Monday, Nov 09, 2009

Recovery in a 'through-the-looking-glass' world

BusinessWeek: The GDP mirage

We've all read that the 10% unemployment in the US could really be 20% and that one-off gov't stimulus, rather than truly recovered economic activity, is behind recent GDP growth. Well, here's another cause for concern - big cutbacks in intangible investments in R&D, product development, design and worker training - companies robbing the future to pay for short-term profits. These cutbacks are intangible also in the sense that they aren't picked up in GDP stats, so GDP looks higher than it really is. Such reductions also compromise future competitiveness and economic activity.

Posted by icarus @ 06:57 PM (903 views)
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1. estrader said...

Who cares? Seriously? All the bears are wrong. The stock market falls then quickly recovers to make new highs, and higher and up and up and away...the market is going to heaven...I'm now convinced the Global Financial Crisis was orchestrated in order to get the weak hands to sell out. Now, back to normal, onwards and upwards...and up...and up...and up...I give up...

Monday, November 9, 2009 08:08PM Report Comment

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4. Hyrax said...

I can add a little to this "big cutbacks in intangible investments in R&D, product development..companies robbing the future to pay for short-term profits." As an R&D scientist I can certainly relate to this; contracts are cut the minute you produce the goods or protect the IP. As a British start-up in Biotech we were bought up when we patented by a US firm. The first thing they did was move prodution to california. Second lay-off anyone who knew anything. Then close the company not even following UK employment law. The thing is R&D is on the back foot, it is always done with the least investment. Heck I helped save a division of a biomedical USFortune200, they spent 3 times the $$$ on marketing than R&D. The didnt even wait for us to finish the patents before they laid us off. Then rehired for a year. The story is the money players and stocks make the money, not the invested intellectual property developing employees. Ultimately thats why capitalism will fail, selfishness and parasitic greed by those that ride the money. If a scientist strikes for lack of an inflationary pay award, no one will ever notice...the product they didnt invent you will never see, or it will get invented a few years later...its only when greater events like global warming intercede, or a pandemic, you cant wait, and complain there isnt enough effective medicine to go around cheaply enough, then humans look a bit silly. So GDP for those that can afford R&D, those that waste
the money on other stuff, like proping up house prices, are broke and cannot
develop anything but Brit-pop, brit-art. Heck we cannot even invest to store our own North Sea gas, so buy it back in the winter from europe. HaHa!!

Needless to say when I was successful, company and 20 odd UK jobs lost, unemployed 2 years (specialist scientist) no in North America on my own nickel looking for work as I havent had an interview
in UK 18 months. The six patents those US companies hold earn about £250 million a year, and I didn't get a penny for 5 of them. So better to be a financial bubble dealer than do a proper job improving things as a scientist. Needless to say never owned my own home, but had to rent the wholed time. Capitalism is a busted promise. Only what gets rewarded gets done. If I cannot get science work soon I will burn my note books. As a planet we will probably win the intergalatic darwin award for best self-destruction. Think about it. How likely are we to pay for R&D
and act on global warming? Biofuel is a recycling trick by the oil companies. Only by burying biofuel do you strip it from the atmosphere. Tough love but its nuclear, wind or tidal. But we will have to beg or borrow all that off the French or other overseas partner.

Tuesday, November 10, 2009 04:32AM Report Comment

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6. cat and canary said...

"Texas Instruments (TXN), meanwhile, expects to spend $1.5 billion on R&D in 2009, down 20% from 2008, owing to workforce reductions and cost-control efforts. And Johnson & Johnson (JNJ) has reduced its R&D by 13% over the past year"

Quoting the R&D expenditure of large multi-nationals isn´t a good way to measure lost innovation output due to the crisis since what they call "R&D" is usually a bit of "safe" product development on existing products.

More important is the drop in venture capital, since most decent innovations are created by start ups "VCs invested about $12 billion in the first three quarters of 2009, barely half the $22 billion plunked down during the first three quarters of 2008."

In a credit crunch who would want to splash out on high risk new companies, when 8/10 of them fail within 2-3 years?

Tuesday, November 10, 2009 07:51AM Report Comment

7. mountain goat said...

Up and up or was yesterday just an old fashioned short squeeze Estrader?

Tuesday, November 10, 2009 09:01AM Report Comment

8. bellwether said...

Estrader the stock markets are going up for exactly the same reason as gold people don't want to be holding cash. Are they right? Time will tell.

Tuesday, November 10, 2009 09:53AM Report Comment

9. icarus said...

cat and canary - he's not concerned with distinguishing between scientific research and product development/design. He argues that companies require those plus worker training if they are to remain competitive. His two main arguments are (1) companies are robbing the future for profits now by cutting expenditure on these 'intangibles' (depends on how quickly they can re-establish innovation capacity and competitiveness when or if demand picks up) and (2) such cuts don't register in the GDP numbers, which therefore overstate GDP in periods when such cuts are being made.

Tuesday, November 10, 2009 11:18AM Report Comment

10. cat and canary said...

icarus, can't disagree with your understanding of the article.

My point was to emphasise the under-reported (IMO) loss of venture capital into new businesses as being a huge contributor to future GDP. Many commentators speak of "innovating ourselves out of a recession", yet I believe the opposite is happening. Because those in control of the purse strings area funneling money towards propping up zombie incumbent companies, whereas I imagine obtaining venture capital is impossible these days.

Tuesday, November 10, 2009 11:46AM Report Comment

11. icarus said...

c and c - agreed - innovating ourselves out of recession is made difficult for the reason you give and, as you say in a later post, our scientists and engineers are better paid by the financial sector and, as he says in this article, R&D is more and more outsourced.

Tuesday, November 10, 2009 12:40PM Report Comment

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