Sunday, October 11, 2009

Something Is Missing

In Secular Decline I discussed how we can get out of our current financial troubles. I talked about Kondratieff Waves and what drives economic cycles. Innovation.

Electronic Component News makes a similar point.

Name an industry that can produce 1 million new, high-paying jobs over the next three years. You can't, because there isn't one. And that's the problem.

America needs good jobs, soon. We need 6.7 million just to replace losses from the current recession, then another 10 million to spark demand over the next decade. That's 15 million to 17 million new jobs. In the 1990s, the U.S. economy created a net 22 million jobs (a rate of 2.2 million per year), so we know it can be done. Between 2000 and the end of 2007 (the beginning of the current recession), however, the economy created new jobs at a rate of 900,000 a year, so we know it isn't doing it now. The pipeline is dry because the U.S. business model is broken. Our growth engine has run out of a key source of fuel—critical mass, basic scientific research.
Pretty depressing news.

What we have been doing is eating our seed corn. New ideas have a profitable lifetime. And with information diffusion as fast as it is these days the lifetime is short. Which means we need more discoveries per year just to stay in one place.
...since the 1990s, labs dedicated to pure research—to the pursuit of scientific discovery—have seen funding slowly decline and their mission shift from open-ended problem solving to short-term commercial targets, from pure discovery to applied research. Bell Labs had 30,000 employees as recently as 2001; today (owned by Alcatel-Lucent ALU) it has 1,000. That's symbolic and symptomatic of the broken link in the U.S. business model. With upstream invention and discovery drying up, downstream, industry-creating innovation is being reduced to a trickle.

It's easy to ascribe current job losses in the U.S. to the deep recession or outsourcing. Both are to blame, but neither is at the root of the larger problem, which is lack of new, high-quality job creation. We are in the throes of the fourth recession since 1981. We have been outsourcing jobs for decades, but we have always bounced back with a new industry—a blockbuster industry. Discovery drives innovation, innovation drives productivity, productivity drives economic growth. But this time it's different, and whenever the current recession mercifully ends, the U.S. economy will not respond with the same job-creating vigor we have come to expect.
So what is our esteemed President doing to counter this difficulty? Is he spending the majority of stimulus money on stimulating research. Of course not. It is going into stimulating his cronies. It is the kind of thinking you get when you have lawyers running the government. Zero sum thinking. I win you lose. And of course we got that in spades from our President with the "We won" statement.

Maybe Mr. Obama needs to read The Myths of Innovation. He might learn that innovation is a matter of putting a lot of pieces together and that the more pieces you have to work with the greater are the options for profit. Take one idea from biotechnology, two from computer science and mathematics, and three from management theory and you get a profitable business. Which says that research on a narrow front is not going to do it.

Cross Posted at Classical Values


Susan's Husband said...

I must disagree. I think a big part of the reason we got here is the mistaken idea that government is a good promoter of innovation. Like Soviet Industrialization, it can work for a while but inevitably succumbs to politicization and makes things worse instead of better. Better to focus on unleashing the innovation of the American Street with lower taxes, less intervention, and reduced and smarter regulation.

M. Simon said...


The trouble is that we have to work from where we are. I don't disagree with you. It is just that Bell Labs is gone and is not coming back any time soon.

And 10% of the stimulus for PhD level research in the sciences would give us hell of a lot. For instance a serious effort into nano-carbon. Carbon nanotubes, graphene, carbon transistors, etc. would pay big dividends. A billion or two for small fusion. Biotech initiatives. Work on superconductors (raising Tc, increasing Jc, increasing realizable magnetic field strength, etc on a broad array of materials). Advanced flywheel electrical storage.

Lots of stuff to be done. I've only scratched the surface.

For instance - work on Mach-Einstein to see if we can generate thrust without local reaction mass. If it works you have an anti-gravity machine. If it doesn't we learn something about the universe.

Waste having the government do it. You betcha. But the risk/reward is much better than payoffs to the cronies.

Leigh said...

