Innovation

Tag: Innovation

Out with the Old, In with the Older

Here are a few links for you as we bid farewell to the 2010 Lawrence economics graduates and brace ourselves for the alumni revelers descending upon campus for Reunion Weekend. As Neil Young might say, economics never sleeps.*

As you have probably noticed, we have more than a passing interest in the oil spill around here.  One of the interests has to do with the liability versus regulation question, and on that front, Resources for the Future (RFF) has background information on oil spill liability law. Mark Cohen at RFF did some of the seminal work on the enforcement of environmental laws, focusing on oil spills, so this is definitely a good place to look.

Another piece has to do with the long-term corporate viability of BP itself – is this spill just a speed bump on the route to long-run profitability? Or will the company be taken over? Or will it go into bankruptcy and attempt to expunge its environmental liability? Or maybe it will agree to a takeover and then go into bankruptcy and expunge its liability and then be taken over (Can they do that? See above).  New York Times writer Andrew Sorkin explores these issues. The current stock price is down to $31 from a 52-week high of $63.  That means that more than half of the company’s “worth” has been wiped out. Ouch.

So, things aren’t going that well over in the old economy.  How about the new economy? If there is anyone with a worse public image than BP right now, it might just be a mysterious cabal that is putting the architecture in place to unleash a malicious computer virus on the world’s computers. Well, we really don’t know who is behind it or why. Mark Bowden at The Atlantic has a fascinating article on the Conficker virus. This case may well fit into William Baumol’s famous definition of entrepreneurship (cited here) that includes “destructive entrepreneurship.” I guess we’ll have to wait and find out.

On a happier innovation front, the most recent EconTalk discusses the fashion industry, where “there is limited protection for innovative designs and as a result, copying is rampant. Despite the ease of copying, innovation is quite strong in the industry and there is a great deal of competition.” Schumpeter was a famously natty fellow.  I wonder what the fashion world thinks of creative destruction?

I imagine without class in session, the summer blogging will slow to a crawl. If you come across anything interesting, feel free to send it my way.

*Then again, probably not.

Q: How do we regulate in the face of rapid, complex technological innovation?

Use back of page to answer if necessary.

The question for today is what do the recent spill and the financial crash have in common? Kenneth Rogoff has an opinion piece about the difficulty of regulation amid rapid technological advance.

The parallels between the oil spill and the recent financial crisis are all too painful: the promise of innovation, unfathomable complexity, and lack of transparency…  Wealthy and politically powerful lobbies put enormous pressure on even the most robust governance structures.

And it doesn’t stop there at all.

The basic problem of complexity, technology, and regulation extends to many other areas of modern life. Nanotechnology and innovation in developing artificial organisms offer a huge potential boon to mankind, promising development of new materials, medicines, and treatment techniques. Yet, with all of these exciting technologies, it is extremely difficult to strike a balance between managing “tail risk” – a very small risk of a very large disaster – and supporting innovation.

So in a world of rapid technological advance, what is the role in public policy in capturing the benefits while also mitigating the risks? Is “the market” best left to its own devices? Certainly, we have addressed this question in other forms.

I don’t have any answers, and you aren’t likely to find any either. But the point of a lot of what we do on Briggs 2nd is to try to frame and analyze problems, understand what the issues are, the potential winners and losers, and have a discussion about how to proceed.  I hope this helps.

Rogoff’s column is here.

He is also the author of This Time Is Different: Eight Centuries of Financial Folly. You can find a paper version here and the book here.

The Capitalist & The Entrepreneur

Professor Klein explaining the difference between "Austrians" and "Australians"

The Capitalist & The Entrepreneur is a new book that contains some of the collected works of Austrian economist and Oliver Williamson student, Peter Klein.  Professor Klein is the source of some of our juiciest material — define juiciest how you will — on the nature of the relationship between the entrepreneurship and the theory of the firm.

This could be your lucky summer if you happen to be a fan of Professor Klein, as he is teaching a course, Entrepreneurship in a Capitalist Economy. The course meets every Tuesday night beginning June 7 and running into September.

Where?

On the internets, of course.

For those of you with interest in the course or the book, both Professor Galambos and I have copies for your perusal.

Are Patents the Engine of Growth?

Great post by Richard Langlois at the Organizations and Markets blog about the extent to which “James Watt’s steam-engine patents retarded innovation in steam technology and slowed the British industrial revolution.”

Typically, we teach that the patent is an imperfect solution to the “appopriability” or “positive externality” problem, where individuals and firms are reluctant to innovate because they cannot capture the full value of their efforts due to competitors copying the innovation.  The patent offers temporary monopoly power in exchange for the inventor disclosing technical information to the public. Watt certainly benefited from that protection.

In this case, however, some say the patents were so broad in scope that they allowed Watt to stifle competitors altogether.  There is an on-going discussion in the innovation world about this “strategic patenting,” and the Langlois piece is a nice introduction if you are interested.

