Document Title - Sanjeev Sabhlok
Notes on innovation
Sanjeev Sabhlok
Preliminary Draft 21 March 2014
Happy to receive input at sabhlok@
Work in progress.This is a preliminary set of ideas/research on innovation.
DOWNLOAD SLIDES FROM HERE.
Contents
1. Three ways to create value 1
1.1 Method 1: Trade 1
1.2 Method 2: Imitation 2
1.3 Method 3: Innovation 2
2. Salient aspects of innovation 3
2.1 Types of innovation 3
2.2 Innovation is hard: Knowledge is growing expontentially, but innovation (value add) is barely keeping pace 3
2.3 Difference between innovation and entrepreneurship 4
2.4 Entrepreneurs don’t get richer, mostly go broke 5
2.5 More entrepreneurs is not necessarily a great policy 5
2.6 Key implications 6
2.6.1 We are only interested in ideas that create new value 6
2.6.2 We are not interested in “best” ideas 6
2.6.3 Innovation must be distinguished from waste 6
3. Market failure theory of innovation 7
3.1 Intellectual theory (Francis Bacon): Knowledge drives innovation 7
3.2 Market Failure Economists 10
3.3 Kenneth Arrow (IPA paper) 10
3.4 Richard Romano (IPA paper) 10
3.5 Romer (Kealey) 10
3.6 Baumol (Kealey) 10
4. Competition theory of innovation 11
4.1 Adam Smith’s theory 11
4.2 Schumpeter’s theory 11
4.3 Endogenous growth theory 11
4.3.1 Romer’s theory 11
4.3.2 Innovation can occur in research labs, but mostly ‘on the shop floor’ 12
4.4 Testing the two theories 13
4.4.1 Whether innovators are highly qualified 13
4.4.2 Anecdotes 13
4.4.3 Inventions 13
4.4.4 Competition as a key driver 14
4.4.5 Signalling by the price system 14
4.5 Planned innovation 14
4.5.1 Continuous improvement/ business R&D 14
4.5.2 Discontinuous (significantly new) innovation 15
4.6 Limitations of planning 16
4.7 Scientists do not innovate; innovators pose questions for science 17
4.8 Science was largely privately funded in the past, and through philanthropic efforts 18
4.8.1 Western governments have funded science only since 1940s 18
4.9 Basic science may be a public good, but commercial R&D is not 18
4.10 Government R&D usually displaces private R&D 18
4.10.1 Paul David and Bronwyn Hall, 2000 18
4.10.2 Paul David, Bronwyn Hall and Andrew Toole, 2000 18
4.10.3 OECD 2003 19
5. Institutional frameworks 21
5.1 Liberty and dignity (egalitarianism) 21
5.2 Stable, predictatble institutional environment 21
5.3 Property rights 22
5.4 Free market competition: Say’s law (Walrasian market equilibrium) 22
5.5 Profit 22
5.5.1 Do not fix prices! 22
5.5.2 EIU innovation environment index 23
6. Enablers: Cultural factors 24
6.1 Social rewards and respect for wealth generation 24
6.2 Absence of “tall poppy syndrome” 24
7. Key ingredient 1: Entrepreneur 25
7.1 Academic courses in entrepreneurship and innovation 25
7.1.1 The University of Swinburne 25
7.1.2 25
7.1.3 Teaching lateral thinking and innovation in schools and universtities 25
7.1.4 Lean startup (Eric Ries) 26
7.1.5 Learning organisation (John Seddon/Peter Senge) (double loop learning/ system thinking) 26
7.1.6 Wall St. Journal debate 26
7.2 Incentives for academics to innovate 30
8. Key ingredient 2: Risk taking and venture capital 32
8.1 Entrepreneur must always risk his own capital 32
8.2 Institutions of risk capital 32
8.2.1 Market based options if you HAVE to fund 32
8.3 Venture capital and angel investors 32
8.3.1 The Indus Entrepreneurs 33
9. Enablers: individual factors 34
9.1 Drive 34
9.2 Number of people 34
9.3 Quality/capability of the individual 35
9.3.1 Immigration matters, but only high-end brainpower 35
9.4 Knowledge and specialisation 38
9.4.1 Adam Smith’s theory of innovation: specialization and competition 38
9.5 Ability to take risks 38
10. What are governments doing? 39
10.1 Commonwealth: .au 39
10.1.1 Seven innovation priorities 39
10.1.2 Funding startups 40
10.1.3 Tax breaks for R&D 42
10.2 Western Australia: Vouchers 42
11. Role of government: arguments in favour 43
11.1 R&D 43
11.2 Information gaps? 43
11.3 Coordination? 43
11.4 Protection of intellectual property 43
11.5 Risk? 46
11.6 Successful examples 46
11.7 Preventing brain drain? 47
11.8 Moral hazard 47
11.9 Displacement or crowding out of private research 47
11.10 Public choice question: how can bureacurats without any capacity to innovate support innovation? 47
12. Role of government: arguments against 48
12.1 Businesses are the “smartest” in their field 48
12.2 No skin in the game 48
12.3 Picking winners is a bad idea: Solyndra 48
13. List of investions 50
Three ways to create value
1 Method 1: Trade
Economic models of competitive general equilibrium (e.g. Edgeworth box), or Walrasian equilibrium, are based on exchange.
Schumpeter called this the “circular flow”. The circular flow does not drive long term growth. If there was no innovation, it would merely opitimise existing value.
[pic]
Schumpeter showed that the circular flow has its limitations. He therefore identified a key role for the entrepreneur who identifies new opportunities. The availability of profits signals where money should be invested.
Standard growth models (e.g. Solow’s model) are based on the idea that growth is based on capital accumulation. Dierdre McCloskey has shown that exchange (‘shuffling’) and capital accumulation can modestly increase prosperity but can’t drive the growth mankind has seen in the past few centuries. That requires breaking out of the capital accumulation phase into innovation. No amount of collecting gold will help if there are no new ways to create value.
She calls the entire capitalistic system ‘innovation’, to distinguish it from capital accumulation, which was a common characteristic of pre-captialistic societies.
2 Method 2: Imitation
Imitating those who are successful can increase wealth. This can be considered to be a low level of innovation, in which existing technology and methods are copied and value created. This is a crucial part of the growth. Every society needs to imitate (“technology transfer”).
Imitation is driven by the availability of information about existing methods. However, profit-seeking activity will usually motivate such transfer of technology
|[pic]Is there a role for government in helping businesses imitate? |
|There might be a role for the government to ensure that information is widely available, subject to intellectual property |
|right constraints. In this highly globalised world, it is unlikely that many opportunities to imitate are left lying on the |
|roadside. |
|There is a cost to systematic attempts to innovate. Businesses in Victoria can grow either through innovation or by |
|imitation. |
|It can be rational to not innovate but to copy. Australian companies prefer to bring technology from abroad and modify to suit|
|Australian conditions. |
3 Method 3: Innovation
Innovation is the process of generating new value by creating and adopting new or significantly improved ways of doing things.
Marx realised this when he noted that “The bourgeoisie cannot exist without constantly revolutionizing the instruments of production” (Communist Manifesto).
As indicated above, Schumpeter showed that entrepreneurs breakes out of the competitive equilibrium by either deploying own capital or other’s capital (profits) towards new forms of production. Society must generate profits before it begins to innovate.
Salient aspects of innovation
1 Types of innovation
According to Schumpeter, there are 5 types of innovation:
(1) The introduction of a new good – or a new quality of a good.
(2) The introduction of a new method of production.
(3) The opening of a new market.
(4) The conquest of a new source of supply of raw-materials or half-manufactured goods.
(5) The carrying out of a new organization.[1]
Four types of innovation: goods and services, organisational process, operational process, and marketing.
Innovation refers to the use of a novel idea or method to create value. Invention refers only to the the idea or method.
2 Innovation is hard: Knowledge is growing expontentially, but innovation (value add) is barely keeping pace
There is no doubt that “the rate of technical progress amongst humans has been exponentially increasing”[2]. E.g. scientific knowledge doubles every 15 years, or quicker (see figure below). [ Moore's Law is perhaps the most prominent of these examples.[3] If productivity had advanced at this pace, the world would have been wealthier by many orders of magnitude. The rapid advances in education technology, robotics, 3D printing, solar cell technology, and many others, point to rapidly increasing knowedge.
[pic]
[Figure: ]
However, the West has been growing quite modestly, compared to the growth in knowledge.
Why?
Growth theory suggests the catch-up hypothesis, that (subject to ability to absorb new technology, attract capital and participate in global markets[4]) countries farthest from the PPF will grow quicker, and others, slower. Those closest to PPD have to innovate, and innovation is hard. Innovation (conversion of ideas into value) is much harder than increasing knowledge.
It is made particularly because of competition, and changes in people’s expectations. People are not willing to pay for outdated technology. The value of ‘outdated’ technology drops to zero quickly. This is the process of creative destruction.
3 Difference between innovation and entrepreneurship
Entrepeneurship is a complex commercial skill, including people management, finance, technology, marketing, etc.
|Type of firm |Type of innovation |Source of people |Source of funds |Issue/s |
|New startup |Copying (e.g. a new café) |Existing firms |Bank |No role for government |
|(entrepreneurial) | | | | |
| |Continuous improvement (e.g. |Existing firms |Bank |No role for government |
| |a better café) | | | |
| |Discontinuous improvement |Innovators/ researchers|Venture capital |Most discussion occurs |
| |(e.g. Facebook) | | |in this space |
|Existing firm |Copying |Existing firms |Bank |No role for government |
| |Continuous improvement |Existing firms |Bank |No role for government |
| |Discontinuous improvement |Innovators/ researchers|Mostly bank, but |No role for government |
| | | |some equity; | |
| | | |private equity | |
We note that a bulk of innovative activity occurs on its own momentum, in response to market forces. It is difficult, if not impossible, for a government to get involved in innovation or entrepeneurship.
4 Entrepreneurs don’t get richer, mostly go broke
Shane's book reveals a bleak picture of entrepreneurship in the U.S. It shows the average new venture will fail within five years, and even successful founders usually earn 35% less over 10 years than they would working for others. At the individual level, the core fact here is the typical, median, right-smack-in-the-middle entrepreneur is a failure.[5]
5 More entrepreneurs is not necessarily a great policy
You write that "encouraging startups is lousy public policy," based on the data you've examined. What would you propose as policy alternatives? The part that's lousy public policy is the idea that entrepreneurs, regardless of what kind, are good, and if we just have more of them, it's better. But what's a good public policy is if we picked certain kinds of startups, and we emphasized the increase in those. But the way the policies are set up, they don't encourage the specific high-potential startups. Most of the policies are: More entrepreneurs—just let's get volume. It's a very volume-oriented strategy. That's bad public policy. [6]
6 Key implications
1 We are only interested in ideas that create new value
We are not interested in invention for the sake of invention.
2 We are not interested in “best” ideas
It is not necessary that the “best” product wins in a market (and thus adds value). Factors that make a product attractive to a market can include intangibles, being earliest in the marketplace, and many random factors.
3 Innovation must be distinguished from waste
Innovation does not bear a direct relationship between the skill and effort put into the innovation.
Following innovative activities:
• research and development (R&D)
• product development and testing.
It is possible that some such activities might result in added value. However, by themselves there is no reason to expect that these create value.
Market failure theory of innovation
1 Intellectual theory (Francis Bacon): Knowledge drives innovation
|In 1620 Bacon wrote: ‘Printing, gunpowder and the magnet [compass] . . . have changed the whole face and state of things |
|throughout the world.’ In his most famous quote, he said: ‘Knowledge is power.’ |
|it was by his study of the Portuguese historians that Bacon concluded that Spain had acquired its power and wealth by copying |
|Henry the Navigator. And how had Henry made his great discoveries? By scientific research. From the chroniclers Bacon learned |
|that in 1419 Henry had retreated to Sagres, an isolated promontory in Algarve in southwest Portugal where, leading a celibate |
|life of austere study and research, he had collected a group of geographers and astronomers and cartographers and shipbuilders|
|to plan a systematic programme of scientific exploration. Under his direction, Henry’s research group had improved the |
|compass, developed the caravelle (a small, rakish ship with fore-and-aft sails and a large rudder that was especially |
|manoeuvrable against the wind) and had constructed novel star maps and other navigational aids, including superior charts. |
|Henry had created the science that had powered first the Portuguese and then the Spanish to global dominance. |
|Bacon thus concluded that Henry had confirmed that scientific research was the precondition for improvements in technology: |
|‘If any man think philosophy and universality [science] to be idle studies, he doth not consider that all professions |
|[technology] are from thence served and supplied.’ (Second Book, p. 62.) It was therefore Bacon who first proposed the ‘linear|
|model’ for economic growth: |
|science → technology → wealth |
|Bacon said that: ‘The benefits inventors confer extend to the whole human race’ – that is, inventors benefit the whole human |
|race, not any particular individual. Consequently, no one will pay for its development because no one will pay for the |
|development of a concept that cannot be monopolized but that will be used largely by others, including competitors, enemies |
|and the unborn. So Bacon concluded (in an early claim of ‘market failure’) that for science ‘there is no ready money’, which |
|was why governments had to pay for it. Bacon’s full linear model therefore was: |
|government money → science → technology → wealth |
|To propagate this idea Bacon in 1605 wrote The Advancement of Learning (which is still in print) to urge the British |
|government to copy Henry the Navigator and to put money into university science. |
|[But Bacon was wrong] |
|[Henry] was not a scholar who maintained at Sagres an academic college of disinterested researchers; he was instead a |
|professional soldier who employed technologists opportunistically, as cunning warriors do. And Henry’s involvement with |
|dispassionate science was negligible. [H]e was instead a professional soldier who employed technologists opportunistically, as|
|cunning warriors do. |
|As for Bacon’s magic trio of gunpowder, the magnetic compass and printing, the first two had been developed in China by around|
|the time of Christ, spreading to Europe via the Silk Road, while printing with movable type, though also developed by the |
|Chinese, was independently invented in Europe by Johann Gutenberg, a goldsmith, around 1440. In none of these cases are the |
|inventors believed to have been anything other than artisans or traders. They were not scholarly researchers. |
The key point is that Bacon’s idea was a hypothesis, but that it was never tested. It continues to remain untested.
