00:07:11 (someone): It is a little bit disappointing in the sense that we would like to make sure that the U.S. economy is using its resources in the most effective way. But of course, firms are just trying to maximize their profit and not necessarily the social welfare.

00:07:25 (someone): Ufork also cites our old friend, middle management sludge.

00:07:28 (someone): Normally, when an inventor is in a startup, typically, all it takes is, you know, to convince three or four people in the company to implement a new technology or take a new direction. But when you're in a large organization, getting approval for a project, or how resources are being allocated within the company, then bureaucracy definitely comes in.

00:07:53 (someone): Ufuk thinks this could be part of the reason why Americans aren't getting more productive as fast as they used to.

00:07:59 (someone): The U.S. economy has been investing more and more in innovative activities. If you are investing more in R&D, we should grow faster. But that's not happening. Indeed, the opposite is happening. We are receiving less in return.

00:08:13 (someone): Now, of course, other reasons why the U.S. has slowing productivity growth might include regulation, low investment, and an aging population. But Ufuk and Nathan's findings help us with part of this puzzle. Because when he looked at where inventors were going to work from the year 2000 to the year 2016, Ufuk found something that really worried him.

00:08:36 (someone): We see a massive trend. The fraction of inventors that used to work for young, small businesses, it's declining drastically.

00:05:37 (someone): economy?

00:05:38 (someone): Ufuk tracked 760,000 inventors using their patent records, which he then matched with their employment data. He did that with the help of Census Bureau economist and co-author Nathan Goldschlag. And what Ufuk and Nathan found was that inventors earn more money when they go to bigger, older companies. Like, enough money to take an overseas family vacation every year. But these inventors tend to make fewer groundbreaking inventions. Ufuk and Nathan looked at not just how many patents were filed, but also how important were their innovations. Like, how often was the patent cited by others, and how independent was this breakthrough? And by that measure of inventive output, innovation declined by up to 11% in those big companies. Now, how are those companies doing this? You know, paying more and not making as many groundbreaking inventions? Ufuk's read of the evidence is that the established companies are doing more in strategic hiring and strategic patent filing. That is, the companies are hiring promising inventors from startups, and they're filing for patents. But they're not necessarily doing much with that talent or that intellectual property. Ufuk believes that the companies are more likely to be defending their market share through hires and mergers and acquisitions rather than creating new markets with a great new product.

00:07:02 (someone): As firms are gaining market power, rather than becoming more innovative, they are switching to more defensive strategies.

00:07:09 (someone): Were you disappointed to find this?

00:07:11 (someone): It is a little bit disappointing in the sense that we would like to make sure that the U.S. economy is using its resources in the most effective way.

00:08:36 (someone): We see a massive trend. The fraction of inventors that used to work for young, small businesses, it's declining drastically.

00:08:46 (someone): Inventors and young, small companies are often trying to come up with a path-breaking discovery rather than defend old turf. And that's exactly how it worked for Joshua Boger, the chemist who started his own company, Vertex Pharmaceuticals. Now, to be fair, Joshua's old company Merck has continued to innovate too. But Joshua's new company, fueled by empowered and hungry scientists, came up with some of the most exciting drug discoveries of our generation, including an HIV drug and a treatment that could add three decades to the lives of people with cystic fibrosis. Joshua is now retired from Vertex, but he says he still gets messages from people whose lives have been changed by his company.

00:09:28 (someone): There is nothing more satisfying than getting a letter from a mother saying, I have two daughters who I did not expect to go to their high school graduation, and I expect now to go to their children's college graduation.

00:09:45 (someone): Kind of makes you wonder how many great innovations we never saw because they got stuck in that middle manager sludge. Our old nemesis. So I've talked about how at some larger legacy companies there are all these barriers to innovation. So what happens when those barriers get taken away and inventors do get enough resources? After the break, we'll look at SpaceX and the very expensive business of going to the moon, and even Mars, and whether that business really adds up.

00:10:27 (someone): We have never seen anything like the revolution in AI technology happening right now. Or have we?

00:10:35 (someone): The 1920s, the 1940s, the 1960s, the 1980s. The robots are coming.

00:00:01 (someone): This is Planet Money from NPR.

00:00:07 (someone): In the mid 90s, there was this big new economic theory that was all the rage. It was an idea for how countries can produce unlimited economic growth, which is kind of the whole point of economics. You know, growth means less poverty, more prosperity.

