John Kao, Paul Saffo, Tim Brown Offer 3 Ways to Reinvent America

What will drive innovation in the next decade? The Daily Beast's Randall Lane brought together preeminent business thinkers John Kao, Paul Saffo, and Tim Brown for ideas—from "pro-sumers" to designing living organisms.

With President Obama set to unveil his blueprint to kickstart innovation in America, The Daily Beast’s Randall Lane brought together three of the country’s top business thinkers— John Kao, chairman of the Institute for Large Scale Innovation, Paul Saffo, managing director of Foresight at Discern Analytics, and Tim Brown, president of IDEO—together for a roundtable on how to reinvent the American economy.

OK, given the collective wisdom here, this is $1 million worth of free consulting: Let’s hear what’s going to drive innovation in the next decade. One idea each.

Kao: I just got off the plane from Abu Dhabi. The level of investment in innovation capability in that part of the world is staggering. In Saudi Arabia, $60 billion is going into poor new economic cities that are being driven by theories about knowledge industries. Abu Dhabi has poured a “modest” $22 billion or so into cultivating a cultural zone, which will have Louvre Museum, a Guggenheim, a maritime museum, and a concert hall.

So I say this...about the big idea for America’s future. I could say it’s personalized medicine, which is going to transform the cost structure of health care. It’s going to be digital government, which is going to change the whole notion of the relationship between the government and the governing and maybe make that distinction almost meaningless. But what I’ve chosen is to look at the change in the nature of innovation itself, and how America can play in that game.

Countries around the world are racing like there’s no tomorrow toward a new high ground, not just Abu Dhabi, Finland, Singapore—smart small countries—but China, which is still ruled by a communist party and has stated that innovation is their top priority. So innovation is becoming globalized and a lot of countries are putting out big bets.

So that changes the game board for the United States quite considerably. We’re not the low-cost producer—other countries are spending more on infrastructure—but we have the entrepreneurial spark. So how do we become the executive producers and the entrepreneurs and the systems integrators who pull things together?

A lot of the policy discussions and leadership rhetoric about innovation is old things like, “Well, let’s have some more science; let’s increase our spending, you know, boost our universities.” That’s all fine and good, but it’s a global landscape, it’s a borderless landscape. And the issue of how to orchestrate resources and how to be good at the process of innovation within the technology-enabled global environment is, I think, the secret sauce for our country.

Brown: Here’s a fundamentally important idea that’s challenging me a lot as a designer. The shift, as I think about it, from a physics-based way of thinking about the world to to a biology-based way. And on the surface that will obviously have a huge impact in the next decade. From synthetic biology to biotechnology, it’s pretty clear that those technologies are going to have an enormous impact if we figure out how to leverage them, exploit them—and just know that the U.S. is in a really strong position with regard to those technologies.

It will change the way we think, from what I think of as the Newtonian world of prediction, of planning, to the Darwinian world of experimentation and learning, and it’s those shifts that I think are potentially the most valuable to us. It takes us from a world that’s clean to a world that’s messy, from a world that’s top-down, where we think about everything in its completeness, to a world of bottom-up, where ideas emerge, where new ideas and new practices emerge, and they are iterated to what is ultimately sort of their mature version. We only need to think about social networks—they’re not things, they’re behaviors.

I’ve been telling my designers for a few years now that I’m not sure when it’s going to happen but at some point I’m pretty sure during my career we’ll be designing living organisms.

If you look again how startups emerge, particularly today the Googles, the Facebooks, the Amazons, they’re designed as networks and they operate in networks where the entrepreneurs are focusing on every way you can build value between all these different players in these networks—customers, stakeholder, employees.

That’s a much more interesting way to think about doing this in the future. I think it changes the way we think about education—we need to start producing people who feel comfortable with these new ways of dealing with the world and dealing with complexity. Our education system today is based on achieving standards where as I think the biological approach creates actual diversity.

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Saffo: There’s a transformation already under way, so this isn’t even a forecast, it’s a description. Nov. 17, 2008, was not just a very bad day and a very bad week, it was also the moment in which the last economy died and a new economy is emerging. That new economy—yeah, we all talked about it through the ’90s, with the Internet, a happy face notion of what would happen—turned out to be a lot more complicated but also a lot more interesting.

“We’re now into the new economy and the new central actor is not the worker, the person who produces, nor the person who consumes, but a new economic actor who does both things at the same time,” says Saffo.

It’s a moment full of contradictions, but if you want to make sense of it, it’s easy to do. One of the rules of thumb I follow as a forecaster is always look back twice as far as you’re looking forward. So if I’m going to look back 50 years or look ahead 50 years, I want to look back 100 and sure enough, 100 years ago in this country we had an emergent economy, an industrial economy, a producer economy. The conversation back then was how do we produce enough stuff, cheaply enough, to satisfy the emergent demands of a middle class, the demands of the workers who worked in the factories who now wanted to have things. The VPs of manufacturing were in control. And they promised abundance in that economy but in fact were constantly overcoming scarcity.