|The opposition’s opening remarks Jul 24th 2012 | Terence Kealey |
|In his 1605 book "The Advancement of Learning", Francis Bacon described research as a public good: "The benefits derived from |
|inventions may extend to mankind in general." But because private individuals will pay only for private goods, Bacon argued |
|that it fell to governments to subsidise a public good like research. |
|People still agree with Bacon yet, oddly, their belief is not strongly supported by facts. As Paula Stephan, an economist, |
|wrote in her 2012 book "How Economics Shapes Science": "The ratio of empirical evidence to theory is relatively low." |
|So, during the 18th and 19th centuries, the French and German governments subsidised science exhaustively, yet the two lead |
|economies were successively those of Britain and America, whose governments barely funded any. The federal government in |
|Washington started to support research significantly only in 1940, 50 years after America had become the richest country in |
|the world, while the British government started to fund research significantly only in 1913, over a century after it had |
|launched the Industrial Revolution. |
|The contemporary economic evidence is also ambiguous. In 2003 the Organisation for Economic Co-operation and Development |
|(OECD) surveyed a large number of factors that might explain the different growth rates of the world's 21 leading economies |
|between 1971 and 1998, and found that publicly funded research and development (R&D) was not one of them. Unlike privately |
|funded science, publicly funded science does not create wealth. |
|Why not? One reason, as explained by Paul Romer, an American economist, is that research findings—particularly industrial |
|research findings—can be held as reasonably private goods. A combination of corporate secrecy and patents can provide |
|companies with some exclusivity over the results of their research, so to some degree they will fund it anyway, especially as |
|surveys find a strong correlation between a company's investment in research and its subsequent profits. |
|Further, companies need not fear that others will easily copy them. When Edwin Mansfield, an economist, examined 48 products |
|that, during the 1970s, had been copied by companies in the chemicals, drugs, electronics and machinery industries of New |
|England, he found that the costs of copying were, on average, 65% of the costs of the original innovation. |
|Copying is expensive partly because it is hard to acquire the so-called "tacit" knowledge embedded in every innovation. No |
|blueprint can convey all the subtleties of an innovation, which can therefore be copied by others only if they recapitulate |
|the actual innovatory steps. Such recapitulation is expensive. |
|But there is a further cost to copying, which brings its full cost to 100%. The only people capable of copying innovations are|
|active researchers, and they can remain active only if they produce their own research. Yet active researchers, even in |
|industry, must publish if they are to benchmark their work. So the hidden cost of accessing the research of others is that you|
|have to produce and share your own, which thus acts as the full fee of copying. The fee may be paid indirectly, in the form of|
|knowledge shared with the scientific community at large, but it is so substantial that it pre-empts concerns that innovating |
|companies are necessarily undercut by copying competitors. |
|Indeed, companies do research in part to trade it. In a 1983 international survey of 102 firms, Thomas Allen of MIT's Sloan |
|School of Management found that no fewer than 23% of their important innovations came from swapping information with rivals: |
|"Managers approached apparently competing firms in other countries directly and were provided with surprisingly free access to|
|their technology." |
|We see therefore that industrial research is largely a private good (and thus attracts private money), the copying of which |
|forces copiers to invest as fully in their own research. This is why the OECD has speculated that, when governments fund |
|research, they might only displace or crowd out its private funding. Companies fund their own research, so, when governments |
|fund it, companies may simply withdraw their own money. |
|Clearly there are non-economic reasons for governments to fund science: lung cancer research cannot be entrusted to tobacco |
|companies, or public-health research to drug companies, or economic research to bankers. Defence research is, moreover, a |
|special case, as is research into orphan diseases, climate change and so-called "big science", such as NASA's space science or|
|CERN's Large Hadron Collider. |
|Yet even the purest of science might be funded by philanthropists if governments did not crowd them out (witness the private |
|funding of Goddard's original space research or of the early cyclotrons, as well as the Gates Foundation's current support for|
|rare diseases)—and, until we know more about crowding out, we should not assume that governments need fund any research.[7] |
|Full debate: |
The myth that science comes prior to innovation is widespread, and shows no sign of abatement.
Pavitt (2005)[8] identifies three broad, overlapping sub-processes of industry innovation, presented in the diagram below.
[pic] [pic] [pic]
Pavitt views innovation as essentially a matching process, as the exploration and exploitation of opportunities for new or improved working artefacts is based either on an advance in technical practice or a change in market demand. Furthermore, he argues that innovation is inherently uncertain, as it is impossible to predict the cost, performance and stakeholder reception of a new artefact ex ante.[9]
[pic]
In the intellectual model, the entrepreneur (horse) is supposed to be driven by the cart (science).
2 Market Failure Economists
3 Kenneth Arrow (IPA paper)
4 Richard Romano (IPA paper)
5 Romer (Kealey)
6 Baumol (Kealey)
Competition theory of innovation
1 Adam Smith’s theory
“Over two centuries ago, Adam Smith proposed that trade was the instinct that underpinned cooperation and that trade, in its turn, fed technological growth because it fostered specialization, it being specialists who perform research to improve their technologies. He proposed that industrial competition underpinned innovation.[10]
Chemists who subscribed to the phlogiston theory (that fire is a substance) or to the caloric theory (that heat is a substance) or who tried to build perpetual motion machines were not to be of use to engineers. Indeed, during much of the eighteenth and nineteenth centuries, the reverse was true; the scientists scrambled to catch up with the engineers. It was on Joseph Black’s discovery of ‘fixed air’ that Lavoisier could show that fire represented oxidation, not phlogiston. The technology came first and the science followed.[11]
Our results strongly suggest that firms with an exclusive focus on developing their science and technology base are foregoing important gains that could be reaped by adopting practices and measures designed to promote informal learning by using, doing and interacting.[12]
Adam Smith demonstrated that we do not owe (the innovation) of our bread to the goodwill of the baker. The price system is the greatest driver of innovation (through profits)
2 Schumpeter’s theory
Schumpeter put considerable emphasis on capital as a key driver. The key question for the entrepreneur is how get some of the capital that is already engaged in the circular flow.
3 Endogenous growth theory
1 Romer’s theory
2 Innovation can occur in research labs, but mostly ‘on the shop floor’
Most inventions did not come from R&D labs. See inventions at the end of this paper. “We know where most of the creativity, the innovation, the stuff that drives productivity lies - in the minds of those closest to the work.” - Jack Welch[13]
|Hayek: [Constitution of Liberty] |
|“Who will prove to possess the right combination of aptitudes and opportunities to find the better way is just as little |
|predictable as by what manner or process different kinds of knowledge and skill will combine to bring about a solution of the |
|problem. The successful combination of knowledge and aptitude is not selected by common deliberation, by people seeking a |
|solution to their problems through a joint effort; it is the product of individuals imitating those who have been more |
|successful and from their being guided by signs or symbols, such as prices offered for their products or expressions of moral |
|or aesthetic esteem for their having observed standards of conduct—in short, of their using the results of the experiences of |
|others. |
|What is essential to the functioning of the process is that each individual be able to act on his particular knowledge, always|
|unique, at least so far as it refers to some particular circumstances, and that he be able to use his individual skills and |
|opportunities within the limits known to him and for his own individual purpose.” |
[pic]
4 Testing the two theories
1 Whether innovators are highly qualified
2 Anecdotes
3 Inventions
In most cases, entreprneurs are NOT inventors.
Innovation = f(#of brains, quality of brains, self-regard, challenge to these brains, opportunity)
Proxies:
#of brains = population quality of brains = proportion educated, and quality of education self-regard = level and type of freedoms challenge faced by brains = level of openness and competition in society opportunity = infrastructure, access to information, rule of law (property rights protection), protection of innovation, speed of justice, freedom to exchange
This model can be tested. Some of these factors are correlated and inter-related (quality of brains = f (self-regard) and vice-versa). After further analysis an empirical model can be established.
Note: Given sufficient challenge and opportunity, even an uneducated brain will innovate. This is typically known as jugaad.
Addendum
I'm reverting to this blog post today (14 Sep 2012) to emphasise dignity. Dignity is not just self-regard but the way one is treated by others. It seems to me to be very hard to expect someone who is treated without dignity to be innovative. Possible, but hard.
Innovation is skewed towards the smarter people. Hence government should encourage immigtation policies that attract smarter people. Today there is a significant base of information that people need to imbibe before they enter into innovation.
The left believes that innovation was caused by the State, the right thinks by Science.
Neither are right: it was caused by creativity unchained by bourgeois dignity and liberty[14]
|A review of several recent major industry successes in developing countries by Pack and Saggi (2006) provides little evidence |
|in favor of activist government policy. Take the cases of India’s software sector, Bangladesh’s clothing industry, and China’s|
|special economic zones. In the first two, the government’s main role was one of “benign neglect,” while in the latter China |
|imitated the earlier success of Singapore by enabling the location of foreign investment in enclaves that were well provided |
|with infrastructure.[15] |
adsf
4 Competition as a key driver
In a competitive marketplace, the nature of competition, and the nature of demand and supply is constantly changing. It is these forces of competition that keep businesses agile. Firms that do not innovate, die. This is known as creative destruction.
As Marx noted, “The bourgeoisie cannot exist without constantly revolutionizing the instruments of production” (Communist Manifesto). This revolutionising is motivated by the sheer need for existence. This applies both to large and small firms.
Most innovation is driven by competition:
“Most innovation is driven by businesses and individuals operating and interacting in competitive markets. The PC and ABS study found that ‘stronger competition is associated with a higher propensity for firms to innovate’. They found ‘statistically significant association[s]…between certain competition-related variables and the presence of a larger number of different types of innovation being completed and a higher degree of novelty of those innovations’ (Soames et al. 2011, pp. 1–2).”
For instance, discontinuous innovation, such as frugal innovation/ jugaad/ Gandhian innovation (e.g. Dr. Mashelkar’s work) is largely motivated by pressure to survive.
5 Signalling by the price system
“Within the market society the working of the price mechanism makes the consumers supreme. They determine through the prices they pay and through the amount of their purchases both the quantity and quality of production. They determine directly the prices of consumers’ goods, and thereby indirectly the price of all material factors of production and the wages of all hands employed [...] In that endless rotating mechanism [i.e. a market society] the entrepreneurs and capitalists are the servants of the consumers. The consumers are the masters, to whose whims the entrepreneurs and capitalists must adjust their investments and methods of production. The market chooses the entrepreneurs and the capitalists and removes them as soon as they prove failures. The market is a democracy in which every penny gives a right to vote and where voting is repeated every day.” [Ludwig von Mises]
5 Planned innovation
1 Continuous improvement/ business R&D
This is also a kind of “planned” innovation, based on managerial processes such as better business processes (inventory management, analytics around customer segmentation) and business models (online retailing and offshoring operations), business driven R&D. The key driver of this is good management practice, which includes access to information. Trial and error also forms part of this process.
|[pic]Is there a role for government in continuous improvement? |
|Businesses are best placed to examine data carefully, to get feedback from customers and employees, etc. There is no reason to|
|believe that Australian managers are incapable of making continuous improveemnts. |
|There might be a role for Governement to ensure that information is widely available. |
This includes creating a culture of innovation.
The key problem with this method of continuous improvement is that it suffers from diminishing returns. One can extract only so much from an existing business or manufacturing process.
2 Discontinuous (significantly new) innovation
This includes new technologies, products, and services. The key driver for this is invention and serenditipity. This is rarely achieved through planning.
“Entrepreneurship, as conceptualised by Schumpeter, is only associated with discontinuous innovation outside the circular flow as described by his five cases. Continuous, incremental innovation, including new versions of existing products, is executed entirely within the circular flow and does not require the specific attributes that Schumpeter ascribes to an entrepreneur, but is within the capabilities of line management within that circular flow.”[16]
This process is likely to yield increasing returns.
|[pic]Is there a role for government in discontinuous improvement? |
|All businesses must innovate just to survive. That is a basic principle of the competitve economy. We see that most clearly in|
|the IT industry today. As a results, businesses like Apple, Microsoft, etc. invest a very significant amount of money into |
|R&D. It is a great mistake to imagine, like Richard Romano, that “In the frictionless perfectly mpetitive market, with no |
|barriers to the use of information, the market will provide no R&D investment” [Richard Ramano, 1989, “Aspects of R&D |
|subsidization”. The Quarterly Journal of Economics. 104: 863 – 873, pg. 863]. |
|Assured property rights and a competitive economy are certain to motivate ongoing innovation, without any Government |
|intervention. |
6 Limitations of planning
Most innovation is unplanned. It might require a prepared mind, but beyond that is it largely unpredictable. As noted earlier, it is not necessary that what is considered the “best” product wins in the market (and thus adds value). Factors that make a product attractive to a market can include intangibles, being earliest in the marketplace, and a host of andom factors. A “lucky” break might help in some cases, as well. It is important to be in the right place at the right time.
