity here.
if you think it's bad now for reasons of increased reliability and efficiency throughout -- wait till the population starts dropping as boomers die and zoomers don't have kids
Not sure I follow. Sure output would drop if the population dropped - but then so would demand - so unless you have demographic imbalance I'm not sure it's a problem.
Perhaps if you are at the apex skimming off a fraction of a percentage of total output then the size of the output matters.
Or perhaps if you are holding debt and expecting the repayments with interest to be made.
If the OECD is to be believed, the elephant in the room is that China negated the value of western R&D by about $500B per year since 2010.
That’s why being a fast follower is so valuable, you get everyone else to waste money on the wrong ways to build things. It also causes R&D to show much worse returns.
> That’s why being a fast follower is so valuable, you get everyone else to waste money on the wrong ways to build things. It also causes R&D to show much worse returns.
Frankly I think this is the big cultural change in tech generally, isn't it? People come up with ideas and everyone goes "oh I want to do that", so they replicate it off the back of the work everyone else has done. Uncritical FOMO.
But actually it's better to be an even slower follower, generally, as a survivor strategy. Apple and Nintendo shows this. It's better to go "I see what they are all doing, and I see where they think consumers are, but I think they are wrong, and I think it's not just a question of them going about it wrong, but that all of this evidence suggests consumers actually wish they were getting this other thing, and that is what we should build".
This works for Apple & Nintendo because they built their brand image while being fast-followers – and even pioneers decades ago (the Apple ][ was among the trailblazers, just like the GameBoy or the (S)NES).
I would bet that a company trying to replicate that strategy without the previously established brand image would not go very far.
Wouldn't those two be the opposite of fast followers? Indeed, they trailblazed once upon a time. But they maintained that after being surpassed by focusing on being slow followers. Analyzing the market, polishing what worked to perfection, and making it super intuitive.
Or perhaps the time scale of "fast follower" is distorted in my head, compared to the scale of business.
I think as they're quite secretive so it seems they're slow followers but they're fairly fast in starting the project, keep it under wraps and take their time to get it right.
Younger readers might not know that before the iPad came out, Michael Arrington tried to make a tablet before tablets were a thing. So the problem back then was that touch screens were expensive and scaling up from a smart phone to a tablet had a lot of engineering problems. It didn't happen overnight. And Arrington started building TechCrunch’s "CrunchPad" in public, and people thought he might steal a march on tablets. It went a bit wrong with a falling out with a manufacturer, and the manufacturer released the JooJoo.
But obviously Apple had been working on the iPad the entire time, kept their mouths shut until they had perfected it and crushed the JooJoo a couple of months after the JooJoo's release date. The JooJoo was more expensive than expected, almost the same price as the iPad, but had performance issues, poor software, no app store and a short battery life.
You might argue that Apple's lost that 'skill' now. For example, the Apple Vision Pro, which didn't nail it.
The vision is interesting and encapsulates a bit of old and new apple. It's clearly well made and best in class so in some ways they did wait to bring out something, quality, rather than something during the hype.
On the other hand, you can argue that they didn't wait long enough because the tech to really pull off this vision simply wasn't there yet (or is there but is obscenely expensive, which is saying something given this headset was already lambasted for cost). It's marketing (after looking back at some commercials) for what it offers was half "oh this is pretty useful" (a workststion with very little footprint) and half "oh this is black mirror" (lying along on a couch watching movies, interacting with kids as you have a giant headset on you). Maybe it's the nature of thr medium, but Apple tended to do a good job is making it feel like their technology brought people closer. Here the socialization felt hollow.
> You might argue that Apple's lost that 'skill' now. For example, the Apple Vision Pro, which didn't nail it.
Apple has always liked to dabble with 'failures' too, though. For example, the Newton didn't nail it, but arguably was still an important step towards creating the iPad.
I'll give you the Gameboy but the NES and SNES were very much "see what the others did, now do it better".
> but the NES
The NES trailblazed the 3rd generation consoles and nearly single-handedly put a term to the NA videogames crash.
Granted, the SNES was nothing to call home about when it came out.
Eh... it was certainly massively impactful, but the device itself is not revolutionary in any way (the games are another story, e.g. Super Mario Bros).
If the crash hadn't happened and Mattel managed to drop the Intellivision 3, then graphically and aurally it would have been very close to the NES. Hardware wise the NES is just "like what came before, but better".
Even the gamepad was very similar to the Vectrex controller, which had the same shape but used a very small joystick instead of a D-pad. The use of a D-pad on a controller could be considered revolutionary I suppose (though the D-pad itself wasn't invented by Nintendo, they used it best).
But the same could be said of the SNES and the shoulder buttons then, the most revolutionary aspect was the controller.
Your exemples are not very good.
Nintendo has always been an innovative company. They have gone against the rest of the industry time and time again. What they don’t do is follow. They don’t go for ever increasing performance. They don’t chase ports. The Wii with motion control, the switch merging handheld and tv based, both were very new idea.
Respectfully, I think you missed the point of GP, as you are agreeing with them.
Being a technology follower is 100% compatible with being a user experience innovator.
Like you said, Nintendo saw that consumers didn’t really want more polygons/second, they wanted fun. Similarly, Apple saw Rio and other MP3 players and realized that consumers didn’t want a 800 128kbps mp3s in their pocket, they wanted a stylish way to listen to music on the go.