00:00:24 (someone): For decades, economists had said there are basically just two ways to make an economy grow. Invest in capital or in labor. In tangible, mundane things like factories and workers. Which means growth is ultimately limited because there are just so many people you can hire or factories you can build.

00:00:45 (someone): But then some economists, most notably Paul Romer, said, actually, there's a third way to grow innovation. And before this, people thought of innovation as a sort of mysterious force that kind of comes and goes at its own discretion.

00:01:00 (someone): Paul Romer said, actually, you can make innovation happen. Innovation is just like a factory you can build. All you have to do is, like, invest in science education, promote market competition, and most importantly, pass strong patent laws so that ideas can be protected and monetized. Just do these things, pass those laws, and innovation will follow.

00:01:24 (someone): And people loved this idea. Paul Romer eventually won the Nobel Prize in economics for it, and he taught it to an entire generation of economics students.

00:01:34 (someone): But one of those students, a PhD candidate named Lisa Cook, as she learned about this, she thought, I'm not sure it's that simple. Just pass patent laws, get innovation?

00:01:46 (someone): No. It won't work that way. No. It seemed naive.

00:01:31 (someone): Which means growth is ultimately limited because there are just so many people you can hire or factories you can build.

00:01:39 (someone): But then some economists, most notably Paul Romer, said, actually, there's a third way to grow innovation. And before this, people thought of innovation as a sort of mysterious force that kind of comes and goes at its own discretion.

00:01:54 (someone): Paul Romer said, actually, you can make innovation happen. Innovation is just like a factory you can build. All you have to do is, like, invest in science education, promote market competition, and most importantly, pass strong patent laws so that ideas can be protected and monetized. Just do these things, pass those laws, and innovation will follow.

00:02:18 (someone): And people loved this idea. Paul Romer eventually won the Nobel Prize in economics for it, and he taught it to an entire generation of economics students.

00:02:28 (someone): But one of those students, a PhD candidate named Lisa Cook, as she learned about this, she thought, I'm not sure it's that simple. Just pass patent laws, get innovation?

00:02:40 (someone): No. It won't work that way. No. It seemed naive. Like, you know, build it and they will come. And that's not how it works. You can have laws on the books and not enforce them and never have growth.

00:03:00 (someone): Lisa Cook was skeptical in part because of personal experiences. For one, she'd spent some time in Russia. She was studying the banking system there in the 1990s. And at the time, Russia technically had patent laws. But what they didn't have was a lot of innovation.

00:04:21 (someone): We'll have to study it. We'll have to study it.

00:04:24 (someone): In the late 1980s, though, Joshua gets a call that offers a way out of this middle management sludge.

00:04:30 (someone): A venture capitalist called me and said, you know, you can do this faster on the outside. And I was incredulous. I had never heard of a venture capitalist. I had no idea what they did. I said, but this is very expensive. And he said, oh, money's not a problem.

00:04:45 (someone): Joshua decided to leave Merck. He launched his own company, Vertex Pharmaceuticals, in 1989. Now, this situation is a huge dilemma in business and government. You've got larger, older organizations who often have the resources and experiences to do big things. Many of them perform their core business very well. Merck, for example, has saved countless lives by developing an HPV vaccine, along with their many other vaccines and drugs. But established organizations tend to struggle when radically new ideas come along. So if you're an inventor, where do you want to be? Do you want to be with a dusty behemoth or at a scrappy startup? Ufuk Akcagit is an economist at the University of Chicago who wanted to answer this question.

00:05:33 (someone): The question is, how are we using our inventors in the U.S. economy?

00:05:38 (someone): Ufuk tracked 760,000 inventors using their patent records, which he then matched with their employment data.

00:19:43 (someone): But I am back in 2022 with our economists, Luigi and Kristen. Guys, what does this story illuminate about productivity and economics in general?

00:19:55 (someone): I love the whole candle making thing and how candles were made with fat and just imagining the smell of that is something that I don't really want to consider. But thinking about going from 10 minutes of light to being able to earn enough for 20,000 hours of light is what technology does. And I guess I think about Keynes and how John Maynard Keynes predicted that because of technological change and productivity improvement, that we would eventually get to a 15-hour work week, but we're still at 40, right? And why is that? Because you don't just stop at whatever level of productivity you think you want. Demand continues to increase. And as technology improves, then we can continue to make more things, make them better and faster.