Even the process of copying badly can lead to innovation .[17]
|This remarkably studied paper is entitled ‘Uncertainty, Evolution and Economic Theory’, and it was written by the American |
|economist Armen Alchian. The paper says that economic growth can be understood only as an evolutionary phenomenon. |
|Before Alchian wrote, people had believed that economic growth could be planned rationally, not only by governments but also |
|by companies. Companies would assess opportunities and invest their resources accordingly: Mice Catching Mega Corporation |
|might decide that the world needed a better mousetrap, it would assign a budget to its R&D department, the researchers would |
|produce a better mousetrap and, hey presto, Mice Catching Mega would be mega indeed. |
|Except, as Alchian pointed out, there are no ‘hey prestos’ in research. The Mega researchers might, quite simply, fail to |
|produce a better mousetrap, or in developing a stronger spring they might, inadvertently, invent a better wire, and the |
|company would diversify and call itself Wired instead. |
|So, for example, when Upjohn was trying to develop a new treatment for high blood pressure, they discovered instead a therapy |
|for baldness (Regaine, Rogaine, minoxidil). When Pfizer was trying to develop its own new treatment for high blood pressure, |
|it discovered instead a therapy for impotence (Viagra). But other companies, on trying to invent their own treatments for high|
|blood pressure, discovered nothing. Science, being unpredictable, does not always yield results. |
|By definition, research is unpredictable because if it were predictable it would not be research. And because economic growth |
|is ultimately based on innovation – managerial as well as scientific – it too is unpredictable. Managerial innovations often |
|fail, and marketing, too, is unpredictable. The slogan ‘You’re never alone with a Strand’ killed a brand that was thereafter |
|stuck with the image of Freddy No-Friends. As Lord Leverhulme of Unilever used to say, half of his advertising was wasted, but|
|he never knew which half. |
|Because economic growth is based on an unpredictable entity, namely innovation, Alchian showed that only the evolutionary |
|model explained growth. In a competitive market companies must innovate but, innovation being unpredictable, the inventions |
|that companies bring to the market will be unpredictable. Purchasers will then select among them, and only some products will |
|flourish. |
|We thus see great similarities between economic growth under markets and evolution by natural selection. In Nature, a system |
|evolves by natural selection if: siblings vary randomly, offspring are abundant, they are selected among, and their |
|descendants inherit their traits. In markets economic growth depends on innovations being created randomly and abundantly by |
|investment in R&D departments and other innovators, on their being marketed, and on selection being made by customers. One |
|unexpected similarity between genetics and companies is inheritance. Companies inherit their differences.[18] |
7 Scientists do not innovate; innovators pose questions for science
Inventors like Edison did not take a PhD in science before inventing the bulb. There is evidence that technology drives science. When technology is unable to find an answer, that’s when science begins. Adam Smith pointed out:
A great part of the machines in manufactures were initially the inventions of common workmen who naturally turned their thoughts to finding easier and readier methods of performing their work. (Wealth of Nations)
The improvements which, in modern times, have been made in several different branches of philosophy have not, the greater part of them, been made in universities, though some no doubt have. The greater part of universities have not even been very forward to adopt those improvements after they were made; and several of those learned societies have chosen to remain, for a long time, the sanctuaries in which exploded systems and obsolete prejudices found shelter and protection after they had been hunted out of every other corner of the world. (Wealth of Nations)
Kealey cites a recent example[19]:
The science of radioastronomy – that apparently purest of sciences – emerged during the 1930s when Karl Jansky (1905–50), an engineer working on long-distance radiotelephony for Bell Telephone Laboratories, a commercial outfit, discovered a source of electromagnetic ‘noise’ as coming from the stars. Out of that industrial finding a whole academic discipline was born.
Hayek has pointed out that much innovation comes from amateurs:
Another factor that has contributed to the belief in the superiority of directed research is the somewhat exaggerated conception of the extent to which modern industry owes its progress to the organized teamwork of the great industrial laboratories. In fact, as has been shown recently in some detail, a much greater proportion than is generally believed even of the chief technological advances of recent times has come from individual efforts, often from men pursuing an amateur interest or who were led to their problems by accident.[20]
8 Science was largely privately funded in the past, and through philanthropic efforts
The list of inventions (at the end of this paper) demonstrate that the vast majority of scientific advances were made by private efforts.
Most science was also funded by philanthropic efforts, e.g Smithsonian, Carnegie Foundation, Ford Foundation, etc.
1 Western governments have funded science only since 1940s
“The federal government in Washington started to support research significantly only in 1940, 50 years after America had become the richest country in the world, while the British government started to fund research significantly only in 1913, over a century after it had launched the Industrial Revolution.”[21]
9 Basic science may be a public good, but commercial R&D is not
Businesses have a very strong incentive to invest in R&D.
Many defend the government funding science through universities on the basis that it is a public good, a good that the whole of society benefits from, that would not be funded to the same extent privately.
However, although it can indeed be a public good, it is also, and to a greater degree, a private good.
Edwin Mansfield and Zvi Griliches have found strong correlations between companies' investment in scientific research and profits.”[22]
10 Government R&D usually displaces private R&D
1 Paul David and Bronwyn Hall, 2000
Study: Paul A David and Bronwyn H Hall, 2000, ‘Heart of darkness: modeling public – private interactions inside the R&D black box’, Research Policy, 29: 1165 – 1183.
Finding They find that the supply of trained scientists is very important in determining this question. If public intervention simply increases the wages of scientists and engineers then crowding out can occur.
2 Paul David, Bronwyn Hall and Andrew Toole, 2000
Study: Paul A David, Bronwyn H Hall and Andrew A Toole, 2000, ‘Is public R&D a complement or substitute for private R&D? A review of the econometric evidence’, Research Policy, 29: 497 – 529.
Finding They conclude: “the overall findings are ambivalent”. However, a critique has noted that this paper does not include the deadweight loss of taxation.
3 OECD 2003
The 2003 OECD report, The Sources of Economic Growth in OECD Countries, notes that althougth ‘a significant effect of R&D activity on the growth process’:
regressions including separate variables for business-performed R&D and that performed by other institutions (mainly public research institutes) suggest that it is the former that drives the positive association between total R&D intensity and output growth . . .
The negative results for public R&D are surprising and deserve some qualification. Taken at face value they suggest publicly performed R&D crowds out resources that could be alternatively used by the private sector, including private R&D. There is some evidence of this effect in studies that have looked in detail at the role of different forms of R&D and the interaction between them.
In brief, unlike privately funded science, publicly funded science does not create wealth.
| |
|Science is better off without the government |
|By Philip Salter, Programmes Director, Adam Smith Institute |
|In fact, this is how a great deal of scientific research is still funded and how it has been through the ages. |
|The modern world was built upon private investment and we continue to thrive because of it. |
|The economists, while in the sweeping Sex, Science and Profits, Dr Terence Kealey has done much to demonstrate that the |
|government is not necessary for science to flourish. |
|This is why, despite government funding, IBM is one of the largest research institutions in the world. |
|Crucially, not all spending on science has equal bang for its buck. |
|A thorough Organisation for Economic Co-operation and Development (OECD) report in 2003 concluded that it is private sector |
|money, not government money, that turns scientific research into economic growth. |
|Other people's money |
|In the same way that people are always less careful spending other people's money, the government is less careful spending |
|money on scientific research than the companies that are set to rise or fall on the backs of their decisions. |
|Added to this, the OECD report concluded that money spent by the government is crowding out private sector investments. |
|In other words, inefficient government funding is displacing more efficient private funding. |
|By collectively taxing all companies for scientific research, the centralised planning of the government has usurped the |
|dispersed and local knowledge of the private sector. |
|In the real world, free markets, trade and competition drive economic growth, not the government pulling money out of the |
|productive private sector and distributing it amongst universities. |
|If the government wants to encourage increased spending on science, the least inefficient tactic would be to offer increased |
|tax breaks to companies investing in research through universities, but even this is not essential given how integral research|
|is to many companies' profitability. |
|Philip Salter is programmes director for the Adam Smith Institute, UK-based policy institute dedicated to free market policies|
Institutional frameworks
1 Liberty and dignity (egalitarianism)
|“the greater the freedom of experimentation allowed in the existing arrangements, the greater will be the likelihood that the |
|changes will be made in the right direction.”[23] |
|“There is a positive correlation between indidvidualism and innovative potential. The greater the freedom of the individual to|
|explore his world of experience and to organize its elements in accordance with his private interpretation of his sense |
|impressions, the greater the likelihood of new ideas coming into being”[24] |
|“Science thrives on freedom, which in turn thrives on egalitarianism and democracy.”[25] |
Deirdre McCloskey, in particular, has highlighted the associated factor of dignity. It is a culture of freedom and individuality that enables innovation.
“Innovation depends upon the free and unbounded exercise of our intellect as no other human activity does. It requires completely fresh, new thinking. It requires the mind to be free of ‘hangovers’, biases and misconceptions that can prevent it from forming new links between disparate concepts. To say that ‘necessity is the mother of invention’ is only partly true. Primitive tribal societies had the greatest necessity in comparison to us, but were the least inventive. Only free societies respond to necessity with fresh, new thought. Tribal societies merely look in confused amazement at the heavens and dance around a fire with paint smeared on their bodies, hoping that the frenzy so generated, which dulls the brain, will appease the Gods and lead them to their next meal. The rate and level of innovation is therefore predominantly related to the level of freedom in a society. Tribal collectivist societies and socialist societies generally prevent innovation by blocking new ideas. In free societies the mind is allowed to range freely across the entire universe of known and unknown human thought. As a consequence of this different mindset towards life and its opportunities – a mindset that does not resist free exploration – free societies constantly churn up a storm of innovation in every sphere of life.”[26]
2 Stable, predictatble institutional environment
This includes rule of law, effective justice system, etc.
3 Property rights
Strong property rights are a major enabler of innovation.
“[I]n his Politics Aristotle linked the Athenian tradition of private property to its commercial success.”[27]
4 Free market competition: Say’s law (Walrasian market equilibrium)
|Using the language of the classics, it is “demand is constituted by supply”. To buy something you must first produce and |
|sell something. The selling is what gets you the money, but the production of value adding output is what first allows you to |
|sell. Without value adding activity, there is nothing to sell and therefore there is no basis for demand.[28] |
Consider the iPhone 5. The following options exist to get someone to create iPhone 5 (innovation):
a) Keynesian: Increase demand: The government could have created an iPhone5 through stimulus (subsidising buyers). Seeing all this money, Apple would have created an iPhone5. This is the Keynesian model
b) Mercantalistic/ Paternalistic: Increase funding for development of iPhone5: The second model says that there is a market failure. Apple is not enthused by potential profits it can make through iPhone5, and so will not invest in research and development. Therefore according to the paternalistic model, government (being much smarter than Apple, and with deeper pockets) should subsidise its R&D and product development.
c) Institutions for markets: Say’s law shows that there is sufficient incentive in the market for Apple to invest in its own R&D. There is no need for a Keynesian stimulus, nor for paternalistic dabbling in ‘innovation’ by government. So long as the government ensures a decent intellectual property framework (patents), Apple will invest in developing iPhone5 to exploit the market by offering it a new experience. The Say’s law encourages a government to build institutions that ensure property rights, bankruptcy systems, and other supporting mechanisms.
5 Profit
The free markets sends the best signal to innovate. Profit.
1 Do not fix prices!
There is considerable innovation in the illegal drugs market since the prices are high due to scarcity conditions created by government. But there is no innovation in the bus market since the government has created monopolies in the bus industry.
The message: do no mess with prices.
As a general rule, ‘states crush innovation—look at the computers used by air traffic controllers, or the seizure of state-run schools by unions’. [29]
2 EIU innovation environment index
EIU consider the following as part of the background of innovation:
1. Political stability
2. Macroeconomic stability
3. Institutional framework
4. Regulatory environment
5. Tax regime
6. Flexibility of labour market
7. Openness of national economy to foreign investment
8. Ease of hiring foreign nationals
9. Openness of national culture to foreign influence
10. Popular attitudes towards scientifi c advancements
11. Access to investment finance
12. Protection of intellectual property
13. Effectiveness of government fuding of innovation
These are detailed here:
Enablers: Cultural factors
1 Social rewards and respect for wealth generation
This compares with social rewards for the aristocrats, leisured classes, “intellectuals”, academics, and the like.
The society that undermines its wealth producers will have fewer innovators.
2 Absence of “tall poppy syndrome”
This is related to the above. A society with jealousy as its principle culture will have fewer innovators.
