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The Innovation Illusion: How So Little Is Created by So Many Working So Hard
Timely, compelling, and certain to be controversial—a deeply researched study that reveals how companies and policy makers are hindering innovation-led growth
Conventional wisdom holds that Western economies are on the threshold of fast-and-furious technological development. Fredrik Erixon and Bjorn Weigel refute this idea, bringing together a vast array of data and case studies to tell a very different story.
With expertise spanning academia and the business world, Erixon and Weigel illustrate how innovation is being hampered by existing government regulations and corporate practices. Capitalism, they argue, has lost its mojo. Assessing the experiences of global companies, including Nokia, Uber, IBM, and Apple, the authors explore three key declining economic dynamism in Western economies; growing corporate reluctance to contest markets and innovate; and excessive regulation limiting the diffusion of innovation. At a time of low growth, high unemployment, and increasing income inequality, innovation-led growth is more necessary than ever. This book unequivocally details the obstacles hindering our future prosperity.
Conventional wisdom holds that Western economies are on the threshold of fast-and-furious technological development. Fredrik Erixon and Bjorn Weigel refute this idea, bringing together a vast array of data and case studies to tell a very different story.
With expertise spanning academia and the business world, Erixon and Weigel illustrate how innovation is being hampered by existing government regulations and corporate practices. Capitalism, they argue, has lost its mojo. Assessing the experiences of global companies, including Nokia, Uber, IBM, and Apple, the authors explore three key declining economic dynamism in Western economies; growing corporate reluctance to contest markets and innovate; and excessive regulation limiting the diffusion of innovation. At a time of low growth, high unemployment, and increasing income inequality, innovation-led growth is more necessary than ever. This book unequivocally details the obstacles hindering our future prosperity.
471 pages, Kindle Edition
Published October 11, 2016
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302 people want to read
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Displaying 1 - 14 of 14 reviews
November 15, 2016
It is a rather strange book but very interesting. I fully agree with most of the authors’ analyses about the illusions we have created around innovation. Less sure I agree with some of their important claims. Their “very liberal” point of view, not to say libertarian, makes their claims sometimes extreme, but in the end, I am not even sure my own claim… My main concern is that the authors claim capitalism has lost its soul, and they explain how, but I am not sure we have answers, in the same way nobody knew how to replace Steve Jobs so that Apple would still innovate… Below, I will quote the authors a lot. I begin first with a brief synthesis of which you will find the elements again later. Basically, the authors could have titled their book Innovation in the XXIst Century (by reference to Piketty’s extraordinary work on capital). Their work probably has the same ambition but may not have had the same means.
– Chapters 3 to 6 describe the reasons why innovation has slowed down, dedicated to capital, managerialism, globalization and regulation respectively.
– Chapter 8 – Capitalism and Robots – is one of the most interesting and I feel much closer to the authors here: “Should we prepare for a technological blitz? The troubling reality is that we should fear an innovation famine rather than an innovation feast.”
– Chapter 9 – The Future and How to Prevent It – is a convincing conclusion, although it is slightly disappointing. Analysis is one thing. The recommendations are much more difficult. I cannot help but feel embarrassed about the main argument that more liberalism will improve the situation. But the richness of the analysis makes this book an unavoidable reading (even if it is demanding …)
Their final recommendation summarize in: “To spark new life in capitalism, attention must be given to, first, severing the link between gray capital and corporate ownership; second, giving competition a real boost; and third, nurturing a culture of dissent and eccentricity.”
I must end with two quotes, one famous and the other almost unknown. If you have arrived here, you have the right to ask me who are the authors…
"Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They’re not fond of rules. And they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them. About the only thing you can’t do is ignore them. Because they change things. They push the human race forward. While some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do."
“Entrepreneurs are the revolutionaries of our time. Democracy works best when there is this kind of turbulence in the society, when those not well-off have a chance to climb the economic ladder by using brains, energy and skills to create new markets or serve existing markets better then their old competitors”
– Chapters 3 to 6 describe the reasons why innovation has slowed down, dedicated to capital, managerialism, globalization and regulation respectively.
– Chapter 8 – Capitalism and Robots – is one of the most interesting and I feel much closer to the authors here: “Should we prepare for a technological blitz? The troubling reality is that we should fear an innovation famine rather than an innovation feast.”