00:20:50 (someone): At the end of this piece, they talk about, like, are we reaching the end of how much more productive we can get? Which I think is an interesting question and also maybe ties into one of the critiques that I sometimes hear of capitalism and a market economy, that it creates more stuff and then we buy more stuff and maybe we should make less stuff and be less focused on productivity and growth and more focused on sustainability, maybe a 15 hour work week. I feel like that's like economic sacrilege, but I would love you guys' reaction to that.

00:21:24 (someone): First of all, I will distinguish between production and productivity. I think that we can produce less, but be more productive. We just work much fewer hours. I think that's exactly the point.

00:00:01 (someone): This is Planet Money from NPR.

00:00:06 (someone): In the 1980s, Joshua Bojo was a chemist for the big pharmaceutical company Merck. Joshua's job was to try to draw out new compounds and figure out if they could be used for new medicines.

00:00:19 (someone): I was making 25 to 50 compounds a year by hand, one at a time. We were told that it would take about 50,000 compounds before we should expect to get a So you do the math, the average chemist would never. make a drug in their entire career.

00:00:36 (someone): You can imagine him in a lab hoping to find a treatment one day for, say, HIV or hepatitis C. And he thought that a computer could help him with his quest. So he got one. Now, picture this. It's four decades ago. The computer is like the size of a fridge. He's ready to use it, but there's a problem because he can't even plug it into the wall in the lab because he needed a special electrical connection.

00:01:02 (someone): The people in charge said, we can't do that until we study the implications of this for all of Merck's labs around the world. And I just wanted a plug. And so it took literally three months to get this expensive computer sitting on a box at the end of the hallway plugged in.

00:01:22 (someone): To Joshua, that weight was symbolic of everything that was wrong with a large company. Now, to be clear, this is not a story about Merck. This is a story about big organizations, from pharmaceutical companies to car makers.

00:19:03 (someone): It's just this faith that SpaceX really can change the world. In a recent sort of round of fundraising, the valuation that was sort of bandied about for SpaceX was close to $140 billion. Now, do you remember the total revenue from launch is only around $6 billion annually. Wow. I mean, it really shows that investors are ready to believe that Starship will work and that it'll pay off. I mean, I guess the question is, how many rockets are they willing to see blow up?

00:19:40 (someone): These episodes were originally produced by Corey Bridges and Brendan Cronin. They were engineered by Catherine Silva and James Wurlitz, fact-checking by Dylan Sloan and Cyril Guardez. Viet Le is the indicator's senior producer, and Kate Kincannon edits the show. Jess Jang is our acting executive producer. I'm Jerrion Woods. This is NPR. Thanks for listening.

00:02:50 (someone): I'll be here all week.

00:02:52 (someone): Wrap up your week and listen to The Indicator podcast from NPR. Joshua Boger, the chemist who worked at Merck back in the 1980s and wanted to develop new drugs, fought for three months to plug in that giant computer. And later he discovered another tool that could help him, and this involved bringing in his own early Apple desktop computer.

00:03:13 (someone): I had to backpack it in in the morning and backpack it out because it was against the rules to have a non-approved electrical device plugged in overnight. I did that for an entire year.

00:03:25 (someone): You would have got some pretty strong back muscles.

00:03:27 (someone): It was a full backpack, you know, with the suspension on the back and everything.

00:03:31 (someone): Joshua also saw that new chemical or biological innovations would sometimes fall between the cracks of this organizational structure at the company, one that was built around different scientific specialties. And he thought bringing the different specialties closer together and organizing them around projects instead would actually help with this.

00:03:50 (someone): But... I was running into active resistance from my peers who didn't like it that I was getting all these things. and the middle management sludge, which was really then slowing this innovation engine.

00:04:05 (someone): I think anybody who's worked for a large organization knows exactly what you're talking about with middle management sludge.

00:04:11 (someone): Yeah, I think this is a general feature, and it's sometimes active aggression, but often just passive aggression.

00:04:18 (someone): Soft peddling, maybe. That idea sounds interesting.

00:04:21 (someone): We'll have to study it. We'll have to study it.

00:01:28 (someone): Now, to be clear, this is not a story about Merck. This is a story about big organizations, from pharmaceutical companies to car makers. Because a new paper suggests that a lot of larger companies aren't allowing inventors like Joshua Boger to, you know, invent. And that these old giants are holding the entire economy back. Hello and welcome to Planet Money. I'm Darian Woods. And I'm Adrian Ma. Today on the show, just let me make stuff. We're bringing you two recent episodes from our daily podcast, The Indicator, all about invention. First, we'll explore the ways in which bigger, more established companies might actually be holding inventors back and limiting how much innovation is taking place in the American economy. After that, what happens when inventors do get to make stuff? We'll look at SpaceX, Elon Musk's giant space rocket company. They've got some big aspirations and have made some equally big investments in building new technology. But do their numbers really stack up? All that's after the break. Numbers that explain the economy. We love them at The Indicator from Planet Money. And on Fridays, we discuss indicators in the news, like job numbers, spending, the cost of food, sometimes all three.