Key ingredient 1: Entrepreneur
1 Academic courses in entrepreneurship and innovation
1 The University of Swinburne
2
3 Teaching lateral thinking and innovation in schools and universtities
Edward de Bono and his ideas?[30] Examples from marketing brochures:
|MDS SCIEX launches innovative new product faster, increasing revenues by $20-million |
|In an aggressive bid to break new competitive ground, MDS SCIEX, a division of healthcare giant MDS Inc., recently launched |
|its most innovative new product of a decade in record time, earning $20 million in extra revenues for the company and netting |
|a 20 per cent market share in a new line of business for MDS SCIEX in just its first year of sales. |
|In addition, the product, called QSTAR™ is better than its original concept. It performs better, is quicker and less costly to|
|manufacture and is much easier and less expensive to ship. |
|MDS SCIEX credits the success of QSTAR™ to its use of Six Thinking Hats™, a method developed by creative thinking guru Edward |
|de Bono, through its product design process. |
|Enhanced teamwork and collaboration helped Boeing Toronto, Ltd.’s Management and Union achieve breakthrough agreement |
|Motivated by a strong desire to reach a positive outcome a Boeing Toronto, Ltd. Committee of union and management |
|representatives recently turned to Edward de Bono’s powerful thinking methodology, Six Thinking Hats™. Using the methodology |
|the committee – more accustomed to squaring off at opposite sides of the table than working collaboratively toward a common |
|goal – was able to break down the traditional barriers that exist between management and unions to reach a win-win solution. |
|Using Six Hats, committee members were able to move away from their partisan stances and collectively focus on resolving the |
|issues in a collaborative, results focused manner. |
|“Six Hats changed the dynamics of our working relationship and gave us a completely new way of tackling the problem, “says |
|Boeing Toronto, Ltd. Senior Manager of Compensation and Benefits, Christene Elias. “It took everything threatening off the |
|table and enabled us to work toward a solution in a compassionate, collaborative way.”[31] |
|[pic]Is there a role for government in serendipity? |
|The market sends competitive signals and forces firms to innovate. There is a bustling marketplace for ‘techniques’ to assist |
|in innovation. While such techniques could be taught to entrepreneurs, there seems to be no role for government to fund such |
|programs. |
4 Lean startup (Eric Ries)
5 Learning organisation (John Seddon/Peter Senge) (double loop learning/ system thinking)
6 Wall St. Journal debate
[pic]
|Can Entrepreneurship Be Taught? |
|Across the country, schools are rushing to introduce entrepreneurship classes. Self-help books for business founders are |
|topping the best-seller lists. |
|All of which is rekindling an age-old debate in the business world: Is entrepreneurship a skill that can be taught, or one you|
|have to develop by doing? |
|Education proponents argue that if you can teach people general skills that are useful in business, you can instill lessons |
|about running their own companies, too. What's more, the proponents argue, research in the field of entrepreneurship has |
|improved by leaps and bounds in recent years, so educators can do much more to help entrepreneurs avoid common problems. |
|But many critics think that the education boosters' logic is flawed. Starting and running a business, these critics say, |
|requires skills that a person can only develop in the real world, not in a classroom setting—everything from dealing with many|
|different types of people to handling the constant uncertainty that so often comes with a start-up company. |
| |
|Yes: Learn About the Pitfalls By Noam Wasserman |
|Eighty years ago, Ralph Heilman, the dean of Northwestern University's School of Commerce, wrote an article entitled, "Can |
|Business Be Taught?" His answer: yes. Take the lessons about what works and what doesn't, analyze and organize them, and then |
|teach them—just as we do with engineers, doctors and lawyers. |
|Clearly, the process works for training M.B.A.s. So, why not entrepreneurs? After all, entrepreneurs are the ultimate general |
|managers. They can benefit from much of the same knowledge that business students gain about marketing, finance and other |
|topics, complemented by lessons that are specifically tailored to start-ups. |
|And those lessons are getting better all the time. |
|Early entrepreneurial education was largely based on case studies and anecdotes. Over the past decade, though, academics have |
|brought a new level of sophistication to analyzing what leads to entrepreneurial success or failure. We're now developing a |
|"Moneyball for Founders"—rigorous data with which to scrutinize anecdotes and rules of thumb—that promises to revolutionize |
|entrepreneurial education just as a similar movement revolutionized baseball a decade ago. |
|Beyond Gut Feelings |
|Founders tend to put a lot of stock in their gut feelings, but sometimes the data say just the opposite. We can teach founders|
|to use that data to avoid common hazards. |
|For instance, with the passion and confidence they feel early in a venture, entrepreneurs often dramatically underestimate the|
|resources and time that it will take to put everything in place. Likewise, most founding chief executives are too optimistic |
|about their personal prospects. They anticipate staying in place when the venture is successful, but by the time of a |
|start-up's third round of financing, more than half of founding CEOs have been replaced. |
|Learning about these pitfalls, and what the data suggest to be better choices, helps entrepreneurs to make more informed |
|decisions from the outset, rather than having to fail and try again. |
|Founders of start-ups clearly believe that they can learn. Over the past two decades, demand for entrepreneurship programs and|
|courses has skyrocketed. In 2011, "The Lean Startup" was not only a best seller but was also considered by many to be the best|
|business book of the year. |
|Of course, sticking to the classroom entirely is a mistake. Entrepreneurship can and should employ other modes of learning as |
|well, such as role playing, self-evaluation exercises and work with mentors. In fact, a host of programs are available that |
|mix formal education with experiential learning and mentorship. |
|Common Problems |
|Are there elements of entrepreneurship that can't be taught? Sure, just as there are elements of engineering, medicine and law|
|that can't be taught. And, as some critics point out, these unteachable elements involve people skills: for instance, how |
|salespeople can figure out how to get to "yes" with potential customers after hearing "no" after "no." |
|But everybody has to develop people skills to get along in the world. Everybody has some experience building relationships and|
|motivating people. Harnessing those experiences and then extending them through real-world experience applies to all walks of |
|life. |
|Some critics further argue that the real world is more uncertain than any classroom lesson could possibly be. The real world |
|is indeed messy. Doesn't that make it even more important to educate people about the common challenges they will face, so |
|that they're better armed to deal with the remaining messiness? |
|Then there's the argument that failures and mistakes are an inevitable—and, indeed, valuable—part of an entrepreneur's |
|education. That line of thinking ignores the fact that many types of failure are predictable and avoidable. |
|Wouldn't we teach a scientist that lighting gunpowder is dangerous? Would we let the scientist learn that critical fact |
|firsthand? By learning about common mistakes, the scientist will become a more effective experimenter. The same goes for |
|entrepreneurship. |
|Consider some more numbers. Nearly two-thirds of high-potential start-ups fail due to tensions within the founding and |
|executive team. Our research is showing that many of those tensions are caused by early, ill-advised decisions about whom to |
|involve in the start-up and how to involve them. These are problems that founders with some entrepreneurial education will be |
|much better equipped to avoid. |
|Every day, ill-advised, and easily avoidable, decisions are killing off great ideas that could help restore entrepreneurial |
|magic to our economy. By educating founders about those kinds of pitfalls, we may be able to increase their success rates—and |
|give the country a boost along the way. |
|Dr. Wasserman is a professor of entrepreneurship at Harvard Business School and the author of "The Founder's Dilemmas: |
|Anticipating and Avoiding the Pitfalls That Can Sink a Startup." He can be reached at reports@. |
| |
|No: The Best Class Is Real Life By Victor W. Hwang |
|Entrepreneurship can't be taught in a regular classroom any more than surfboarding can. To learn it, you have to get your feet|
|wet in the real world. |
|Why? Entrepreneurship is messy. For an entrepreneur, there are rarely clear-cut right or wrong decisions day to day. Real life|
|gives entrepreneurs the ability to better make those kinds of judgment calls. |
|Entrepreneurship is also a team sport, not a solo skill. We all know the myth of the "lone wolf" entrepreneur, tucked away in |
|a basement or garage tinkering with an invention. In reality, an entrepreneur has to deal with lots of different people daily,|
|all of whom present social barriers to overcome, whether it's geography, culture, language or just plain distrust. |
|Entrepreneurs have to understand people well enough to get them to surmount their barriers and deliver their best efforts. |
|Those kinds of skills can't be taught in a formal classroom, and they can't be fully developed in the span of a semester or |
|even a few years. Entrepreneurship is learned through the aggregate experience of a life that is lived. |
|A Different World |
|That's why comparisons with traditional business education don't hold up. M.B.A. training helps you learn to allocate |
|resources and calculate risk, which are skills that can be quantified and taught. The life skills needed for |
|entrepreneurship can't be. |
| |
|I have seen successful executives who left corporations and joined start-ups and were unprepared for the experience. They knew|
|how to manage, but they weren't ready for the uncertainty in almost every aspect of decision-making, informal handshakes in |
|place of formal agreements, raw conflicts among company founders and investors and the need to do everything oneself—from |
|emptying garbage cans to fixing jammed copiers. |
|Leading a start-up also demands a deep understanding of people that can only come from real-world experience. |
|Imagine a potential employee who's trying to decide between joining a large company or a tiny start-up. Just looking at the |
|numbers, it would be insane to go with the smaller firm. You would almost certainly make less money, you would take on huge |
|personal risk and emotional burden, and you could even wreck your reputation if the venture failed. |
|An entrepreneur has to help that potential employee see beyond all of the negative incentives, to see why joining this little |
|company is worthwhile. One person, for instance, might want a chance to change the world. Another, meanwhile, might be |
|motivated by the joy of adventure, the thrill of a challenge or the love of novelty. |
|Which approach is going to work best with the prospective hire? You're not going to find that out sitting in a classroom, |
|talking to the same people day after day. |
|The same logic applies to every aspect of running a start-up. Imagine you've got a new product to sell that promises to change|
|your industry. But having a better mousetrap isn't enough. You must be able to read your potential customers and answer |
|crucial questions about them. |
|For instance, who's the right person to pitch, someone who will really understand your idea and be in a position to act on it?|
|What are the buyer's incentives to take such a huge risk with a start-up product? |
|Free to Fail |
|Admittedly, there's a booming interest in entrepreneurship education these days, and its proponents claim that there's more |
|science behind the subject these days. But I think that much of what traditional entrepreneurship classes teach—the best ways |
|to avoid mistakes—is misguided. |
|Telling entrepreneurs to avoid failure risks causing them harm. They're tempted to fall into endless planning and product |
|engineering, without real-world experimentation. Failures and mistakes are inevitable and are the equivalent of testing |
|hypotheses and learning in the scientific world. Just as we would never tell scientists to avoid running experiments that |
|might fail, we shouldn't tell entrepreneurs to avoid making mistakes and risking failure. |
|Entrepreneurs hone their craft through experimentation and collaboration in the real world. They learn best by rolling up |
|their sleeves and building companies, while surrounded by a supportive mentor and peer community. |
|We can't teach entrepreneurship in the traditional sense. But we should come up with ways to help entrepreneurs help |
|themselves to learn more effectively. This means finding ways to provide them with a network of mentors and advisers and |
|nurturing a business culture around them that says: dream big, open doors and listen to new people, trust and be trusted, |
|experiment, make mistakes, treat others fairly and pay it forward. |
|Working this way means looking beyond the traditional focus on individual entrepreneurs and finding ways to cultivate the |
|communities that surround them. But it's a move that can pay tremendous dividends. |
|Mr. Hwang is co-author of "The Rainforest: The Secret to Building the Next Silicon Valley" and managing director of T2 Venture|
|Capital in Silicon Valley. He can be reached at reports@. |
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| |
2 Incentives for academics to innovate
|As a young man Smith had studied philosophy at Glasgow University, then a good institution, but he moved for further study to |
|Balliol College, Oxford University, which was not a good institution. At Glasgow Smith had met eminent scholars, such as |
|Francis Hutcheson the philosopher, Joseph Black the chemist, and eventually James Watt of steam engine fame. But at Oxford |
|there was . . . nobody. As Smith was to write: ‘In the University of Oxford the greater part of the public professors have, |
|for these many years, given up altogether even the pretence of teaching.’ Smith’s contemporary at Magdelen College, Oxford, |
|Edward Gibbon the historian, was to write: ‘My tutors were monks who supinely enjoyed the gifts of the founder [endowments]. |
|My own [tutor] well remembered he had a salary to receive, and only forgot he had a duty to perform. [My] fourteen months at |
|Oxford were the most unprofitable and idle of my whole life.’ |
|These experiences inspired Smith to seek an explanation for the superiority of the Scottish over the English universities, |
|which he found in the market. The Scottish universities had to earn their money by fees, whereas Oxford (and Cambridge, then |
|no better) fed off their endowments: ‘Improvements were more easily introduced into some of the poorer universities which were|
|obliged to pay more attention to the current opinions of the world.’ Academics at Glasgow and Edinburgh, unlike those at |
|Oxford or Cambridge, were paid by the students, so the lecturers had to please those students – and different academics |
|competed to teach similar courses to the same students. But Oxford and Cambridge limited entry, admitting as lecturers only |
|unmarried men who were ordained in the Church of England. The average age of an Oxford or Cambridge academic then was around |
|twenty-seven, and most were only waiting to be appointed to a vacant parish, where they were allowed to marry. So, for |
|example, the Rev. Dr John Michell FRS, who first postulated black holes as early as 1784, resigned his Cambridge post for a |
|parish in Yorkshire when he wanted to get married. Such moves were not likely to foster scholarship, though it was by watching|
|the young fellows wait for their livings that Smith conceived of his Law of Population. |
|Terence Kealey (2010-10-31). Sex, Science And Profits (Kindle Locations 744-760). Random House UK. Kindle Edition. |
Key ingredient 2: Risk taking and venture capital
A key point to note is that investors do not invest in a product. They invest in a business. But most importantly, it is about:
* Integrity
* Passion
* Knowledge
* Skills
* Leadership
* Commitment
* Coachable []
The key is organising and operating.
Innovation and entrepreneurs are in the COMMERCIAL world, not in the RESEARCH world.
1 Entrepreneur must always risk his own capital
Without this, there is no chance of getting any venture capital funding.
2 Institutions of risk capital
This includes institutions that provide risk capital (e.g. venture capitalists/ banks).
1 Market based options if you HAVE to fund
You get paid if you line up venture capital
You get paid if your product is voted by thousands of potential consumers
See this for good ideas:
3 Venture capital and angel investors
Computer hardware and software, semiconductors, communication, and biotechnology account for 81 percent of all venture capital dollars, and seventy-two percent of the companies that got VC money over the past fifteen or so years. VCs only fund about 3,000 companies per year and only about one quarter of those companies are in the seed or start-up stage. In fact, the odds that a start-up company will get VC money are about one in 4,000. That’s worse than the odds that you will die from a fall in the shower.[32]
1 The Indus Entrepreneurs
Enablers: individual factors
1 Drive
Must have the drive to make money: to convert ideas into profit. Without such drive, the innovator will be unable to exploit the opportunity. But isn’t this drive in-built? When people find they can make a living without going to college, they tend to drop out.