– Chapter 9 – The Future and How to Prevent It – is a convincing conclusion, although it is slightly disappointing. Analysis is one thing. The recommendations are much more difficult. I cannot help but feel embarrassed about the main argument that more liberalism will improve the situation. But the richness of the analysis makes this book an unavoidable reading (even if it is demanding …)
Their final recommendation summarize in: “To spark new life in capitalism, attention must be given to, first, severing the link between gray capital and corporate ownership; second, giving competition a real boost; and third, nurturing a culture of dissent and eccentricity.”
I must end with two quotes, one famous and the other almost unknown. If you have arrived here, you have the right to ask me who are the authors…
"Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They’re not fond of rules. And they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them. About the only thing you can’t do is ignore them. Because they change things. They push the human race forward. While some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do."
“Entrepreneurs are the revolutionaries of our time. Democracy works best when there is this kind of turbulence in the society, when those not well-off have a chance to climb the economic ladder by using brains, energy and skills to create new markets or serve existing markets better then their old competitors”
November 15, 2025
A valiant, verbose, and (sorry, Bjorn) ultimately vacuous defense of a mythical Capitalism.
While this may sound entirely dismissive, the book is a solid “liked it”. The authors, one of whom I know (and love!) personally, which clearly means nothing when it comes to books, have compiled a massively wide-ranging and deep body of research into ‘innovation’, by which they mean ‘actual stuff that produces value as measured under an entirely differently-regulated Capitalism’. Because, and this unfortunately goes unstated in the book, the primacy of capital over all else (i.e. Capitalism) has given us today a world where commerce trumps all; surveillance, vaporware, and psychological manipulation is valued many hundreds of times greater than literally any activity that would be useful for life on Earth. The authors take this premise as given, and bemoan it a dozen different ways, but continue to argue that a deregulated (then reregulated, but less so) Capitalism will work, a different one that slaps the animal spirits around a bit and recalibrates the ‘free’ market by force of will to value useful things again. There you go.
One of the densest reads of the year for me. Only 238 pages excluding endnotes, but at an uber-tight c500 words per page, this is a brick of words.
While this may sound entirely dismissive, the book is a solid “liked it”. The authors, one of whom I know (and love!) personally, which clearly means nothing when it comes to books, have compiled a massively wide-ranging and deep body of research into ‘innovation’, by which they mean ‘actual stuff that produces value as measured under an entirely differently-regulated Capitalism’. Because, and this unfortunately goes unstated in the book, the primacy of capital over all else (i.e. Capitalism) has given us today a world where commerce trumps all; surveillance, vaporware, and psychological manipulation is valued many hundreds of times greater than literally any activity that would be useful for life on Earth. The authors take this premise as given, and bemoan it a dozen different ways, but continue to argue that a deregulated (then reregulated, but less so) Capitalism will work, a different one that slaps the animal spirits around a bit and recalibrates the ‘free’ market by force of will to value useful things again. There you go.
One of the densest reads of the year for me. Only 238 pages excluding endnotes, but at an uber-tight c500 words per page, this is a brick of words.
April 2, 2020
This is painfully dry and also not totally convincing. I agree with the thesis of diminished growth in innovation (Robert Gordon's book is great on that), but I don't think the causes are government regulation. Certainly, we could get rid of some unnecessary government regulation, but there are like a million other more direct causes of this decreased innovation.
January 30, 2018
This book agree with Cowen’s The Complacent Class, and Gordon’s The Rise and Fall of American Growth. The authors posit that innovation is in decline because of:
1. Gray capitalism: when owners are shareholders and fund managers who trade their ownership many times a day, the managing agent (CEO) would not know what their wishes are, but just to boost short term earnings. So they favour the predictable and not the innovative. They no longer want to invest to try new stuff, only incremental improvements.
2. Managerialism: the firm gets bigger and more complicated, bureaucracy increases until the entrepreneur is forced to do time-wasting meetings.
3. Globalisation: firms get very powerful and complex, and all the time is spent maintaining their complicated supply lines and more bureaucracy ensues.
