Recently, I have seen a number of articles and blogs discussing a curious feature of recessions. That is, when large numbers of people lose their corporate jobs and are forced out of their comfort zones, some of them will (perhaps out of necessity) innovate. This sort of innovation is what drives entrepreneurship and venture backed companies.
For example, a recent New York Times article on the demise of Venture Capital (a subject I have discussed recently here, here and here) concluded:
If there is a silver lining, the large-scale downsizing from major companies will release a lot of new entrepreneurial talent and ideas — scientists, engineers, business folks now looking to do other things ... There will be a lot of forced entrepreneurship that will lead to innovations.
A recent editorial in The Deal, put it even better:
America may be at the dawn of a new era. No, not the Obama era, but a new era of venture capitalism and entrepreneurship. It may not come immediately, but it will come eventually, much like the earlier great eras of innovation, which sprang forth from the wreckage of an economic crisis.
That's the hopeful view of our current crisis. During the Great Depression the groundwork was laid for some of the mid-20th century's great innovations. RCA's David Sarnoff oversaw the creation of television. IBM Corp., academic and military researchers built early computers. Jet engines were going from proof of concept to a reality in the U.K. and Germany. The list could go on. And after World War II, these technologies dramatically transformed the world and led to economic prosperity.
Similarly, the great stagflation of the 1970s saw a boom in innovations. Apple popularized personal computers. Intel introduced the microprocessor. Microsoft Corp., Lotus and other software companies were founded to capitalize on these new technologies. Motorola Inc. began developing cellular phones. Meanwhile, cable TV networks were being laid by entrepreneurs, and throngs of new TV channels like CNN, HBO and MTV were created to fill the new frontier. Venture capitalists helped academics launch biotechnology startups, and from those efforts came Genentech Inc., Biogen and a host of others. And just as in the period that followed World War II, the world seemed to be transformed through innovation.
Now, I am not making light of the very serious ramifications that losing a job has on many households. However, in a macro sense, I see the silver lining. I have a deep faith in the virtuous cycle of capitalism and entrepreneurship and believe strongly that however great the destruction is in this down-stroke, the resulting up-stroke of creativity will be even greater.