|Eric Anderson [Source] notes that dreaming big is a key part of entrepreneurship and innovation |
|The Moon landing changed the way that people think about the limits of human accomplishment. The Space Age gave birth to a |
|commonly used phrase in popular discourse: “If we can put a man on the Moon, why can’t we do X,” where X can be any one of a |
|thousand dreams of humanity, whether old or new. |
|In the decades following the Moon landing, in sectors ranging from the explosive growth of computers and the Internet to |
|advances in biotechnology and agriculture, thousands of scientists, engineers, visionaries and entrepreneurs were propelled by|
|the inspirational backdrop of Apollo. It provided an “existence proof” that willpower, determination and thinking big could |
|lead to truly amazing things. There is no limit to what determined minds can achieve. |
|In the 21st century, the role of thinking big in entrepreneurship and business is nothing short of an indispensable |
|characteristic. We face so many opportunities and challenges in this new era that thinking small is simply not an option. |
|Audacity, endurance, determination and vision must be part and parcel of the fabric of entrepreneurs. |
2 Number of people
|McCloskey: If you like that you are going to love the opening chapters of the new book, Bourgeois Dignity. I retail there the |
|overwhelming evidence, collected mainly by other historians, that the post-1800 Age of Innovation (as I prefer to call it) led|
|to a jump of real, price- corrected ability-to- consume in places that took advantage of it from about $3 a day to about $100 |
|a day. The magnitude is why, as the subtitle says, “economics [whether bourgeois or Marxist] can’t explain the modern world.” |
|Exploitation or colonies or slavery or peaceful trade or virtuous saving or sensible reallocation or routine exploration for |
|oil or corporate laboratories for inventions are the events that economists talk about. Such events might explain a doubling |
|of consumption, a factor of two (though, by the way, stealing from poor people in the Third World has never been a successful |
|business plan; commonly it hurts ordinary people in the imperial country, so imperialism, contrary to your leftish students |
|and mine, can’t explain an increase). But the routine economics can’t explain the actual factor after 1800 of about thirty. |
|That depended on Simon’s “ultimate resource,” innovation from true creativity— which incidentally was something increased by |
|rising population.[33] |
3 Quality/capability of the individual
1 Immigration matters, but only high-end brainpower
|In 1999, AnnaLee Saxenian published the first study to provide a quantitative analysis of the economic contributions of |
|high-skilled immigrants in Silicon Valley. In “Silicon Valley’s New Immigrant Entrepreneurs,” she examined the transnational |
|circulation of capital and labor of Silicon Valley’s economy during the 1980s and 1990s. She found that immigrants comprised |
|one-third of the region’s scientific and engineering workforce. Moreover, in 1998, Chinese and Indian engineers were |
|responsible for operating one-quarter of technology businesses in the region, accounting for more than $16.8 billion in sales |
|and 58,282 jobs. At the time of its release, the report succeeded in validating the prevailing belief that immigrants were |
|major contributors to the U.S. economy and the high-tech industry. |
|Finding that the period from the 1980s and 1990s had experienced such a vast upswing in the number of immigrant-founded |
|companies, Saxenian surmised that the growth rate of immigrant entrepreneurship would continue to accelerate in subsequent |
|decades. Her initial forecasts were ultimately proven right. In 2007, a study conducted by researchers at Duke University and |
|the Berkeley School of Information, drawing on Saxenian’s earlier work, concluded that high-skilled immigrants were playing an|
|even more expanded role than before as the driving forces of technological innovation and capital growth. The study found |
|that, between 1995 and 2005, 52 percent of high-tech companies started in Silicon Valley. |
|The 2007 study also examined companies founded between 1995 and 2005 nationwide. Researchers found that 25.3 percent of these |
|engineering and technology companies had at least one key founder who was foreign-born. In 2005, these immigrant-founded |
|companies collectively generated roughly $52 billion in sales and employed 450,000 workers. These findings were documented in |
|a paper titled, “America’s New Immigrant Entrepreneurs.” |
|A subsequent research project analyzed the backlog of immigrants in the United States waiting for legal permanent residence in|
|the first three employment-based categories. It documented that, as of October 1, 2006, there were almost half a million such |
|foreign-born persons, and the number including family members was more than one million. But there were only about 120,000 |
|visas available per year in these employment-based visa categories (plus visas not used in the family preferences). So the |
|wait times for permanent residence visas, or green cards, as these commonly are called, was about a decade. The researchers |
|saw reason for concern and forecast that this wait increasingly would lead to these workers getting frustrated and returning |
|home or moving to other countries. The prediction of a “reverse brain drain” was published in a Kauffman Foundation paper |
|titled, “Immigrants, Intellectual Property, and the Reverse Brain-Drain—America’s New Immigrant Entrepreneurs, Part III.” |
|To test this hypothesis and to learn whether the trend of increasing immigrant entrepreneurship in the technology sector had |
|continued, researchers at Duke University, the Berkeley School of Information, and Stanford University conducted a follow-up |
|study to the 2007 report to determine what has happened to the rate of immigrant entrepreneurship from 2006 to 2012. Here we |
|present our findings. |
|This study examined the complex relationships between immigration and economic development in an increasingly globalized |
|economy. It sought to update the findings of the 2007 report by analyzing whether changes in the pace of immigrant |
|entrepreneurship have occurred. Out of a total of 107,819 engineering and technology companies founded in the last six years, |
|it examined a random sample of 1,882 companies to identify whether a key founder was foreign-born. |
|The study found that, for the first time in decades, the growth rate of immigrant-founded companies has stagnated, if not |
|declined. In comparison with previous decades of increasing immigrant-led entrepreneurism, the last seven years has witnessed |
|a flattening out of this trend. The proportion of immigrant-founded companies nationwide has dropped from 25.3 percent to 24.3|
|percent since 2005. While the margins of error of these numbers overlap, they nonetheless indicate that immigrant-founded |
|companies’ dynamic period of expansion has come to an end. |
|We also performed a special analysis of Silicon Valley, which is widely known as the international hub for technological |
|development and innovation. The findings indicate that 43.9 percent of Silicon Valley startups founded in the last seven years|
|had at least one key founder who was an immigrant. This represents a notable drop in immigrant-founded companies since 2005, |
|when 52.4 percent of Silicon Valley startups were immigrant-founded. |
|Below is a summary of the key findings about engineering and technology companies founded in the United States between 2006 |
|and 2012: |
|24.3 percent of these companies had at least one key founder who was foreign-born. In Silicon Valley, this number was 43.9 |
|percent. |
|Nationwide, these companies employed roughly 560,000 workers and generated $63 billion in sales in 2012. |
|Of the total of immigrant-founded companies, 33.2 percent had Indian founders, up about 7 percent from 2005. Indians have |
|founded more such companies than immigrants born in the next top seven immigrant-founder-sending countries combined. |
|The top ten sending countries of immigrant entrepreneurs in descending order were India (33.2 percent), China (8.1 percent), |
|the United Kingdom (6.3 percent), Canada (4.2 percent), Germany (3.9 percent), Israel (3.5 percent), Russia (2.4 percent), |
|Korea (2.2 percent), Australia (2.0 percent), and the Netherlands (2.0 percent). |
|The 458 immigrant-founded companies sampled collectively created a total of 9,682 jobs. They employed an average of 21.37 |
|workers. |
|While the mix of immigrants varies by state, Indians tend to dominate the immigrant-founding groups of the top six states with|
|the greatest representation of immigrant founders. |
|The states with the highest concentration of immigrant-founded companies were California (31 percent), Massachusetts (9 |
|percent), Texas (6 percent), Florida (6 percent), New York (5 percent), New Jersey (5 percent). |
|Some immigrant groups showed a greater tendency to start companies in particular states. Of Indian-founded companies, 26 |
|percent were founded in California and 8 percent in Massachusetts. Of Chinese-founded companies, 40 percent were founded in |
|California and 16 percent in Maryland. While immigrant groups tended to concentrate the most in California, German immigrants |
|demonstrated a preference for starting businesses in Ohio (22 percent), followed by California (17 percent). |
|Across engineering and technology fields, immigrant entrepreneurs displayed the greatest concentration in the |
|innovation/manufacturing- |
|related services (45 percent) and software (22 percent) fields. |
|This study demonstrates that the rate of immigrant entrepreneurship nationwide has plateaued. Silicon Valley remains the |
|rubric against which national trends in the technology sectors are measured. That the proportion of immigrant founders in the |
|Silicon Valley has declined since 2005 should raise questions about the United States’ future ability to remain economically |
|competitive in the international market.[34] |
|There have been pockets of collaboration between Australia and India |
|by Bernard Lane, The Australian October 03, 2012 |
|Hyderabad IIT director Uday Desai says competition for student places is intense. Picture: James Croucher Source: The |
|Australian |
|IN Australia, IITan is not a household word. It's shorthand for engineering celebrity: a graduate from one of the elite Indian|
|institutes of technology. |
|"If you go to Silicon Valley, that is where we started getting our fame," says Uday Desai, director of Hyderabad's new IIT. |
|"Almost 60 per cent of the start-ups from Silicon Valley have a representative from an IIT." |
|So many IITans went to the US, accumulating doctorates, inventions and patents, that the US congress gave voice to the |
|admiration of the US people with a special resolution in 2005. |
|Now, for many reasons, far fewer IITans go abroad to make careers but their US legacy has made many other countries seek |
|collaborations with these dynamic, autonomous universities of engineering. |
|Last week, Professor Desai toured six institutions in Perth and Sydney, his visit a hint of the potential for deeper links |
|between Australian and India. |
|There have been pockets of collaboration between Australia and India, but it is difficult to get an overall picture, says |
|Sydney-based Pradeep Khanna, international business consultant and IITan. |
|If not many Australians know the IIT story, the top echelon of Indian students are oblivious to the world-beating claims of |
|Australia's leading universities. "Very few IITans would have looked at Australia as a place of higher education," Mr Khanna |
|says. |
|Among the IIT alumni who still go abroad for postgraduate work, the US remains the favoured destination. |
|Even so, there have been Australian initiatives that enlarge the possibilities. |
|A joint PhD program between Monash University and IIT Bombay has 90 students and a half-dozen are expected to finish this |
|year. With projects built around themes such as water and clean energy, the students spend at least six months on Monash's |
|Clayton campus. |
|"Collaborations between professors have existed since the day dot _ that's nothing new," says Mohan Krishnamoorthy, chief |
|executive of the IITB-Monash Research Academy. |
|"But I'm not aware of any other institution based on a cross-disciplinary, cross-country partnership collaboration model that |
|is looking at operating on a scale of 250 to 300 research students." |
|Another initiative making a difference is the 2006 Australia-India Strategic Research Fund. "Putting money there has actually |
|made it very clear that, yes, Australia is interested and India is interested," Professor Desai says. |
|"They are funding exchange of faculty and students, research projects and grand challenge projects (such as infectious |
|diseases)." |
|IITans understand intense competition: "To get into an IIT is extremely difficult. Nearly 500,000 students apply and maybe |
|8000 students make it," Professor Desai says. |
4 Knowledge and specialisation
1 Adam Smith’s theory of innovation: specialization and competition
5 Ability to take risks
This is a vital part of innovation (and particularly entrpreneurship).
What are governments doing?
1 Commonwealth: .au
1 Seven innovation priorities
Priority 1: Public research funding supports high-quality research that addresses national challenges and opens up new opportunities.
The Australian Government’s ambition is to increase the number of research groups performing at world-class levels, as measured by international performance benchmarks. Investments in public sector research will continue to be guided by the National Research Priorities, which will be updated periodically to reflect changing circumstances.
Priority 2: Australia has a strong base of skilled researchers to support the national research effort in both the public and private sectors.
Skilled people are the single most important prerequisite for successful innovation. The Australian Government’s objective is to significantly increase the number of students completing higher degrees by research over the next decade.
Priority 3: The innovation system fosters industries of the future, securing value from the commercialisation of Australian research and development.
The Australian Government rejects the proposition that Australia is a technology-taker, and that policy-makers should not be concerned about the capacity of Australian companies to develop new-to-the-world innovations. It aims to see a continuing increase in the number of businesses investing in R&D.
Priority 4: More effective dissemination of new technologies, processes, and ideas increases innovation across the economy, with a particular focus on small and medium-sized enterprises.
The Australian Government’s goal is to achieve a 25 per cent increase in the proportion of businesses engaging in innovation over the next decade. This would bring Australia up to the present European average and — depending on what other countries do — place us in the top third globally.
Priority 5: The innovation system encourages a culture of collaboration within the research sector and between researchers and industry.
Australia has a poor record of collaboration between businesses, between businesses and researchers, and between research agencies. The Australian Government’s ambition is to double the level of collaboration between Australian businesses, universities and publicly-funded research agencies over the next decade.
Priority 6: Australian researchers and businesses are involved in more international collaborations on research and development.
Australia produces 3 per cent of the world’s formal research. Our capacity to innovate depends very much on how effectively we harness and apply the other 97 per cent. The Australian Government has therefore adopted the long-term aim of increasing international collaboration in research by Australian universities.
Priority 7: The public and community sectors work with others in the innovation system to improve policy development and service delivery.
2 Funding startups
|Funding Innovation in Start Ups and Small Business in Australia[35] |
|Access to finance has always presented a significant challenge to innovators and entrepreneurs in Australia, particularly for |
|small business involved in cutting edge technologies. However, the availability of risk capital to finance start-ups is |
|essential to ensure that new ideas with commercial potential are able to reach the market and deliver economic and other |
|benefits. |
|There is a range of financing options available, across private and public sectors. The Australian Government is focusing on |
|creating an environment in Australia in which technologically intensive start ups can grow and develop their business. It aims|
|to provide support for innovation across the stages of enterprise development, from invention through to commercialisation, |
|particularly in the high-risk early stages where the market forces fall short of supporting innovation. The support offered by|
|both government and privately funded programs often includes mentoring and advice, as well as finance. |
|New innovations require a significant level of funding to take a prototype or working idea and develop it into a marketable |
|product. Private funding may be hard to access. This is where governments tend to step in to provide finance for such |
|activities as product development and prototyping, market validation and execution of IP strategy. |
|The Australian Government’s support for start ups and small businesses to undertake innovation activity includes programs such|
|as R&D Tax Incentive and Commercialisation Australia. The Government has just completed public consultation on the R&D tax |
|incentive quarterly credits program scheduled to start in 2014. Commercialisation Australia offers grants that cover finance |
|as well as providing extensive business assistance and mentoring. |
|The main sources of funding for most start ups formed to commercialise R&D, and in the very earliest stages of their |
|development, are friends and family followed by angel investors. A more recent approach, particularly in the USA and UK, is |
|Crowd Funding which may be a suitable mechanism for raising capital to support some types of projects. In Australia, friends |
|and family and angel investors generally address funding requirements before a company has reached a point where it is able to|
|attract formal venture capital. |
|Angel investors are high net worth individuals who invest their own capital and often offer business mentoring to help guide |
|new managers who frequently lack business and financial skills. Collectively, Angel investors support a wider range of |
|innovation than venture capital firms, across a broader range of sectors, but at earlier stages of development. Traditionally,|
|they invest locally. |
|Angel investing is growing rapidly around OECD countries. Policy interventions in the angel funding in some OECD countries |
|have been relatively recent, and have included tax incentives and co-funding. However the issue of government involvement in |
|angel funding remains a contested issue. |
|Crowd sourced equity funding (CSEF) is defined by the Australian Securities and Investment Commission (ASIC) as activities |
|involving the use of the internet or social media to raise funds in support of a specific project or business idea, with |
|sponsors typically receiving some reward in return for their funds. ASIC recently released advice on CSEF warning of potential|
|legal obligations for the operators. |
|Given the emergence of CSEF models overseas, it is important for Australia to consider the impact that continuing to restrict,|
|or failing to regulate for, crowd funding may have on its innovation system. |
|Crowd funding has generally been used to develop creative industry products with relatively small budgets ranging from a few |
|thousand dollars upwards. However the scale is rapidly beginning to change. Crowd funding is now evolving separate forms of |
|the model in which commercial ventures are funded by a large number of individuals on a profit sharing basis rather than |
|receiving set incentives. Countries such as UK and US are considering crowd funding through provision of equity. |
|Access to venture capital is essential to a robust innovation system that values the creation of new competitive companies and|
|jobs. The venture capital market in Australia is relatively small but developing. Venture capital programs currently delivered|
|by the Australian Government include the Innovation Investment Fund (IIF), the Early Stage Venture Capital Limited |
|Partnerships (ESVCLP) and the Venture Capital Limited Partnerships (VCLP) programs. The IIF is an equity co-investment program|
|to increase access to risk capital and management expertise for innovative new knowledge-based Australian companies involved |
|in research commercialisation. The ESVCLP and VCLP programs are tax concession programs which assist in attracting capital |
|into the Australian venture capital market. |
|Recent years have seen a growing number of government programs in OECD countries which target supporting innovation in SMEs. |
|Thus the EU Innovation and SMEs Program promotes awareness of the need for innovation in the present day globalised market, as|
|well as providing specialist innovation services to researchers, enterprises and policy-makers. A special helpdesk, called |
|LIFT (Linking Innovation, Finance and Technology), provides free advice to EU researchers wishing to obtain financing in order|
|to set up a business venture. The advice aims to improve understanding of the issues involved in attracting investment in |
|business ideas and helps to identify appropriate sources of finance. |
|The German Government has launched “Central Innovation Programme SME (ZIM)”. The aim of the Programme is to provide |
|sustainable support to the innovative capabilities and competitiveness of companies, particularly SMEs, and collaborating |
|research organisations. The program funds innovation activities in SMEs, as well as research carried out by research |
|institutions collaborating with SMEs in the area of developing cutting-edge technologies. |
3 Tax breaks for R&D
2 Western Australia: Vouchers
|Applications for round three of the West Australian Government’s Innovation Vouchers Program (IVP) opened on 15 August 2012. |
|The vouchers will provide SMEs with funding of up to $20,000 to engage professional skills or services to assist with |
|commercialisation. The program aims to enable West-Australian based SMEs to access and establish collaborative relationships |
|with research providers and specialist commercialisation support services. |
|Applications close on 27 September 2012 and applicants will be notified in November 2012. |
Role of government: arguments in favour
1 R&D
2 Information gaps?
It is argued that business don’t know where comparative advantage lies.