Rumor has it that Professor Langlois’ book, The Dynamics of Industrial Capitalism, will be featured in this fall’s I&E Reading Group.  Watch this space.

Review of Invention of Enterprise

GerardoA few weeks ago, despite its substantial girth, I added the new Kaufmann Foundation volume, Invention of Enterprise: Entrepreneurship from Ancient Mesopotamia to Modern Times to the black hole that is my reading list.  The reason for my excitement was the extra-ordinary group of volume editors.  David Landes is a pioneer in entrepreneurship and development, having written the highly-regarded The Wealth and Poverty of Nations. Joel Moykr is the author of a classic in the economic history of technology, The Lever of Riches. And William Baumol has written the seminal article on productive and unproductive entrepreneurship, as well as The Free Market Innovation Machine. Those of you embroiled in our burgeoning I&E curriculum will certainly hear from these gentlemen.

So, with these three pulling together a volume on entrepreneurship for the Kaufmann Foundation, this seemed like a can’t-miss deal.

But, according to Reuven Brenner, it missed.

It doesn’t take much time for him to find fault, either.  He starts out:

Carl Schramm, who wrote the Foreword to this book, and who, through the Kauffman Foundation, paid for it, states clearly that the book is about “entrepreneurship” as people — entrepreneurs in particular — understand the term: Someone who creates a business that, in some respects, differs from existing ones.

Yet, just two pages later, William Baumol writes in his Preface that the book is about both “redistributive” and “productive” entrepreneurship, the former covering warfare, crime, bribes, lobbying — any innovative ideas. Since this covers just about everything from Napoleon and his Code to Robin Hood, and from Muhammad, the merchant and one of the very few of Heavens’ intermediaries on this Earth to 35,000 registered lobbyists in Washington — it is little wonder that most of the 18 chapters, written by 18 different academics are all over the map, and provide little illumination on Schramm’s targeted subject matter.

Continue reading Review of Invention of Enterprise

“Incumbants Make Bad Revolutionaries”

Relying on incumbents to produce your revolutions is not a good strategy. They’re apt to take all the stuff that makes their products great and try to use technology to charge you extra for it, or prohibit it altogether.

That’s Cory Doctorow at Boing Boing, who won’t buy an iPad, doesn’t think you should buy an iPad, doesn’t think the iPad is going to do much for the beleaguered publishing industry,  and, frankly, doesn’t seem to have many nice things about the iPad at all.  In fact, he contends that Apple is showing “palpable contempt” for its customers.

Here’s some more:

For a company whose CEO professes a hatred of DRM, Apple sure has made DRM its alpha and omega. Having gotten into business with the two industries that most believe that you shouldn’t be able to modify your hardware, load your own software on it, write software for it, override instructions given to it by the mothership (the entertainment industry and the phone companies), Apple has defined its business around these principles. It uses DRM to control what can run on your devices, which means that Apple’s customers can’t take their “iContent” with them to competing devices, and Apple developers can’t sell on their own terms.

A very provocative perspective.  Probably even more so if you know what DRM is.

I recommend you would-be innovator types check it out.

More on Financial Reform and Start Ups

Craig Pirrong at the Organizations & Markets blog weighs in on the quizzical financial constraints placed on start ups under proposed financial reform legislation.

Here’s Pirrong:

The most fascinating question is the political economy one: whose interest is served by this provision? The most likely explanation is that incumbents — including, no doubt, one-time startups — having made theirs prefer to make it harder for others to displace them.  They liked creative destruction on the way up, but the idea of being swept away in some future gale is far less appealing. So hobble potential future competitors, future creative destroyers, by increasing the costs startups incur to raise capital. This pernicious provision also gives advantages to big investors, venture capitalists, and existing companies who would face less competition in supplying capital to potential startups.

I’m not sure I buy that — who is this group of now-successful former start ups banding together to create barriers to entry?   On the other hand, I don’t have a better explanation.

Anyone?

Proposed Financial Reform Does Not Tout the Start Up

Thomas Friedman might tout the start up, but proposed financial regulation does not.   According to Robert Litan from Kaufmann, there are provisions in the legislation making its way through Congress that would slow down start ups.

Under existing law, startup companies can raise money easily and quickly from “accredited investors” — individuals with substantial wealth or income. There is no need for the companies or the investors to gain approval from any state or regulatory official.

All of this would change if Section 926 of the Dodd bill is included in any final reform legislation. That section would require, for the first time, companies seeking angel investment to make a filing with the Securities and Exchange Commission, which would have 120 days to review it. This would both raise the cost of seeking angels and delay the ability of companies to benefit from their funding.

The negative impact of the SEC filing requirement would be aggravated by the proposed doubling of the net worth or income thresholds required for investors to be “accredited.”

Ouch.

So why are these provisions in the bill?   Again, according to Litan:

It is difficult to know why these provisions are in a much larger bill whose primary aim is to address the fundamental causes of the recent financial crisis…  There is no evidence that angel investment in startup companies played any role whatsoever in events leading up to the financial crisis.