Another problem with the government "seeding" research money is that ownership of intellectual property is clouded.

If government money is spent to make the discovery who owns the IP? It doesn't seem fair that I should foot the bill as a taxpayer while some scientist or business person reaps the benefit.

M. Simon said...


Well I do see your point. All that money the government spent on computers and such and Texas Instruments wound up with the profits. Terrible. Heck, they even paid me (indirectly). Back in '67 I think it was.

Of course if you'd like to turn off your computer and stop using the son of Arpanet forever I will understand.

Just to keep your moral purity intact.

Leigh said...

This IP issue is not a theoretical issue with me - it's practical and based on my personal experience.

I've been out of work for 3 months now because the Biotech company I worked for merged with another company. Normally, I really wouldn't feel put out by this - it happens all the time and folks lose their jobs. No biggie, it's part of being in biotech.

What frosts me about this particular takeover was the glee with which the firm we merged fired all the research staff staff and support personnel. The reason was that THEY DIDN'T NEED US. They were very upfront and happy to tell all that their IP was developed at government expense through grants from the NIH at universities. After they had developed the IP - the government didn't get any royalties - nothing.

How were we (as a commercial company) doing our own research on our own dime supposed to compete with a company getting their research completed for "free"? My tax moneys supporting NIH research went to eliminate my own job! I got replaced with cheap grad students and government supported professors. I'm not the only one - 40 other biotech professionals needed to find other jobs as well.

If the research they are doing is so important and so likely to lead to fundamental money making breakthroughs - they should find their own money in the public marketplace.

My two cents.

I think I noted in your article that we are looking at significant reductions in PRIVATE research. Bad money (government) is pushing out good money... as you would expect when incentives don't reflect market realities.

M. Simon said...


Typically in situations like you mentioned the people eventually get seeded where many can cross fertilize other industries.

BTW I personally favor an end to IP. I think patents slow things down.

Leigh said...

*Scratches head*

I guess I can see how you would not support intellectual property patent law if you believe that the government should support research.

I've personally seen a biotech company piss away 500 million dollars on a drug candidate that failed in clinical trials. That's not unusual in drug development business. All indications seemed positive for success; but the drug failed anyway at the last possible moment. Approximately 2/3rds of drugs fail in the final clinical trials at HUGE expense.

I don't think the taxpayers are going to continually fund 500 million dollar failures... just on the off chance that they may get sick later and need the drug that might have been developed. Bureaucrats won't take a flier with that high a chance of failure. Businesses can and do take those chances so that they can make a profit.

Given the regulatory environment that requires a company to spend outrageously to prove a drug works - it only seems fair that their investment in research and the chances they took on failure be richly rewarded. Thus IP patents. It doesn't slow things down - it allows progress to made.

Do your opinions on patents also extent do copyrights? I don't know that all authors would work for free... I'm sure some would. Maybe the government should pay all the authors and potential authors a living wage so that we can all enjoy out their output for free?

LarryD said...

The patent system has been broken for a long time.

One problem stems from when a judge replaced the old understanding of what patents were for with pure rent seeking.

Another (and very old) problem is correctly identifying what is and isn't patentable. Old example: barbed wire. It was a significant breakthrough when someone figured out how to manufacture the stuff, but the patent turned out to be all but useless, because it depended on the pattern of the product, not the innovation in manufacturing. Which is why there quickly developed over a hundred different styles of barbed wire soon after it was invented. The inventor would have been better off working on licensing the manufacturing technology, rather than trying to be a monopoly manufacturer.

Patents are useful to society when they promote the publication of inventions so that others can leverage off of new ideas and invent even more new stuff. If an invention is so obvious that anyone in the field can look at the product and go "Ah ha! That's how they did it.", then a patent on it does society no good.

M. Simon said...

Patents not available for license at reasonable fees retard development.

Look up how James Watt's patents retarded steam engine developments for 20 years. Or how the Tesla/Westinghouse patents retarded the development of the electrical grid.

If I have a good idea I publish it.