4. Regulations: governments try to regulate away all risks. Over-regulation makes doing anything new impossible.
They also quoted studies that found that total worker compensation had increased, just that a large portion has been taken by governments (taxes) and healthcare.
Obviously the authors are liberals. They are Swedish so they do offer a fresh perspective. They suggest some cures:
1. Disconnect ownership from control. Similar to 2 tier system in Facebook and Google. So the innovator is protected from shareholder wishes and innovation can be continued.
2. Disallow Sovereign Funds from owning any public listed companies. They claimed that ‘everyone would agree that any government ownership of companies is bad’ without showing any single evidence.
3. Slash regulation.
4. Allow complete freedom of speech and eccentricity.
5. Plug the pension short fall so that funds would stop returning money to shareholders but use it to innovate.
The authors warned that should Western economies not change, growth will slow down and societal suicide will happen!
I found this book’s perspectives very fresh. However, innovation is always difficult and progress will always be incremental. To think that if only we loosen up all regulations only good things will happen, is naive to say the very least. I also don’t understand their worship of tech entrepreneurs like Google and Facebook giants; would they not squash new innovation to protect their own empire too? The point against Sovereign Fund ownership is just absurd; most of the time those funds invest but do not take overall control of running the companies.
As the rich world aged, the economics will necessarily change, and innovative companies will adapt to the ageing society Money that is spent developing flying cars may be better used to make nursing robots.
1. Gray capitalism: when owners are shareholders and fund managers who trade their ownership many times a day, the managing agent (CEO) would not know what their wishes are, but just to boost short term earnings. So they favour the predictable and not the innovative. They no longer want to invest to try new stuff, only incremental improvements.
2. Managerialism: the firm gets bigger and more complicated, bureaucracy increases until the entrepreneur is forced to do time-wasting meetings.
3. Globalisation: firms get very powerful and complex, and all the time is spent maintaining their complicated supply lines and more bureaucracy ensues.
4. Regulations: governments try to regulate away all risks. Over-regulation makes doing anything new impossible.
They also quoted studies that found that total worker compensation had increased, just that a large portion has been taken by governments (taxes) and healthcare.
Obviously the authors are liberals. They are Swedish so they do offer a fresh perspective. They suggest some cures:
1. Disconnect ownership from control. Similar to 2 tier system in Facebook and Google. So the innovator is protected from shareholder wishes and innovation can be continued.
2. Disallow Sovereign Funds from owning any public listed companies. They claimed that ‘everyone would agree that any government ownership of companies is bad’ without showing any single evidence.
3. Slash regulation.
4. Allow complete freedom of speech and eccentricity.
5. Plug the pension short fall so that funds would stop returning money to shareholders but use it to innovate.
The authors warned that should Western economies not change, growth will slow down and societal suicide will happen!
I found this book’s perspectives very fresh. However, innovation is always difficult and progress will always be incremental. To think that if only we loosen up all regulations only good things will happen, is naive to say the very least. I also don’t understand their worship of tech entrepreneurs like Google and Facebook giants; would they not squash new innovation to protect their own empire too? The point against Sovereign Fund ownership is just absurd; most of the time those funds invest but do not take overall control of running the companies.
As the rich world aged, the economics will necessarily change, and innovative companies will adapt to the ageing society Money that is spent developing flying cars may be better used to make nursing robots.
April 19, 2019
I have a roling list of my three favourite Non-Fiction books. This one easily made the list.
It not only demystifies the ex-machina character of the blurry term "innovation",
but also improved my layman understanding of the economy in general.
It is vastly more technical than your average bookstore-economics book and I can't say I
followed all the arguments in detail. I need to reread it at some point to better appreciate it,
but I still learned a lot
Definite buy for everyone interested in politics, capitalism and innovation.
It not only demystifies the ex-machina character of the blurry term "innovation",
but also improved my layman understanding of the economy in general.
It is vastly more technical than your average bookstore-economics book and I can't say I
followed all the arguments in detail. I need to reread it at some point to better appreciate it,
but I still learned a lot
Definite buy for everyone interested in politics, capitalism and innovation.
December 14, 2016
Capitalism encourages the moral imagination of individuals and societies; it espouses a notion about life, people, work, and their future as attending to larger desires than just money.
