Honey, I Grew the Economy

Freakonomics Radio

Innovation experts have long overlooked where a lot of innovation actually happens. The personal computer, the mountain bike, the artificial pancreas — none of these came from some big R&D lab, but from users tinkering in their homes. Acknowledging this reality — and encouraging it — would be good for the economy (and the soul too).

When you think about innovation these days, what kind of image comes to mind? Maybe a massive computer-science lab, or a well-funded medical-device workshop, or a flavor-profile laboratory run by a gigantic food company?

These are all true enough examples of corporate innovation — but they’re just the most visible sites of the innovation chain, the kind of photos you see in IPO slide decks for cutting-edge companies. They’re just the tip of the iceberg. Beneath that gleaming peak lie millions of underfunded, underappreciated home innovators.

The power of home innovation is significant, for both economic and metaphysical reasons. So why do mainstream economists mostly ignore it?

Eric von Hippel is a professor of innovation at the MIT Sloan School of Management. He has been an inventor since he was a child; among his early innovations was an automated device to cut firewood. After getting a master’s degree in mechanical engineering from MIT, von Hippel went on to become a professional inventor at a startup focused on fax machines. He spent a few years on the inventor track, accruing several patents, but he also developed an interest in why and how innovation happens. He eventually got a PhD and returned to teach at MIT, where he’s been ever since; among his many contributions is co-founding the MIT Entrepreneurship Program.

Von Hippel recently put out a working paper, co-authored with the Wellesley economist Daniel Sichel, that summarizes much of what he’s learned over the years. It’s called “Household Innovation, R&D, and New Measures of Intangible Capital.” If you care even a little bit about innovation, the economy, or how the world really works, it’s hard to not be seduced by the thesis of this paper. “Household R&D (or household innovation),” the authors write, “is an important source of innovation that has to date been largely overlooked.”

Von Hippel and Sichel calculate that Americans invest about $41 billion a year in household innovation: “This is about half of what producers spend in R&D to develop new products for consumers — a sizable fraction.” In every field, von Hippel and Sichel found that half of basic innovations were produced by users. So why do typical economic measures of productivity tend to ignore home innovation?

“Normally, household activity that’s counted is typically services,” von Hippel says. “Things that you do for yourself — childcare and the rest of it. And you know, R&D — it wasn’t really visible, but it was part of leisure time. It wasn’t considered as producing a useful output.”

To rectify this gap, von Hippel and his colleagues designed a nationally representative survey that’s now been administered in 10 countries to learn what share of people were, as they put it, “developing or improving consumer products for personal use.” They were only able to measure what they call “product innovations” — not services or process improvements, which are harder to pin down in survey data. Of the nations included, Russia ranked the highest, with 9.6% of the population doing some kind of home invention. The U.S. came in at a healthy 5.2% and China was the lowest, at 1.5%.

In any case, the fact is that many successful commercial products started off in someone’s garage or basement or crop field. This is not to say that big firms don’t add value. “They just do different things,” von Hippel says. “The user is developing what he or she needs and generating new function and generating a new market. But what the companies do is make it much more reliable, more easily operable — you know, manufacturable. So these are all very important things to do in the improvement process. Once you understand what the function is, it’s a complementary relationship.”

Home inventors, according to Eric von Hippel, usually have different motivations than big firms—90% aren’t inventing for profit—they’re doing it for other reasons: fun, learning, or personal use. They’re also participating in a basic human endeavor known as “human flourishing.”

The notion of “flourishing,” goes back at least to Aristotle, says Edmund Phelps, an economist who won a Nobel Prize years ago for his “analysis of inter-temporal tradeoffs in macroeconomic policy.” Today, he’s the director of the Center on Capitalism and Society at Columbia University. Among Phelps’ many books is a recent one called Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change. Flourishing means, he says, “having a kind of life that has a lot of deep satisfaction.” Phelps himself is almost 86 but still goes into work every weekday, sometimes even sneaking in on Saturdays. His obsession is human flourishing — what leads to it and how it translates into innovation and economic growth.

“It was around the end of the Renaissance that people began to feel liberated and began to feel that, ‘Hey, we can create stuff. We can find a better way to produce this or we can find a better thing to produce,’” Phelps says. “By 1800, almost everybody was sort of a Renaissance guy. And it was okay to go off on your own thing — the idea of voyaging into the unknown. A lot of innovating was just the excitement of it, the fun of it, the curiosity of it. It wasn’t to make money.”