This is incorrect. Businesses receive signals very quickly about market conditions and realise where their advantage lies.
|Rodrik (2004) … argues that the right way of thinking about industrial policy is as a discovery process—one where firms and |
|the government learn about underlying costs and opportunities and engage in strategic coordination. His view is that |
|industrial policy is more about eliciting information from the private sector than addressing distortions by first-best |
|instruments. He envisions industrial policy as a strategic collaboration between the private and public sectors—the primary |
|goal of which is to determine areas in which a country has a comparative advantage. |
|Brahmbhatt (2007) has argued that there is a circularity problem in Rodrik’s hypothesis that second-best policies, such as |
|industrial policy, are needed to address market failures affecting modern sector activities because first-best policies like |
|strengthening governance and building institutions are too broad and unrealistic. If it is true that to make industrial policy|
|work there is a need for quite sophisticated governance and institutional mechanisms, then might not the original first-best |
|policies also make sense? Perhaps only a few developing countries can muster the institutional strengths needed to make |
|industrial policy work. At any rate, practical implementation would require close attention to the necessary governance and |
|institutional underpinnings of industrial policy. [36] |
Action: The government could provide access to academic journal databases?
3 Coordination?
But businesses are able to organise get-togethers on their own. In Victoria examples include: Linkedin groups, meetup groups, facebook groups, etc.
4 Protection of intellectual property
Patents (but ther are many who oppose> Jefferson/ Varian)
|Do patent and copyright law restrict competition and creativity excessively? Posner [Source] |
|I am concerned that both patent and copyright protection, though particularly the former, may be excessive. |
|To evaluate optimal patent protection for an invention, one has to consider both the cost of inventing and the cost of |
|copying; the higher the ratio of the former to the latter, the greater the optimal patent protection for the inventor. The |
|ratio is very high for pharmaceutical drugs. The cost of inventing a new drug, a cost that includes the extensive testing |
|required for the drug to be approved for sale, is in the hundreds of millions of dollars, yet for most drugs the cost of |
|copying—or producing an identical substitute—is very low. And so the ratio of the first to the second cost is very high, |
|making it hard for the inventor to recover his costs without patent protection (and for the additional reasons that the |
|present value of the revenue from sale of the drug is depressed because of the length of time it takes to get approval, and |
|that the effective patent term is truncated because the patent is granted, and the period patent protection begins to run, |
|when the patent is granted rather than, years later, when the drug can begin to be sold). |
|Pharmaceutical drugs are the poster child for patent protection. Few other products have the characteristics that make patent |
|protection indispensable to the pharmaceutical industry. Most inventions are inexpensive, and even without patent protection, |
|or any other legal protection from competition, the first firm to invent a product usually has significant protection from |
|competition in the near term. The first firm gets a headstart on moving down his cost curve as experience demonstrates ways of|
|cutting costs and improving the product. And the public is likely to identify his brand with the product, and keep buying it |
|even after there is competition, and at a premium price. Moreover, many new products have only a short expected life, so that |
|having 20 years of patent protection would confer no real benefit—except to enable the producer to extract license fees from |
|firms wanting to make a different product that incorporates his invention. |
|When patent protection provides an inventor with more insulation from competition than he needed to have an adequate incentive|
|to make the invention, the result is to increase market prices above efficient levels, causing distortions in the allocation |
|of resources; to engender wasteful patent races—wasteful because of duplication of effort and because unnecessary to induce |
|invention (though the races do increase the pace of invention); to increase the cost of searching the records of the Patent |
|and Trademark Office in order to make sure one isn’t going to be infinging someone’s patent with your invention; to encourage |
|the filing of defensive patents (because of anticipation that someone else will patent a similar product and accuse you of |
|infringement); and to encourage patent “trolls,” who buy up large numbers of patents for the sole purpose of extracting |
|licensee fees by threat of suit, and if necessary sue, for infringement. |
|The problem of excessive patent protection is at present best illustrated by the software industry. This is a progressive, |
|dynamic industry rife with invention. But the conditions that make patent protection essential in the pharmaceutical industry |
|are absent. Nowadays most software innovation is incremental, created by teams of software engineers at modest cost, and also |
|ephemeral—most software inventions are quickly superseded. Software innovation tends to be piecemeal—not entire devices, but |
|components, so that a software device (a cellphone, a tablet, a laptop, etc.) may have tens of thousands, even hundreds of |
|thousands, of separate components (bits of software code or bits of hardware), each one arguably patentable. The result is |
|huge patent thickets, creating rich opportunities for trying to hamstring competitors by suing for infringement—and also for |
|infringing, and then challenging the validity of the patent when the patentee sues you. |
|Further impediments to effective patent policy in the software industry include a shortage of patent examiners with the |
|requisite technical skills, the limited technical competence of judges and jurors, the difficulty of assessing damages for |
|infringement of a component rather than a complete product, and the instability of the software industry because of its |
|technological dynamism, which creates incentives both to patent and to infringe patents and thus increases legal costs. |
|The pharmaceutical and software industries are the extremes so far as the social benefits and costs of patent protection are |
|concerned, and there are many industries in between. My general sense, however, bolstered by an extensive academic literature,|
|is that patent protection is on the whole excessive and that major reforms are necessary. |
|Turning to copyright, I note first an interesting contrast with patent law. Although there are some industry-specific |
|differences in patent law, for the most part patents are “one size fits all,” so far as length of protection and criteria and |
|procedures for the grant of a patent are concerned. In contrast, copyright protection tends to vary considerably across |
|different media. For example, when recorded music came into being, instead of providing it with the same copyright regime as |
|already governed books and other printed material, Congress devised a separate regime tailored to what were considered the |
|distinctive characteristics of music as a form of intellectual property. Patent law could learn from that approach. |
|The problem of copyright law is less acute than the problem of patent law, partly because copyright infringement is limited |
|to deliberate copying; patent infringement does not require proof even that the infringer was aware of the patent that he was |
|infringing. Nevertheless, as in the case of patent law, copyright protection seems on the whole too extensive. Granted, with |
|modern action movies often costing hundreds of millions of dollars to make, yet copiable almost instantanteously and able to |
|be both copied and distributed almost costlessly, the need for copyright protection is comparable to that in the |
|pharmaceutical industry. At the other extreme is academic books and articles (apart from textbooks), which are produced as a |
|byproduct of academic research that the author must conduct in order to preserve his professional reputation and that would |
|continue to be produced even if not copyrightable at all. It is doubtful that there is any social benefit to the copyrighting |
|of academic work other than textbooks, which require a lot of work and generally do not enhance the author’s academic |
|reputation and may undermine it. |
|The most serious problem with copyright law is the length of copyright protection, which for most works is now from the |
|creation of the work to 70 years after the author’s death. Apart from the fact that the present value of income received so |
|far in the future is negligible, obtaining copyright licenses on very old works is difficult because not only is the author in|
|all likelihood dead, but his heirs or other owners of the copyright may be difficult or even impossible to identify or find. |
|The copyright term should be shorter. |
|The next most serious problem is the courts’ narrow interpretation of “fair use.” The fair use defense to copyright |
|infringement permits the copying of short excerpts from a copyrighted work without a license, since the transaction costs of |
|negotiating a license for a short excerpt would tend to exceed the value of the license. The problem is that the boundaries of|
|fair use are ill defined, and copyright owners try to narrow them as much as possible, insisting for example that even minute |
|excerpts from a film cannot be reproduced without a license. Intellectual creativity in fact if not in legend is rarely a |
|matter of creation ex nihilo; it is much more often incremental improvement on existing, often copyrighted, work, so that a |
|narrow interpretation of fair use can have very damaging effects on creativity. This is not widely recognized. |
|The need for reform is less acute in copyright than in patent law, but it is sufficiently acute to warrant serious attention |
|from Congress and the courts. |
5 Risk?
The idea here is that the risks are often too high for private entrepreneurs to bear.
6 Successful examples
|A recent blog post by the American Enterprise Institute’s (AEI) Mark Perry insists on solely crediting “market forces” for the|
|shale gas revolution. Perry continues to push a false narrative that the market alone developed and deployed the technologies |
|used today to extract shale natural gas, which has resulted in dirt-cheap prices and natural gas industry growth – natural gas|
|is now tied with coal as America’s top source of electricity. It follows a similar piece earlier this year by AEI’s Steven |
|Hayward that characterized the shale gas revolution as occurring “away from the greedy grasp of Washington,” thus completely |
|overlooking any government role whatsoever. “If the political class had known this was going on,” he declares, “surely |
|Washington would have done something to slow it up, tax it more, or stop it altogether.” In reality, the government deserves |
|ample credit for not only developing the next generation natural gas technologies used today but also for partnering with |
|industry to accelerate deployment of those technologies to market. |
|Oakland-based think-tank the Breakthrough Institute conducted an investigation that sheds light on the extent to which the |
|government helped foster technology innovation in the natural gas sector (and an ITIF blog post summarizes here): |
|From the 1970’s through the 1990’s, the federal government partnered with the gas industry to develop horizontal drilling |
|installations, hydraulic fracturing, and the mapping technologies that make shale gas even possible. These technologies got |
|their start in at the Morgantown Energy Research Center, which provided investments for RD&D into new natural gas drilling |
|technologies. From that center and subsequent government funded demonstration projects came directional drilling. |
|Ultimately, a private company – Mitchell Energy – commercialized the technology. But government energy innovation policy |
|didn’t stop there. Mitchell Energy and the Department of Energy (DOE) continued partnering, as DOE (through the Federal Labs |
|and the Gas Research Institute) provided vital mapping R&D to understand and exploit shale gas formations. Targeted |
|‘non-conventional’ gas tax credits sustained development of these technologies when no market existed and a gas rate-payer |
|surcharge was used to fund early research. |
|In other words, the shale natural gas revolution is an inconvenient reality for those that want to push the Solyndra-narrative|
|that government can do no right in addressing U.S. energy challenges. In fact, as the last century of breakthrough technology |
|development has shown (including the shale natural gas revolution) government can and has done right. So instead of pushing a |
|false narrative, the energy policy debate would be much better served by teasing out the research, development, deployment, |
|and public-private partnership models that worked (like the Breakthrough Institute did in their study) and didn’t work to make|
|better government investments in breakthrough technologies and energy policies. |
| [CLIFTON YIN AND MATTHEW|
|STEPP · AUGUST 24, 2012] |
|Also: |
7 Preventing brain drain?
8 Moral hazard
9 Displacement or crowding out of private research
10 Public choice question: how can bureacurats without any capacity to innovate support innovation?
Bad apples pick you
Role of government: arguments against
1 Businesses are the “smartest” in their field
It is in the interest of a business to know exactly what is going on his field. He is not only likely to subscribe to relevant professional journals but to actively use google and other electronic databases.
Give them access to JSTOR if absolutely needed
2 No skin in the game
It appears that some “innovation” projects funded by government do well while others do extremely badly. A key obstacle to identification of the best funding of opportunities is the fact that bureaucrats have no skin in the game. To the extent that a significant portion of compensation of government officials can be linked to the performance of their investments (of taxpayer funds), some of these constraints could be reduced. However, it is unlikely that bureaurats are going to be willing to put their money where their mouth is. Nor will politicians do that. In general, therefore it is theoretically impossible for bureacrats to put in the due diligence that investors will put in, into their ‘investments’.
Since a government cannot, for very basic fundamental reasons, pick winners, it could (instead) consider providing low interest loans to venture capitalists who put their own money on the line. For instance, if a venture capitalist is willing to shell out $100 of his own money on a venture, the government could provide $50 of that as a low interest loan to the benture capitalist.