00:02:45 (someone): So my indicator is about why you might need to bring home more bacon to afford your eggs. I'll be here all week.

00:02:52 (someone): Wrap up your week and listen to The Indicator podcast from NPR.

00:12:02 (someone): All right, so mixed results, but people were kind of celebrating a bit as well.

00:12:07 (someone): Yeah, yeah. I mean, SpaceX treated this thing like a big success. And it was actually, even though this giant, super expensive rocket exploded, you know, just getting something like this off the pad, getting it this far into its flight on the first try is really impressive. But they still have a long way to go.

00:12:28 (someone): Right, now SpaceX is not a brand new company. It's been around since 2002. The technology that it's developed is geared towards launching things into space. Things like weather and communications satellites.

00:12:40 (someone): Falcon 9 is in startup. LD is go for launch.

00:12:43 (someone): Yeah, it's got these rockets where the bottom part of the rocket can land vertically and be reused really easily. And that's made its launch costs far cheaper than most other space companies. I spoke to this analyst named Chris Quilty. He's the president of a company called Quilty Space. He says SpaceX is getting a lot of business.

00:13:09 (someone): SpaceX, when it comes to the launch industry, is sitting high on the hog. Like, they're in such a good position competitively.

00:13:19 (someone): So I understand that SpaceX has big contracts to launch supplies to the International Space Station and even astronauts too. And so you'd think with these big deals that SpaceX would be making a lot of money.

00:13:31 (someone): You'd think so. I mean, it really is dominating a lot of different parts of the business of launching things into space.

00:13:55 (someone): Back then, Kuznets called it national income, but it was a forerunner to a concept that today we call GDP. Kuznets' number became sort of a sensation, his boring report became a bestseller, the first 4,500 copies sold out, and it had to be reprinted. Seriously.

00:14:13 (someone): All of a sudden, the country had a more scientific way to estimate economic growth, to judge leaders and policies on their economic performance, and to decide whether they should change course. And before too long, the number was adopted by basically every nation on Earth.

00:14:30 (someone): But in the very report to Congress in which Kuznets pioneered the measurement of GDP, he also cautioned against putting too much stock in it. As he said, this single metric only estimates the size of the economy, not the well-being of society. To get at that, we need to know much more, especially who is benefiting or not benefiting from economic growth.

00:14:53 (someone): And despite that and a whole long line of economists saying, listen, GDP is not the end all be all of the economic conversation, that indicator GDP still continues to dominate the conversation. And that is why a team of economists at UC Berkeley is trying to change that.

00:15:11 (someone): The big problem is that GDP data doesn't tell you who is benefiting from economic growth.

00:15:19 (someone): Gabriel Zuckman is part of a trio of economists trying to revolutionize GDP, along with Thomas Blanchett and Emmanuel Saez. They offer a new GDP prototype.

00:15:30 (someone): You know, the remix. This prototype breaks down data on economic growth and sees where the gains from that growth are going. They publish it all on a website called realtimeinequality.org.

00:15:42 (someone): Now, here in the U.S., of course, we already have a ton of data on inequality.

00:14:23

(someone): Is that a real thing, disruption? What does that mean and how is that a useful way to think about the world if everyone's trying to be a disruptor? There are two ways of thinking about this. The first way is the generalist layman's way of thinking about disruption which just signals any type of change that is large in scale. I don't think that's a very useful way or strategic way to think about disruption. The second way to think about disruptive innovation comes from the originator of the idea who is Clayton Christensen. a professor at Harvard Business School for a long time. And what makes these innovations particularly dangerous for incumbents is because they're easy to ignore. And what makes them easy to ignore is that they are technologies that are decidedly worse. They're seen as worse ways of delivering the same kind of value. I don't quite understand. You would think that someone's launching a new technology because they think it's better, not because it's worse. Well, they're launching a new technology because it's different. It's a different way of providing a good or service. And incumbents are used to their way of providing that good or service. They think that's superior. So when they evaluate a new way of doing it and they see it as worse, then it's not worth competing with them. Because they'll say, it's like, wait a minute. we've already figured this whole thing out. why would you go with that particular service?