Friday, January 28, 2011

Governments and innovation

Industrial policy evokes immediate scorn and arguments that it promotes inefficiency and wastage. Even liberal economists and policy makers shy away from support for any form of industrial policy. They argue that the market place is too complex for governments to pick winners.

I have blogged extensively about the role of benign industrial policy in the promotion of economic growth objectives. China is the best and recent example of such policies.

Economix points to an excellent report by the Breakthrough Institute that uses several case studies to highlight the critical role played by American governments in promoting several seminal technologies. It writes,

"The history of American innovation shows that an active partnership between the public and private sectors has been key to developing breakthrough technologies, which have driven generations of economic prosperity."

Government support, by way of conscious and not so conscious, inducstrial policy has played a major role in the success of almost all the major technologies that are ubiquituous in our daily lives today,

"Driving directions from your iPhone. The cancer treatments that save countless lives. The seed hybrids that have slashed global hunger. A Skype conversation while flying on a Virgin Airlines jet across the continent in just five hours... Our gratitude at being able to video chat with our children from halfway around the world (if we feel gratitude at all) is directed at Apple, not the Defense Department. When our mother's Neupogen works to fight her cancer, we thank Amgen, not NIH or NSF."

It traces two channels through which governments have promoted new technologies,

"First, the government has long acted as an early funder of key basic science and applied research and development. So it was in agriculture, when the government created new land-grant colleges and expanded funding for agricultural science, leading to the development of new and better crops. In medicine, many of today's blockbuster drugs can trace their existence to funding from the National Science Foundation (NSF) and the National Institutes of Health (NIH).

... the government has also routinely helped develop new industries by acting as an early and demanding customer for innovative, high-risk technologies that the private sector was unable or unwilling to fund. Military procurement during and after World War I helped America catch up to its European rivals in aerospace technology and was key to the emergence of the modern aviation industry. Decades later, the modern semiconductor and computer industries were created with the help of government procurement for military and space applications...

The microchips powering the iPhone owe their emergence to the U.S. military and space programs, which constituted almost the entire early market for the breakthrough technology in the 1960s, buying enough of the initially costly chips to drive down their price by a factor of 50 in a few short years."

Update 1 (13/2/2011)

See this and this for the role of Public-Sector Research in the Discovery of Drugs and Vaccines.

1 comment:

KP said...

Dear Gulzar,

You post that highlights the need for government support for big-ticket innovation.

The challenge for countries like India - is to keep the intellectual property within India and extract value as an Indian organization that is global.

Between innovating at the lab scale and converting to product and revenue - there is a large abyss - the areas of prodution / distribution / branding.

There are also a host of tangible / intangible factors involved in creating market defining products - one is our lag in adopting technology - be it manufacturing or software.

Software is a case in point - with our vaunted capability in software - we can hardly name any product ( apart from one each in the accounting and ERP space)- in 25 years of being a significant player in the space.

Our space program with competencies in engineering / geographical mapping etc has little to show by way of spin-off successes of any scale.

Even in the hardware area - launching low cost computers - been very little news lately after all the early fanfare.

Broadly, we do not have a culture of research and there is very little respect for "doing" - well if it makes us feel better - that apparently is America's problem now, too.

Seth Shostak of SETI writing in his blog says.."But I suspect there's another component: today's American kids don't seem to build stuff anymore. When I graduated high school, nearly a half-million people subscribed to Popular Electronics.... the magazine expired in 1999 for lack of interest".

Ralph Gomory (Research Prof. NYU, Pres. Emeritus, Alfred P Sloan Foundation, Former IBM SVP Science-Tech) blogging about the "innovation delusion" writes

"We need to do more than produce exciting new ideas; we must also be able to compete in large productive industries. This requires us to both balance trade and to motivate our corporations not only to innovate, but also to produce in this country. While this is hard to do, it can be done. Specializing in innovation, though often recommended, is in fact a delusion, an alluring path that in reality will lead us straight downhill."

Isolating this discussion from basic science research - there are two issues :

one that needs better management -the poor record of commercially successful innovation as a spin-off from our government sponsored efforts at research.

The other a cultural issue - better indian products that make the "made in India" brand.