INNOVATION INNOVATION
3 Picking winners is a bad idea: Solyndra
|Solyndra, explained[37] |
|by Rachel Weiner at 1 June 2012 |
|Solyndra was founded in Silicon Valley in 2004. The company planned to build solar panels without polysilicon. While |
|Solyndra’s panels were more expensive to make, they were supposed to be cheaper to install, and the skyrocketing price of |
|polysilicon gave the company a chance to compete in the market. |
|The following year, the company was invited to apply for a government-guaranteed loan under the Energy Policy Act of 2005. A |
|full application came in 2008, and the Department of Energy began a review. In March 2009, Energy Secretary Steven Chu |
|announced a $535 million conditional loan guarantee to Solyndra — making it the first to receive a loan since the 2005 program|
|began. The loan was funded with stimulus money and formally announced in September 2009. |
|But Solyndra was already in trouble. In February of 2008 the price of polysilicon began to fall sharply, while Solyndra’s |
|claims of cheaper installation costs were also in doubt. Chinese firms started to crowd out American ones on the solar panel |
|market. Natural gas prices also fell, making investments in more or comparatively more expensive alternative energy less |
|attractive. Management at the firm also made questionable spending decisions, wasting loan money on state-of-the-art equipment|
|that went unused. |
|The DOE learned in December 2010 that Solyndra could not make its loan payment, in violation of its federal loan deal. |
|Solyndra executives had been privately warning administration officials that the firm was at risk of liquidation. Yet in |
|February 2011, the department restructured the loan, with some investors agreeing to provide Solyndra $75 million more in |
|financing. |
|Part of the deal was that private investors, including family funds connected to Obama fundraising bundler George Kaiser, |
|would be paid back before the government if Solyndra collapsed. The Kaiser-tied funds were already the largest investors in |
|Solyndra. In August 2011, the company filed for bankruptcy. |
|Nearly $4 billion in federal grants and financing, however, flowed to 21 companies backed by firms with connections to five |
|Obama administration staffers and advisers on energy policy, according to a Post examination. |
List of investions
This list, obtained from the internet, is indicative of the fact that Governemnt has played a very limited role in innovation.
|INVENTION |YEAR |INVENTOR |COUNTRY |
|thermometer |1592 |Galileo |Italy |
|telescope, optical |1608 |Hans Lippershey |The Netherlands |
|submarine |1620 |Cornelis Drebbel |The Netherlands |
|barometer |1643 |Evangelista Torricelli |Italy |
|clock, pendulum |1656 |Christiaan Huygens |The Netherlands |
|engine, steam |1698 |Thomas Savery |England |
|sunglasses |1752 |James Ayscough |UK |
|chronometer |1762 |John Harrison |England |
|soft drinks, carbonated |1772 |Joseph Priestley |UK |
|threshing machine |1778 |Andrew Meikle |Scotland |
|balloon, hot-air |1783 |Joseph & Étienne Montgolfier |France |
|bifocal lens |1784 |Benjamin Franklin |US |
|oil lamp |1784 |Aimé Argand |Switzerland |
|shoelaces |1790 |— |England |
|guillotine |1792 |Joseph-Ignace Guillotin |France |
|cotton gin |1793 |Eli Whitney |US |
|ball bearing |1794 |Philip Vaughan |England |
|metric system of measurement |1795 |French Academy of Sciences |France |
|vaccination |1796 |Edward Jenner |England |
|parachute, modern |1797 |André-Jacques Garnerin |France |
|battery, electric storage |1800 |Alessandro Volta |Italy |
|steamboat, successful |1807 |Robert Fulton |US |
|canning, food |1809 |Nicolas Appert |France |
|American Sign Language |1817 |Thomas H. Gallaudet |US |
|bicycle |1818 |Baron Karl de Drais de Sauerbrun |Germany |
|stethoscope |1819 |René-Théophile-Hyacinthe Laënnec |France |
|Fresnel lens |1820 |Augustin-Jean Fresnel |France |
|Braille system |1824 |Louis Braille |France |
|cement, portland |1824 |Joseph Aspdin |England |
|stove, gas |1826 |James Sharp |UK |
|matches, friction |1827 |John Walker |England |
|locomotive |1829 |George Stephenson |England |
|thermostat |1830 |Andrew Ure |UK |
|reaper, mechanical |1831 |Cyrus Hall McCormick |US |
|telegraph |1832 |Samuel F.B. Morse |US |
|motor, electric |1834 |Thomas Davenport |US |
|revolver |1835 |Samuel Colt |US |
|plow, steel |1836 |John Deere |US |
|photography |1837 |Louis-Jacques-Mandé Daguerre |France |
|Morse code |1838 |Samuel F.B. Morse |US |
|fuel cell |1839 |William R. Grove |UK |
|rubber, vulcanized |1839 |Charles Goodyear |US |
|stamps, postage |1840 |Sir Rowland Hill |UK |
|sewing machine |1841 |Barthélemy Thimonnier |France |
|facsimile (fax) |1842 |Alexander Bain |Scotland |
|refrigerator |1842 |John Gorrie |US |
|greeting card, Christmas |1843 |John Callcott Horsley |England |
|rubber band |1845 |Stephen Perry |UK |
|saxophone |1846 |Antoine-Joseph Sax |Belgium |
|doughnut (ring) or donut |1847 |Hanson Crockett Gregory |US |
|safety pin |1849 |Walter Hunt |US |
|airship |1852 |Henri Giffard |France |
|elevator, passenger |1852 |Elisha Graves Otis |US |
|hypodermic syringe |1853 |Charles Gabriel Pravaz |France |
|potato chips |1853 |George Crum |US |
|dry cleaning |1855 |Jean Baptiste Jolly |France |
|steel, mass-production |1856 |Henry Bessemer |UK |
|tissue, toilet |1857 |Joseph Gayetty |US |
|can opener |1858 |Ezra J. Warner |US |
|engine, internal-combustion |1859 |Étienne Lenoir |France |
|oil well |1859 |Edwin Laurentine Drake |US |
|linoleum |1860 |Frederick Walton |UK |
|pasteurization |1864 |Louis Pasteur |France |
|stapler |1866 |George W. McGill |US |
|concrete, reinforced |1867 |Joseph Monier |France |
|dynamite |1867 |Alfred Nobel |Sweden |
|stock ticker |1867 |Edward A. Calahan |US |
|typewriter |1868 |Christopher Latham Sholes |US |
|celluloid |1869 |John Wesley Hyatt |US |
|margarine |1869 |Hippolyte Mège-Mouriès |France |
|bag, flat-bottomed paper |1870 |Margaret Knight |US |
|petroleum jelly |1870 |Robert Chesebrough |US |
|cardboard, corrugated |1871 |Albert Jones |US |
|periodic table |1871 |Dmitry Ivanovich Mendeleyev |Russia |
|catalog, mail-order |1872 |Aaron Montgomery Ward |US |
|polyvinyl chloride (PVC) |1872 |Eugen Baumann |Germany |
|jeans |1873 |Levi Strauss, Jacob Davis |US |
|barbed wire |1874 |Joseph Glidden |US |
|DDT |1874 |Othmar Zeidler |Germany |
|telephone, wired-line |1876 |Alexander Graham Bell |Scotland/Canada/US |
|phonograph |1877 |Thomas Alva Edison |US |
|cream separator (dairy processing) |1878 |Carl Gustaf Patrik de Laval |Sweden |
|microphone |1878 |David E. Hughes |UK/US |
|cash register |1879 |James Ritty |US |
|light bulb, incandescent |1879 |Thomas Alva Edison |US |
|saccharin |1879 |Ira Remsen, Constantin Fahlberg |US, Germany |
|iron, electric |1882 |Henry W. Seely |US |
|film, photographic |1884 |George Eastman |US |
|rayon |1884 |Louis-Marie-Hilaire Bernigaud, count of |France |
| | |Chardonnet | |
|roller coaster |1884 |LeMarcus A. Thompson |US |
|skyscraper, steel-frame |1884 |William Le Baron Jenney |US |
|motorcycle |1885 |Gottlieb Daimler, Wilhelm Maybach |Germany |
|dishwasher |1886 |Josephine Cochrane |US |
|contact lenses |1887 |Adolf Fick |Germany |
|camera, portable photographic |1888 |George Eastman |US |
|door, revolving |1888 |Theophilus von Kannel |US |
|electric chair |1888 |Harold P. Brown, Arthur E. Kennelly |US |
|straw, drinking |1888 |Marvin Stone |US |
|tire, pneumatic |1888 |John Boyd Dunlop |UK |
|automobile |1889 |Gottlieb Daimler |Germany |
|jukebox |1889 |Louis Glass |US |
|slot machine |1890 |Charles Fey |US |
|camera, motion picture |1891 |Thomas Alva Edison, William K.L. Dickson |US |
|escalator |1891 |Jesse W. Reno |US |
|flask, vacuum (Thermos) |1892 |Sir James Dewar |Scotland |
|tractor |1892 |John Froehlich |US |
|toaster, electric |1893 |Crompton Co. |UK |
|zipper |1893 |Whitcomb L. Judson |US |
|cereal flakes, breakfast |1894 |John Harvey Kellogg |US |
|coupon, grocery |1894 |Asa Candler |US |
|X-ray imaging |1895 |Wilhelm Conrad Röntgen |Germany |
|radio |1896 |Guglielmo Marconi |Italy |
|stove, electric |1896 |William Hadaway |US |
|aspirin |1897 |Felix Hoffmann (Bayer) |Germany |
|JELL-O (gelatin dessert) |1897 |Pearle B. Wait |US |
|answering machine, telephone |1898 |Valdemar Poulsen |Denmark |
|flashlight, battery-operated portable|1899 |Conrad Hubert |Russia/US |
|paper clip |1899 |Johan Vaaler |Norway |
|razor, safety |1900 |King Camp Gillette |US |
|vacuum cleaner, electric |1901 |Herbert Cecil Booth |UK |
|air conditioning |1902 |Willis Haviland Carrier |US |
|teddy bear |1902 |Morris Michtom |US |
|airplane, engine-powered |1903 |Wilbur & Orville Wright |US |
|crayons, children's wax |1903 |Edwin Binney, C. Harold Smith |US |
|electrocardiogram (ECG, EKG) |1903 |Willem Einthoven |The Netherlands |
|hanger, wire coat |1903 |Albert J. Parkhouse |US |
|silicone |1904 |Frederic Stanley Kipping |UK |
|coffee, decaffeinated |1905 |Ludwig Roselius |Germany |
|irradiation, food |1905 |— |US/UK |
|drinking fountain |1905 |Luther Haws, Halsey W. Taylor (invented |US |
| | |separately) | |
|animation, motion-picture |1906 |J. Stuart Blackton |US |
|Bakelite |1907 |Leo Hendrik Baekeland |US |
|motor, outboard |1907 |Ole Evinrude |Norway/US |
|washing machine, electric |1907 |Alva J. Fisher |US |
|coffee, drip |1908 |Melitta Bentz |Germany |
|Geiger counter |1908 |Hans Geiger |Germany |
|glass, safety |1909 |Édouard Bénédictus |France |
|neon lighting |1910 |Georges Claude |France |
|cellophane |1911 |Jacques E. Brandenberger |Switzerland |
|assembly line |1913 |Henry Ford |US |
|brassiere (bra) |1913 |Mary Phelps Jacob |US |
|crossword puzzles |1913 |Arthur Wynne |US |
|steel, stainless |1914 |Harry Brearley |UK |
|lipstick, tube |1915 |Maurice Levy |US |
|sonar |1915 |Paul Langevin |France |
|tank, military |1915 |Admiralty Landships Committee |UK |
|corn, hybrid |1917 |Donald F. Jones |US |
|mobile home |1919 |Glenn H. Curtiss |US |
|blow-dryer |1920 |Racine Universal Motor Co., Hamilton Beach |US |
| | |Manufacturing Co. | |
|radio, car |1920 |William P. Lear |US |
|bandage, adhesive |1921 |Earle Dickson |US |
|insulin, extraction and preparation |1921 |Sir Frederick Grant Banting, Charles H. |Canada |
|of | |Best | |
|polygraph (lie detector) |1921 |John A. Larson |US |
|Muzak |1922 |George Owen Squier |US |
|snowmobile |1922 |Joseph-Armand Bombardier |Canada |
|traffic lights, automatic |1923 |Garrett A. Morgan |US |
|television |1923 |Vladimir Kosma Zworykin, Philo Taylor |Russia/US, US |
| | |Farnsworth | |
|loudspeaker |1924 |Chester W. Rice, Edward W. Kellogg |US |
|tissue, disposable facial |1924 |Kimberly-Clark Co. |US |
|foods, frozen |1924 |Clarence Birdseye |US |
|aerosol can |1926 |Erik Rotheim |Norway |
|engine, liquid-fueled rocket |1926 |Robert H. Goddard |US |
|baby food, prepared |1927 |Dorothy Gerber |US |
|clock, quartz |1927 |Warren A. Marrison |Canada/US |
|Kool-Aid (fruit drink mix) |1927 |Edwin E. Perkins |US |
|audiotape |1928 |Fritz Pfleumer |Germany |
|bread, sliced (bread-slicing machine)|1928 |Otto Frederick Rohwedder |US |
|razor, electric |1928 |Jacob Schick |US |
|electroencephalogram (EEG) |1929 |Hans Berger |Germany |
|particle accelerator |1929 |Sir John Douglas Cockcroft, Ernest Thomas |Ireland/UK |
| | |Sinton Walton | |
|engine, jet |1930 |Sir Frank Whittle |UK |
|Scotch tape |1930 |Richard Drew (3M) |US |
|supermarket |1930 |Michael Cullen |US |
|paper towel |1931 |Arthur Scott |US |
|stereophonic sound recording |1931 |Alan Dower Blumlein |UK |
|tampon, cotton |1931 |Earle Cleveland Haas |US |
|parking meter |1932 |Carl C. Magee |US |
|can, metal beverage |1933 |American Can Co. |US |
|microscope, electron |1933 |Ernst Ruska |Germany |
|laundromat |1934 |J.F. Cantrell |US |
|light bulb, fluorescent |1934 |Arthur Compton |US |
|Monopoly (board game) |1934 |Charles B. Darrow |US |
|polyethylene |1935 |Eric Fawcett, Reginald Gibson |UK |
|Richter scale |1935 |Charles Francis Richter, Beno Gutenberg |US |
|nylon |1937 |Wallace H. Carothers |US |
|photocopying (xerography) |1937 |Chester F. Carlson |US |
|fiberglass |1938 |Owens Corning (corp.) |US |
|pen, ballpoint |1938 |Lazlo Biro |Hungary |
|Teflon |1938 |Roy Plunkett |US |
|computer, electronic digital |1939 |John V. Atanasoff, Clifford E. Berry |US |
|helicopter |1939 |Igor Sikorsky |Russia/US |
|lawn mower, gasoline-powered |1940 |Leonard Goodall |US |
|guitar, electric |1941 |Les Paul |US |
|missile, guided |1942 |Wernher von Braun |Germany |
|nuclear reactor |1942 |Enrico Fermi |US |
|scuba gear |1943 |Jacques Cousteau, Émile Gagnan |France |
|rifle, assault |1944 |Hugo Schmeisser |Germany |
|sunscreen |1944 |Benjamin Green |US |
|bomb, atomic |1945 |J. Robert Oppenheimer, et al. |US |
|microwave oven |1945 |Percy L. Spencer |US |
|bikini |1946 |Louis Réard |France |
|carbon-14 dating |1946 |Willard F. Libby |US |
|foods, freeze-dried |1946 |Earl W. Flosdorf |US |
|telephone, mobile |1946 |Bell Laboratories |US |
|cat litter |1947 |Edward Lowe |US |
|photography, instant |1947 |Edwin Herbert Land |US |
|transistor |1947 |John Bardeen, Walter H. Brattain, William |US |
| | |B. Shockley | |
|holography |1948 |Dennis Gabor |Hungary |
|record, long-playing (LP) |1948 |Peter Carl Goldmark |US |
|Velcro |1948 |George de Mestral |Switzerland |