All then after World War II, our manufacturers shifted from war materiel to making stuff for ordinary people and consumers again. Everybody expected a Depression, because that’s what happens after all the wars—to their horror, they’d gotten so good at making stuff that they were now capable of making more stuff than people wanted to buy.

A new economy emerged—and it was the consumer economy. The center of power now moved away from the workers, the person who produced, to the consumer, the person who purchased. The symbol was no longer the time clock, that vehicle for production and efficiency, it was the charge card, what we now call the credit card, the vehicle that allowed people to buy things even if they didn’t have the money yet. Before charge cards if you wanted to buy a refrigerator you went to a bank for a loan. After charge cards you got the loan from the charge card company and got your refrigerator. Power also shifted away from the VP of manufacturing to the VPs of sales and marketing, and the great economic challenge in the producer economy was how do we make enough stuff cheaply enough to satisfy desires.

Well, we had a nice 50-year run—it reached its logical extreme in this last decade. Think of it—there’s a whole new industry renting storage lockers as places to put the stuff you can’t afford, don’t need, purchased, and never used.

We’re now into the new economy and the new central actor is not the worker, the person who produces, nor the person who consumes, but a new economic actor who does both things at the same time. Now there are words like pro-sumer and everything else out there—my preferred term for it is ‘a creator economy.’

I don’t mean a creative economy—those creatives are elites. Creators are ordinary people like us—in the ordinary course of our day, we may think we are engaging in the act of consumption, but in fact we are producing something, or we may think we are producing something and it’s the opposite. A perfect example: Google. What does your Google subscription cost? Zero. Well, if you’re not paying anything for Google, how come the two Google founders and Eric Schmidt are all richer than God? How does that work? Well, in fact, you pay for Google. You just don’t realize you pay for Google because you give them something you think is worthless, and that’s the search string that you put in. And that little search string, that little piece of digital haiku, when aggregated with all the other search strings, is the basis for their business model.

It’s an era of deep contradiction, just like in 1953, when people said, ‘Well, who’s going to pay for television?’ and the answer is don’t worry. Same thing now: For emerging Internet business models, this is 1950 of the new creator economy and we’re going to transform ourselves out of the current mess, in which pessimism is the new black, and be the firstest with the mostest.

As you guys were talking, I felt my stomach flutter in terms of where America sits in all this.

Saffo: This will sound pessimistic, but I think it’s a better than even chance that the United States will not exist as a nation by midcentury.

Wow, please explain that.

Saffo: The 20th century was dominated by nation-states, a fairly recent construct. This century is being shaped by hundreds of fundamentally different political units: Power is moving from nation-state to city-state.

That’s good for, say, San Francisco.

Saffo: Well, it’s good for all sorts of places. There are actual city-states like Abu Dhabi or Singapore, but there are also de facto city states, geographic regions that are big enough to have a global impact, like Silicon Valley, but small enough where everybody who lives there knows where they belong.

Kao: I don’t think the state is going to wither away over the next 50 years, but I do think it’s going to change. What Paul calls the creator community will also be the citizen stepping forward to identify problems like there’s a pothole in front of my house, come fix it, you know,, or whatever that website is. If I have an idea to improve the quality of the transportation experience, mass transit or whatever, I’m going to contribute some of my time to actually participating in some kind of a grid of social innovation action capability.

But I think the state or the nation-state is not going to go away, it’s going to change. It’s like in Hollywood—studios didn’t go away when the power moved to the creator community. Their role has changed. They’re banks, they’re brands, they’re marketing sales channels, they’re repositories of really esoteric expertise that have to do with which green screens, when the union is allowed to move a plant from one side of the room to the other.

Brown: The U.S. does have one current advantage, though it remains to be seen for how long— it’s this combination of fluidity and scale. Places like China have certainly not learned how to do it yet.

So why does it seem that other countries can build in six months—bridges, subway systems, highways—what now seems to take us six years?

Kao: Part of it is a sense of urgency. During World War II, this country performed miracles of industrial production We have incumbent’s disease. You talk about China, they’re a new country, they’ve been around since 1949. They’re like, ‘What’s the big deal? Just go forward and build your country.’

Maybe there’s hope in things like Facebook, which feels very uniquely American—out of the box, done by a college kid. People in their 20s have come up in an Internet society, where they are perhaps thinking more than biologically, as Tim puts it.

Brown: People say we used to be a nation of tinkerers, but we’ve forgotten how to make things.

But that’s not actually true. What this generation has learned how to do is to tinker with software, with networks, tinker with information.

Kao: And tinkering speaks to the issue of culture. Jazz got invented in the United States—it didn’t get invented in the Soviet Union. So there is something about being able to create in the moment, being spontaneous, looking for the music that sounds good—it’s inherently American.

Randall Lane is editor at large at The Daily Beast. The former editor in chief of Trader Monthly, Dealmaker and P.O.V. magazines, and the former Washington bureau chief of Forbes, he is the author of The Zeroes: My Misadventures in the Decade Wall Street Went Insane.