The chief worry, therefore, is not that the Four Horsemen of capitalist decline will lower economic growth. Falling aspirations should be the main concern. Just as "iron rusts from disuse", wrote Leonardo da Vinci, "even so does inaction sap the vigour of the mind." Societies that do not inspire people to imagine the possibility of a better future inevitably decay.
To spark new life into capitalism, attention must be given to, first, severing the link between gray capital and corporate ownership; second, giving competition a real boost; and third, nurturing a culture of dissent and eccentricity.
The chief worry, therefore, is not that the Four Horsemen of capitalist decline will lower economic growth. Falling aspirations should be the main concern. Just as "iron rusts from disuse", wrote Leonardo da Vinci, "even so does inaction sap the vigour of the mind." Societies that do not inspire people to imagine the possibility of a better future inevitably decay.
To spark new life into capitalism, attention must be given to, first, severing the link between gray capital and corporate ownership; second, giving competition a real boost; and third, nurturing a culture of dissent and eccentricity.
March 25, 2022
Maybe this is because I attempted this book as an audiobook, but it seemed very repetitive, full of claims but somewhat lacking evidence (no citations in audio), and at times hard to understand (economics jargon that might have a precise definition beyond the lay versions I know). The content I did gather, however, was valuable.
My reason for reading this was mostly to evaluate the evidence for/against a certain feeling that I've had for a while - a sort of looming historical impostor syndrome. While the modern tech industry talks a big game about innovating, moving fast, breaking things, it feels like modern innovation isn't measuring up to the explosive growth seen in the 19th and 20th centuries, when world-changing inventions seemed to arrive every decade.
Notes:
-"The main story of the innovation illusion is the changing character of capitalism."
-Uses serendipitous, unpredictable, Black-Swan model of innovation
-Reasons for innovation (risk-taking) decline:
-"Gray" capital, ownership by diffuse and anti-risk mutual funds, pension funds, etc
-Corporate managerialism, incentivizing consistency and short term gain
-Complex regulation, stifling new companies and new tech
-Globalization, basically just amplifying managerialism and regulation
-Overall narrative: big companies have decreased risk-taking. This means less Bell Labs style research, more protection of old static markets, less creation of new markets, less innovation overall.
-Even if entrepreneurial spirit is very much alive (or at least expressed verbally), existing companies can suppress innovation by protecting their markets and preventing penetration of new ideas.
-Company turnover rates are low. Most of the most valuable companies worldwide are ~50 years old.
-Governments around the world have directly or indirectly taken action to stop rideshare apps, to preserve the old inefficient taxi system
-How might this be reconciled with tech control efforts (see: Vulnerable World Hypothesis)? It might be necessary to selectively control technological development based on anticipated impact, which seems near impossible given the Black Swan view of innovation.
My reason for reading this was mostly to evaluate the evidence for/against a certain feeling that I've had for a while - a sort of looming historical impostor syndrome. While the modern tech industry talks a big game about innovating, moving fast, breaking things, it feels like modern innovation isn't measuring up to the explosive growth seen in the 19th and 20th centuries, when world-changing inventions seemed to arrive every decade.
Notes:
-"The main story of the innovation illusion is the changing character of capitalism."
-Uses serendipitous, unpredictable, Black-Swan model of innovation
-Reasons for innovation (risk-taking) decline:
-"Gray" capital, ownership by diffuse and anti-risk mutual funds, pension funds, etc
-Corporate managerialism, incentivizing consistency and short term gain
-Complex regulation, stifling new companies and new tech
-Globalization, basically just amplifying managerialism and regulation
-Overall narrative: big companies have decreased risk-taking. This means less Bell Labs style research, more protection of old static markets, less creation of new markets, less innovation overall.
-Even if entrepreneurial spirit is very much alive (or at least expressed verbally), existing companies can suppress innovation by protecting their markets and preventing penetration of new ideas.
-Company turnover rates are low. Most of the most valuable companies worldwide are ~50 years old.
-Governments around the world have directly or indirectly taken action to stop rideshare apps, to preserve the old inefficient taxi system
-How might this be reconciled with tech control efforts (see: Vulnerable World Hypothesis)? It might be necessary to selectively control technological development based on anticipated impact, which seems near impossible given the Black Swan view of innovation.