|Zamboni (ice resurfacing machine) |1949 |Frank J. Zamboni |US |
|credit card |1950 |Frank McNamara, Ralph Schneider (Diners' |US |
| | |Club) | |
|diapers, disposable |1950 |Marion Donovan |US |
|remote control, television |1950 |Robert Adler |US |
|videotape |1950 |Charles Ginsburg |US |
|correction fluid, white |1951 |Bette Nesmith |US |
|airbag, automotive |1952 |John Hetrick |US |
|bar code |1952 |Joseph Woodland |US |
|bomb, thermonuclear (hydrogen) |1952 |Edward Teller, et al. |US |
|defibrillator |1952 |Paul M. Zoll |US |
|pacemaker, cardiac |1952 |Paul M. Zoll |US |
|diamond, artificial |1955 |General Electric Co. |US |
|fiber optics |1955 |Narinder S. Kapany |India |
|synthesizer, music |1955 |Harry Olson, Herbert Belar |US |
|respirator |1955 |Forrest M. Bird |US |
|Play-Doh |1956 |Noah W. & Joseph S. McVicker |US |
|satellite, successful artificial |1957 |Sergey Korolyov, et al. |USSR |
|earth | | | |
|integrated circuit |1958 |Jack S. Kilby |US |
|laser |1958 |Gordon Gould and Charles Hard Townes, |US |
| | |Arthur L. Schawlow (invented separately) | |
|skateboard |1958 |Bill & Mark Richards |US |
|ultrasound imaging, obstetric |1958 |Ian Donald |UK |
|seat belt, automotive shoulder |1959 |Nils Bohlin (Volvo) |Sweden |
|satellite, communications |1960 |John Robinson Pierce |US |
|light-emitting diode (LED) |1962 |Nick Holonyak, Jr. |US |
|liquid crystal display (LCD) |1963 |George Heilmeier |US |
|mouse, computer |1963 |Douglas Engelbart |US |
|aspartame |1965 |James Schlatter |US |
|AstroTurf |1965 |James M. Faria, Robert T. Wright |US |
|Kevlar |1965 |Stephanie Kwolek |US |
|calculator, electronic hand-held |1967 |Jack S. Kilby |US |
|automated teller machine (ATM) |1968 |Don Wetzel |US |
|personal watercraft, motorized |1968 |Bombardier, Inc. |Canada |
|detector, home smoke |1969 |Randolph Smith, Kenneth House |US |
|Internet |1969 |Advanced Research Projects Agency (ARPA) at|US |
| | |the Dept. of Defense | |
|videocassette recorder |1969 |Sony Corp. |Japan |
|cloning, animal |1970 |John B. Gurdon |UK |
|wristwatch, digital |1970 |John M. Bergey |US |
|magnetic resonance imaging (MRI) |1970 |Raymond Damadian, Paul Lauterbur |US |
|Post-it Notes |1970 |Arthur Fry (3M) |US |
|electronic mail (e-mail) |1971 |Ray Tomlinson |US |
|food processor |1971 |Pierre Verdon |France |
|computed tomography (CT scan, CAT |1972 |Godfrey Hounsfield, Allan Cormack |UK, US |
|scan) | | | |
|Prozac |1972 |Ray W. Fuller, Bryan B. Molloy, David T. |US |
| | |Wong | |
|video games |1972 |Nolan Bushnell |US |
|genetic engineering |1973 |Stanley N. Cohen, Herbert W. Boyer |US |
|computer, personal |1974 |MITS (Micro Instrumentation Telemetry |US |
| | |Systems) | |
|in vitro fertilization (IVF), human |1978 |Patrick Steptoe, Robert Edwards |UK |
|stereo, personal |1979 |Sony Corp. |Japan |
|compact disc (CD) |1980 |Philips Electronics, Sony Corp. |The Netherlands, Japan |
|synthetic skin |1981 |Ioannis V. Yannas, John F. Burke |US |
|camcorder |1982 |Sony Corp. |Japan |
|computer, laptop |1983 |Radio Shack Corp. |US |
|DNA fingerprinting |1984 |Alec Jeffreys |UK |
|vision correction, laser |1987 |Stephen Trokel |US |
|virtual reality |1989 |Jaron Lanier |US |
|World Wide Web |1989 |Tim Berners-Lee |UK |
|digital videodisc (DVD) |1995 |consortium of international electronics |Japan, US, The Netherlands |
| | |companies | |
|Viagra |1997 |Pfizer Inc. |US |
How to Avoid a Bonfire of the Humanities
'English majors are exactly the people I'm looking for,' one successful Silicon-Valley entrepreneur recently told me.
By MICHAEL S. MALONE
A half-century ago in his famous "Two Cultures" speech, C.P. Snow defined the growing rift between the world of scientists (including, increasingly, the commercial world) and that of literary intellectuals (including, increasingly, the humanities). It's hard to imagine the sciences and the humanities ever having been united in common cause. But that day may come again soon.
Today, the "two cultures" not only rarely speak to one another, but also increasingly, as their languages and world views diverge, are unable to do so. They seem to interact only when science churns up in its wake some new technological phenomenon—personal computing, the Internet, bioengineering—that revolutionizes society and human interaction and forces the humanities to respond with a whole new set of theories and explanations.
Not surprisingly, as science has grown to dominate modern society, the humanities have withered into increasing irrelevancy. For them to imagine that they have anything approaching the significance or influence of the sciences smacks of a kind of sad, last-ditch desperation. Science merely nods and says, "I see your Jane Austen monographs and deconstructions of 'The Tempest' and raise you stem-cell research and the iPhone"—and then pockets all of the chips on the table.
All of this may seem like a sideshow—in our digital age the humanities will limp along as science consolidates its triumph. There is, after all, a distinct trajectory to industries and disciplines that are about to be annihilated by technology. Typically, those insular worlds operate along with misplaced confidence. They expect an industry evolution; they fail to recognize that they are facing a revolution—and if they don't utterly transform themselves, right now, it will destroy them. But of course, they never do.
I watched this happen in almost every tech industry, and now it is spreading to almost every other industry and profession. Medicine, education, governance, the military and my own profession of journalism. And so I found myself earlier this year talking with the head of the English department where I teach. The department's tenured faculty had been reduced to just a handful of professors, many nearing retirement; the rest of the staff was mostly part-time adjunct lecturers. And the students? Little more than half the number of majors of just a decade earlier. I had seen this before.
I asked him: How bad is it? "It's pretty bad," he said. "And this economy is only making it worse. There are parents now who tell their kids they will only pay tuition for a business, engineering or science degree."
Aversion to risk, lack of research money, dwindling market share, a declining talent pool. That is how mature industries die; perhaps it is the same story with aging fields of thought. But hope for the humanities may be on the horizon, coming from an unlikely source: Silicon Valley.
A few months back I invited a friend to speak in front of my professional writing class. Santosh Jayaram is the quintessential Silicon Valley high-tech entrepreneur: tech-savvy, empirical, ferociously competitive, and a veteran of Google, Twitter and a new start-up, Dabble. Afraid that he would simply run over my writing students, telling them to switch majors before it was too late, I asked him not to crush the kids' hopes any more than they already were.
Santosh said, "Are you kidding? English majors are exactly the people I'm looking for." He explained: Twenty years ago, if you wanted to start a company, you spent a month or so figuring out the product you wanted to build, then devoted the next 10 or 12 months to developing the prototype, tooling up and getting into full production.
These days, he said, everything has been turned upside down. Most products now are virtual, such as iPhone apps. You don't build them so much as construct them from chunks of existing software code—and that work can be contracted out to hungry teams of programmers anywhere in the world, who can do it in a couple of weeks.
But to get to that point, he said, you must spend a year searching for that one undeveloped niche that you can capture. And you must also use that time to find angel or venture investment, establish strategic partners, convince talented people to take the risk and join your firm, explain your product to code writers and designers, and most of all, begin to market to prospective major customers. And you have to do all of that without an actual product.
"And how do you do that?" Santosh said. "You tell stories." Stories, he said, about your product and how it will be used that are so vivid that your potential stakeholders imagine it already exists and is already part of their daily lives. Almost anything you can imagine you can now build, said Santosh, so the battleground in business has shifted from engineering, which everybody can do, to storytelling, for which many fewer people have real talent. "That's why I want to meet your English majors," he said.
Asked once what made his company special, Steve Jobs replied: "It's in Apple's DNA that technology alone is not enough—it's technology married with liberal arts, married with the humanities, that yields us the result that makes our heart sing."
Could the humanities rebuild the shattered bridge between C.P. Snow's "two cultures" and find a place at the heart of the modern world's virtual institutions? We assume that this will be a century of technology. But if the competition in tech moves to this new battlefield, the edge will go to those institutions that can effectively employ imagination, metaphor, and most of all, storytelling. And not just creative writing, but every discipline in the humanities, from the classics to rhetoric to philosophy. Twenty-first-century storytelling: multimedia, mass customizable, portable and scalable, drawing upon the myths and archetypes of the ancient world, on ethics, and upon a deep understanding of human nature and even religious faith.
The demand is there, but the question is whether the traditional humanities can furnish the supply. If they can't or won't, they will continue to wither away. But surely there are risk-takers out there in those English and classics departments, ready to leap on this opportunity. They'd better hurry, because the other culture won't wait.
Mr. Malone is the author of the recently published "The Guardian of All Things: The Epic Story of Human Memory" (St. Martin's Press). This op-ed is based on his speech at the Rothermere American Institute at Oxford University on Oct. 18.
-----------------------
[1]
[2]
[3] Moore's law describes an exponential growth pattern in the complexity of integrated semiconductor circuits.
[4] (economics)#Limitations
[5]
[6]
[7]
[8] Pavitt, K., 2005. Innovation processes. In: Fagerberg, J., Mowery, D., Nelson, R. (Eds.), Handbook of Innovation. Oxford University Press, Oxford, pp. 86–114.
[9] From DTF paper on innovation (Intern Sharon Lai).
[10] Terence Kealey (2010-10-31). Sex, Science And Profits. Random House UK. Kindle Edition.
[11] Terence Kealey (2010-10-31). Sex, Science And Profits. Random House UK.
[12] Morten Berg Jensen, et. al, “Forms of knowledge and modes of innovation”, 21 March 2007, Research Policy 36 (2007) 680–693:
[13]
[14] “A Dialogue on Market Innovation and Laissez Faire”, Deirdre McCloskey", John Lyne, Volume 7, Issue 1 2011 Article 2 , Iowa Research Online. ∗, John Lyne, Volume 7, Issue 1 2011 Article 2 , Iowa Research Online.
[15] Itzhak Goldberg, John Gabriel Goddard, Smita Kuriakose, Jean-Louis Racine, Igniting Innovation, Rethinking the Role of Government in Emerging Europe and Central Asia, World Bank, 2011.
[16] Analysing Discontinuous Innovation: Some Implications of Schumpeter's The Theory Of Economic Development by Jerry Courvisanos, The Business School, University of Ballarat, j.courvisanos@ballarat.edu.au, and Stuart Mackenzie, The Business School, University of Ballarat, s.mackenzie@ballarat.edu.au . [Found on the internet]
[17] Alchian, Armen, Uncertainty, Evolution and Economic Theory, Journal of Political Economy, Vol. 58, No. 3 (June 1950), pp.211-221.
[18] Terence Kealey (2010-10-31). Sex, Science And Profits. Random House UK.
[19] Terence Kealey (2010-10-31). Sex, Science And Profits. Random House UK. Kindle Edition.
[20] Constitution of Liberty.
[21] Kealey, T,
[22] Science is better off without the government By Philip Salter, Programmes Director, Adam Smith Institute,
[23] Hayek, Constitution of Liberty – electronic edition.
[24] Homer Garnet Barnett, Innovation: The Basis of Cultural Change (New York: McGraw-Hill, 1953), cited in Hayek’s Conistitution of Liberty hard copy edition, p. 79
[25] Terence Kealey (2010-10-31). Sex, Science And Profits. Random House UK. Kindle Edition.
[26] Breaking Free of Nehru.
[27] Terence Kealey (2010-10-31). Sex, Science And Profits, Random House UK. Kindle Edition.
[28]
[29] “A Dialogue on Market Innovation and Laissez Faire”, Deirdre McCloskey∗, John Lyne, Volume 7, Issue 1 2011 Article 2 , Iowa Research Online.
[30]
[31]
[32]
[33] “A Dialogue on Market Innovation and Laissez Faire”, Deirdre McCloskey∗, John Lyne, Volume 7, Issue 1 2011 Article 2 , Iowa Research Online.
[34] America’s New Immigrant Entrepreneurs: Then and Now: Part VII
[35] Innovation Policy Report, September 2012,
[36] Itzhak Goldberg, John Gabriel Goddard, Smita Kuriakose, Jean-Louis Racine, Igniting Innovation, Rethinking the Role of Government in Emerging Europe and Central Asia, World Bank, 2011.
[37]
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The production of scientific and technological knowledge
The translation of knowledge into working artefacts (products, systems, processes, services)
The continuous matching of artefacts to market needs and demands
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