Sure, the Wii controllers and iPod clickwheel were novel and innovative user experiences and big hits, but they weren’t heavy lifting technically.
> Being a technology follower is 100% compatible with being a user experience innovator.
I think you are making the same mistake that OP.
You think R&D in the video game industry is releasing more powerful systems. It’s not. R&D is proposing innovative value proposition. Nintendo does that all the time from the Switch to the weird game with cardboard. Nintendo does a lot of R&D in an industry where their competitors do very little and mostly just update their existing product. Calling them an exemple of a follower couldn’t be further from the truth.
Apple indeed used to do a lot of R&D. They do a lot less nowadays.
Apple and Nintendo have some of the strongest brand loyalty this side of macrobrewed beer and sports teams. They can afford to go against the current because they have extremely deep barrels of fanatics who will buy just about anything they make, regardless of whether it's cutting edge or not.
Nintendo in particular also has a different culture than the modern explosive shareholder mentality. They have a huge war chest can likely operate at a loss for over a decade, even if their stock crashed to zero tomorrow.
In other words: they have cultural skin in the game. A bad quarter or even year won't have them seeking out private equity funding.
Didn't they almost go broke after the Wii U? I vaguely remember that the Switch was do-or-die for them.
Yep, and it wasn't the first time the company nearly went bankrupt before miraculously recovering.
Yes, and the Wii U would have been 4-5 years of disappointing sales. But they still tried to invest hard into their hardware and software.
In comparison. How do we think Activision or Ubisoft would have reacted to those kinds of shortcomings?
That’s a pretty spectacular way to miss the point.
The implication that these “fanatics” are misguided because they fail to prioritize “cutting edge” over every other purchase criteria tells me you haven’t been around the block enough to realize that cutting edge is not a positive product attribute. Believe me, I have storage bins full of obsolete cutting edge products that I got less joy from than many boring old appliances I use every day.
I think the solution is to knock them down to a point that they are like India or Russia.
Just big countries but stuck.
I wouldn’t mind if we could make some plays to revamp Japan and some EU, and maybe grow India while boxing China and Russia together.
As long as those countries have governments that aren’t on our side or at least sympathetic to our vision, they should be kept in check hard. Like manufacturing stuff for us but not really being able to use any of it. Sounds harsh but that’s reality. Nothing personal lol
All they’ve done is steal anyway and extracting knowledge from us after we showed them how to make a factory (reductionist but idc), so it’s not like we would be “morally” wrong.
I often browse Hacker News and like it here. As a young Chinese entrepreneur, comments like these make me feel frustrated. China has a large wealth gap, and we have many people with lower education levels who earn meager wages through manual labor to support their families, highly dependent on manufacturing for income. In a sense, they are somewhat like the American Rust Belt before the loss of manufacturing (though they probably don't live as well as Americans, as they can afford neither homes nor cars). The setbacks manufacturing faces in international trade are making their lives even worse. I can roughly understand why you made such a comment, because many friendly and kind people around you are, or have been, worse off due to the competition between our countries. The people around me are also friendly and kind, and I think the best outcome should be for all of us to live better, rather than one side getting better at the expense of the other. I think we should find ways to develop that benefit everyone, because we are all human, and those who are awake when you are sleeping are not bad people.
I would agree with you, if I didn't hear many times about Chinese government repressing other nations just for being near China and not being fully Chinese. Maybe people near you are kind and friendly and I would like to help them, but I'm afraid that some Chinese people with guns will also come to me. How would you solve that problem?
All big countries do that, look at the US meddling with the while of South America and the Middle East. China does the same.
Does that mean I can help Americans and Chinese (and maybe Russians too), because everyone is doing bad things? Like IBM provided equipment to nazis during WW2? Business is business, right?
You can help whomever, but I suggest doing things to push powers to do less harm. I don’t think we should argue against more international cooperation with the argument that any party is or has committed atrocities, otherwise the only international collaboration that will takr place will be between states too small to be useful.
Although the Putin regime can enter the sea and never return.
> You can help whomever, but I suggest doing things to push powers to do less harm.
I'm so comically bad at pushing powers to do anything that even my wife doesn't listen to me. From what I've seen, most people making things are bad at demanding things from others. Those who are good at demanding things from others don't really need to make things themselves.
What precisely do you mean in regards to South America? Or are you referencing 19th century policies?
1954 - The USA overthrew a democratic government in Guatemala and replaced it with a violent dictatorship so that we could keep getting cheap bananas.
You took the bait.
The person you're replying to would much rather have a discussion about the well-documented atrocities of a waning American empire than the far less documented atrocities of a waxing Chinese Empire that has no democratic institutions to keep it in check.
You act like our democratic instutions keep us in check. Note how most of our disruption in central america came from actions by clandestine intelligence agencies that are unaccountable to the democratic american government. Yes, there are two governments in the U.S: the one the public elects and then the one that the public is never to fully learn about.
Bro they intervened in Guatemala because in almost every case where communism was preferred over capitalism that country went to shit and became a backwater.
Commi didn’t work as an experiment after all those death camps and purges anyway. And anyone “communist” today is basically authoritarian capitalist with mini purges and dictators. They take Jack Ma to a “camp” and factory reset him or put all the Muslims out west in a prison city.
America has to play the way it does sometimes because the lobby is dominated by cheaters and toxic scumbags who don’t want to actually score points and win.