Innovation and the cult of the firestarter

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The writer, an FT contributing editor, is chief executive of the Royal Society of Arts and former chief economist at the Bank of England

“I am a firestarter.” So sang Keith Flint, the late lead singer of techno-punk band The Prodigy. With so many fires burning globally, both literal and metaphorical, you might think it would be the worst possible moment to be taking Flint’s lyrics to heart when setting public policy. Or perhaps it is the best. 

“Creative destruction” was first popularised in the 20th century by the Austrian economist Joseph Schumpeter, though its roots can be traced back to the writings of Karl Marx. The Marx-Schumpeter hypothesis is that, over the arc of history, the fastest-growing and most dynamic economies have moved fast (the creative bit) and broken things (the destructive bit).

Economic dynamism can be measured along a number of dimensions, including the number of firms entering and exiting a market, the number of workers being hired and fired and the pace and scale of public service reform. Research has shown these measures help determine the intensity of innovation and so are good leading indicators of productivity and economic growth, backing up the Marx-Schumpeter hypothesis.

The same research suggests these engines of growth have stalled across OECD countries. In the private sector, combined rates of firm entry and exit have fallen 3 percentage points, and rates of job creation plus destruction by 5 percentage points, over the course of this century.

How do we explain this slump? In the past, the spark plugs of economic dynamism have often been technological: the fastest periods of growth have been associated with the emergence of new general purpose technologies (GPTs) — the steam engine in the 18th century, electricity in the 19th, automotive and digital technologies in the 20th.

Each of these industrial revolutions came with severe economic and social costs — mass job and company displacement as well as replacement, mass migration from rural to urban settlements and a huge expansion of public sector services and spending. The first two were evidence of creative destruction and dynamism at work, while the third helped avoid Marx’s prediction that capitalism would sow the seeds of its own destruction.

We now sit on the cusp of a fourth industrial revolution driven by a new set of GPTs, notably AI. Can we assume the potent forces of creative destruction will once again rekindle economic dynamism and growth? The lesson of history is that technology is not, by itself, a sufficient ingredient for success. The drivers of past industrial revolutions were as much people as machines.

It takes disruptive people to ensure disruptive technologies find widespread application in industry and society — inventors-cum-industrialists such as James Watt, Thomas Edison, Henry Ford and Steve Jobs. This century’s disrupters — think of Mark Zuckerberg, Jeff Bezos and Elon Musk — are cut from similar cloth. The cult of the fire-starter has rarely been stronger.

And now politicians are getting in on the act. The UK Prime Minister Sir Keir Starmer has recently signalled the need for “disrupters” if Britain is to meet its growth and public reform challenges. In stagnant Europe, “something must be done” syndrome is rife. The question left unanswered is whether the right people are in place to deliver this disruption.

Governments in the UK, France and Germany largely comprise reasonable people who, as George Bernard Shaw put it, mould themselves to the world. In the US, on the other hand, President Donald Trump has chosen a government of, in Shaw’s terms, unreasonable individuals who seek to mould the world to themselves. Success for them is an inbox incinerated, an order executed, a fire started.

If you asked which of these governance models was best suited to avoiding a global conflagration, real or trade-related, most would plumb for the pragmatic European model. But were you to ask which is most likely to deliver meaningful public service reform, harness the benefits of the fourth industrial revolution and generate economic dynamism and growth, the smart money would be flooding stateside — and is doing so.

Shaw concluded, presciently, that “all progress depends on the unreasonable man”. With economic dynamism damped and a new technological wave breaking, the need for unreasonable, but benevolent, leadership has rarely been greater. If they are serious about rekindling growth, leaders in Europe would do well to mark Shaw’s words before a less benevolent flame-thrower than Keith Flint replaces them.