The spirit of innovation ultimately did feed the economy, at least in some places. In Britain, for example, new steam engines and railway lines spurred economic growth. But why did innovation flourish in places like Britain and not in others? There are, of course, a million possible factors. Phelps discovered one particularly interesting factor in the surveys he conducted for his research: “It turns out that the countries where families prize obedient children, those countries are low in innovation. I love that result.”

But Phelps found that as history progressed, as there came to be more and larger firms tasked with doing the innovation, there came to be less of it. Today, production is organized around bigger firms, which leaves less room for innovators.

“These giant firms kind of imagine that they can compose the innovation by a plan,” he says. “Actually, I don’t think that works out very well. Ordinary people in ordinary firms are not as keen about finding better ways to do things, better products to make. Something has happened to the excitement. There’s been some sort of a decline in the mindset, in the attitudes of people. And as a result, we have this malaise in the economy.”

Indeed, Phelps and other economists argue that the overall pace of innovation has slowed. But Phelps’ data on human flourishing and Eric von Hippel’s data on home innovation suggest that maybe innovation hasn’t slowed—it’s just that a great deal of it is happening in people’s homes, where it doesn’t figure into the innovation and productivity data.

For some people, invention is a way to reduce friction in their lives. For some, it’s an outlet for creative energies. And for others, it’s a necessity — because they can’t rely on companies to come up with the products they need to keep them healthy, or alive. Eric von Hippel says there are over 1 million medical innovators, many of whom have diseases too rare for medical firms to invest heavily in treating.

It is legal in the United States to create and disseminate medical devices without FDA approval as long as no money is exchanged. This, von Hippel says, has led to a vibrant community of medical home innovators. One of his favorite inventions is an artificial pancreas. People with diabetes take synthetic insulin because their pancreas doesn’t produce enough insulin naturally to regulate their blood sugar levels. But sometimes people miscalculate how much insulin they’ll need overnight, a potentially fatal mistake.

“Their blood sugar would drop overnight,” von Hippel says. “Even though they had a juice box or a source of sugar on their bedside table, if they woke up too late their muscles wouldn’t work to reach it.”

Dana Lewis has been diabetic since she was 14. A while back, she had a nightmare about the exact scenario von Hippel describes. That nightmare turned Lewis into an inventor. She is a creator and founder of the Open Source Artificial Pancreas movement. “Open Source” meaning the code and schematics for this artificial pancreas are freely available online. Anyone can access the code Lewis and her co-creators came up with to automate insulin dosing.

It may strike you as strange that the artificial pancreas didn’t already exist. Diabetes is not a rare disease, more than 30 million people in the U.S. alone have it. But medical-device hardware innovations take a long time. By contrast, Lewis and her co-creators were able to create their system, using off-the-shelf parts, two years before a company submitted the first commercial system for regulatory approval. To Eric von Hippel’s point about the complementary relationship between home innovators and firms, Lewis and her co-inventors have licensed their algorithm to health care companies to use in their devices.

“We very specifically decided not to commercialize, because commercializing would make us regulated, but we licensed it so that not only individuals could use it, but also the companies could use it,” Lewis says. “The whole point is to help people with diabetes. So if somebody commercializes it, great. We’re not trying to compete. We’re trying to fill the gap. We’re trying to get you to move faster. And in some cases, we have actually succeeded in helping companies move faster and helping the regulatory authorities move more quickly in their reviews.”

There’s one more argument in favor of home innovation, even if you’re not nearly as ambitious as Dana Lewis. A growing body of evidence shows that simply doing physical tasks — even vacuuming the floor or chopping onions or doing some gardening — improves cognitive function. It may be the physical activity itself that produces the benefit, but more likely, it’s a sense of accomplishment, no matter how small.

Eric von Hippel would like to see more people experience these benefits. He calculates there are only about 16 million home innovators in the U.S., a small fraction of the population. Systemic encouragement, he says, could make it easier for people without technical skills to start innovating and inventing.

“There’s lots of stuff that you could do if this were understood to be an innovation system,” von Hippel says. “I just think this whole thing is so exciting and it’s something that people have to know about. It’s not just restricted to firms knowing about it. It’s people. They have to understand how important this activity can be and that they can do it.”

This column was adapted from the Freakonomics Radio episode “Honey, I Grew the Economy.” You can find the full episode at Freakonomics.com. You can also listen on Stitcher, Apple Podcasts, or any other podcast platform.