How innovation changes during a recession

While Winston Churchill was supposed to have remarked that we should never waste a crisis, the reality is that during recessions companies often tighten their belts and reduce the amount they invest in innovation.

Of course, Churchill's saying hinges on how crises can prompt us to reassess what we previously took for granted and seek new ways of doing things. Kellogg's research explores whether this is really the case or not.

"We examine innovation after the Great Depression using data from a century of U.S. patents and a differences-in-differences model that exploits regional variations in the severity of the Depression," explain the authors. researchers.

The study found that there was a sharp decline in inventor patents during the Depression, which appears to be due to reduced levels of funding due to the economic crisis. However, larger companies were generally better equipped to deal with this situation, and the reduced activity of competitors may in fact have benefited them.

In short, while small independent innovators have reduced their activity, the activity of large firms has tended to hold up, with the authors suggesting that independent innovators may have been looking for more certainty in large firms.< /p>

“It is widely accepted that innovating today is more expensive, but this is generally acceptable during good times because access to capital is more readily available, allowing small businesses to innovate with success," said Anthony Durkacz, CEO of the Nasdaq-listed company. FSD Pharma, "This is not usually the case during a recession, however, as investors and lenders tend to take a more security-focused approach, which generally favors larger companies with a proven track record and revenue. already garnered."

A similar result was observed via a Harvard study, which examined whether individuals wanted to work for startups or larger companies during the Covid pandemic.

Researchers tracked job applicants on the AngelList Talent website, which is a leading platform for startups to recruit talent. The analysis revealed a distinct shift of job seekers to large corporations following the formal declaration of a national state of emergency by federal authorities on March 13.

This flight to larger companies has been particularly pronounced among higher quality and more experienced talent, leaving startups with a smaller, lower quality talent pool to choose from. It's a phenomenon that researchers say has profound implications.

“[This] means not only that the pool of potential human capital for startups began to decline when COVID started, but also that the quality of the pool deteriorated,” they say. “Incumbent [companies], simply because they have more cash or are more established, are perceived as safer during the crisis and suddenly have a unique advantage in terms of attracting talent.”

The Kellogg study suggests that this partly explains why independent inventors have moved from a fairly common source of innovation to one that plays a minimal role today. Instead, the majority of innovations today come from large corporations, where researchers believe most previously independent innovators ended up.

They point out that the traditional narrative has been that innovation has become much more...