June 26, 2022
It isn't the techno-robot-apocalypse we should fear, it's the gray-capital-over-regulating forever recession.
That's the main thesis of this book. Some of the points are argued for better than others. In particular, the actual discussion of robots and automation seems like an alien graft on the rest of the argument, which is much more about the mechanics of capitalism. I guess it frames the story but it's not really of a piece.
I guess I had two big takeaways from this book:
1. Incumbents, be they political, business or cultural, do not really want innovation. It can be hard to see this because everyone praises "innovation". What they really mean is "novelty." Innovation implies a change and those profiting from the current arrangement are not going to want that.
2. Ownership of publicly traded companies by "gray capital," pensions, mutual funds etc with no interest in the long term prospects of the company is bad for capitalism. They want predictability rather than innovation, and they are even willing to suck the company dry via dividends and buybacks if that's what it takes to deliver on their fiduciary needs to their base. The authors suggest dual stock, which has its own issues.
I think the biggest flaw of the argument that slowdown is more of a problem than technopocalypse is that the two aren't really connected. Slowdown is a problem on its own terms, as the discussion about social security/pension funds makes abundantly clear. At the same time it is possible to have innovation by a handful of giant firms (FAANG and friends) that is consequential enough to totally reshape our lives, and not for the better, while the overall economy continues to lack productivity gains.
That's the main thesis of this book. Some of the points are argued for better than others. In particular, the actual discussion of robots and automation seems like an alien graft on the rest of the argument, which is much more about the mechanics of capitalism. I guess it frames the story but it's not really of a piece.
I guess I had two big takeaways from this book:
1. Incumbents, be they political, business or cultural, do not really want innovation. It can be hard to see this because everyone praises "innovation". What they really mean is "novelty." Innovation implies a change and those profiting from the current arrangement are not going to want that.
2. Ownership of publicly traded companies by "gray capital," pensions, mutual funds etc with no interest in the long term prospects of the company is bad for capitalism. They want predictability rather than innovation, and they are even willing to suck the company dry via dividends and buybacks if that's what it takes to deliver on their fiduciary needs to their base. The authors suggest dual stock, which has its own issues.
I think the biggest flaw of the argument that slowdown is more of a problem than technopocalypse is that the two aren't really connected. Slowdown is a problem on its own terms, as the discussion about social security/pension funds makes abundantly clear. At the same time it is possible to have innovation by a handful of giant firms (FAANG and friends) that is consequential enough to totally reshape our lives, and not for the better, while the overall economy continues to lack productivity gains.
September 6, 2025
One of the best books I have read lately. Many paint points around new entrants to markets have been clearly identified. I have been in the manufacturing industry for 20 yrs now and started from scratch. Therefore, have experienced the downstream effects of the shift in the capitalism logic as defined in the book. Today, the ideas in the book are more obvious. Strongly recommended.
February 24, 2018
This book is a masterpiece.
December 30, 2019
I'm unsure whether innovation has been targeted objectively in this book
September 17, 2023
A book that is painfully accurate and is becoming more and more relevant today. I found that it communicates its ideas with great clarity even to a layman such as myself
January 13, 2017
I like the optimistic tone of this book, with respect to new technologies not causing mass unemployment. However, they are pessimists when it comes to the dynamism of capitalism, mostly due to grey ownership, lack of innovation among large companies, and especially over regulation by government (I'd like more emphasis corporate taxation as well). But overall, it's a well-reasoned and balanced look at the free markets and how they could be made more dynamic, though I think George Gilder's work in Knowledge and Power is a better prescription (and diagnosis).
January 5, 2017
Food for thoughts!!
Really recommended for people having an interest of the macro-level environment for innovations & business.
Argues for the need of a more lively capitalism and why "The Second Machine Age" (& others) got it wrong.
I love the academia-style references the book is sprinkled with.
Really recommended for people having an interest of the macro-level environment for innovations & business.
Argues for the need of a more lively capitalism and why "The Second Machine Age" (& others) got it wrong.
I love the academia-style references the book is sprinkled with.
Displaying 1 - 14 of 14 reviews