Thomas Friedman Touts the Start Up

A few months ago in this space, we pointed you to a speech by Robert Litan of the Kaufmann Foundation on the importance of start ups in job creation.  The remarkable conclusion was this:

Since 1980 until the recession, all net new jobs—net meaning gross jobs minus layoffs — have been created by firms under five years old.

Not to be outdone by the Lawrence Economics Blog, New York Times columnist Thomas Friedman trots out the same data in his column this past Saturday.   Friedman argues that the U.S. needs to foster innovation, promote start ups, and relax its, um, restrictive immigration policies.

Lawrence I&E Continues its Ascension

Ripped from the headlines. A big congratulations to Prof. Galambos.  Here’s the story:

A $23,000 grant will support Lawrence University’s growing innovation and entrepreneurship program, a university-wide initiative launched in 2008 that engages students, faculty and alumni.

The two-year grant from the National Collegiate Inventors & Innovators Alliance will target the program’s flagship course “In Pursuit of Innovation.”  Cross-taught through Lawrence’s economics and physics departments, the course incorporates the use of guest experts from various fields, intertwines innovation with entrepreneurship and employs a project-driven, hands-on component designed to develop a learning community eager to pursue innovative and entrepreneurial ventures.

Since its launch, 41 students have taken the “Innovation” course.  Operating in three-person teams and in conjunction with the FabLab, a prototyping facility at Fox Valley Technical College, students have worked on projects ranging from the development of a multi-directional split-field camera and an ergonomic student desk to a hand sanitizing system for hospitals and schools and a personal identification system that allows health records to be retrieved automatically in the event of an accident.

“From its inception, our course has focused on diverse teams creating innovative products or processes, leading to functioning prototypes,” said Adam Galambos, assistant professor of economics and one of the program’s originators, along with John Brandenberger, professor emeritus of physics and Marty Finkler, professor of economics.  “This grant will enable us to take the Innovation course to a whole new level with student ‘E-teams,’ which will translate ideas into new products or services that benefit society.

“With its long-standing commitment to the liberal arts and sciences, Lawrence is the ideal setting for a program that inspires students and faculty to create innovative new ventures that combine ideas from diverse backgrounds, fields and perspectives,” Galambos added. Continue reading Lawrence I&E Continues its Ascension

Health Care Reform and Entrepreneurship

Partisan cheerleading or naysaying aside, there are many reasons that the health care reform is interesting.   Over here amidst I&E week, we might consider how health care reform will affect the level and rate of entrepreneurial activities.   It has long been asserted that the lack of health care creates “job lock,” whereby potential entrepreneurs stay in their current job for fear of losing health insurance.  The assurance of health care mitigates this concern, hence unleashing the full force of entrepreneurial activities…  Or so the argument goes.

Scott Shane from Case Western buys into the idea of job lock, but doesn’t necessarily believe that this week’s legislation will create any jobs.  He recounts his reasoning in Business Week, concluding:

In short, the current system of employer-sponsored health insurance creates job lock that keeps some entrepreneurs from starting businesses and creating jobs. But the size of that effect is smaller than most estimates of the number of jobs that health-care reform will destroy.

If you are interested in looking at how someone does a back-of-the-envelope calculation on such matters, the Business Week piece is quite interesting.

You might also consider checking out Megan McArdle’s blog for much more on this topic here, here, and here.

Innovation Summit on Left Coast

The Economist is hosting an innovation summit this week, and our own John Brandenberger is serving as our correspondent for the affair.    The speakers list is too long to get into here, but it includes many well-known folks in the field.  This morning’s keynote is from Jared Diamond, author of the classic Guns, Germs, & Steel, and there are dozens of other high-profile folks.

We look forward to the report.

Kicking Off I&E Week

Here’s a question from the recent economics 450 test that you might want to consider part or all of:

Discuss what people mean by entrepreneurship and explain how it fits into the theory of the firm. Things you might discuss:

  • What is an entrepreneur?  How is it different than being a manager?
  • Do entrepreneurs usually work for themselves?  What does that mean?
  • Is asset ownership necessary? Is that part of working for themselves?

Part of the inspiration from that question comes from an interesting piece by Foss and Klein from a few years back.

Not coincidentally, the economics department generally is pondering these very questions as we try to figure out our curriculum offerings.

Stay tuned.

Two Pieces on Nathan Myrhvold

If innovation is of interest to you, you might consider reading up on Nathan Myrhvold.   My mention of Josh Lerner’s new book in the previous post prompted me to think of Mr. Myrhvold, whose latest scheme is to acquire thousands and thousands of patents. What that will do to US innovation and competitiveness is anyone’s guess.   (Of course, your guess is probably more meaningful if you actually know something about the economics and policy dimensions of innovative activities).

Here’s a short profile in the New York Times and a longer piece written by Malcolm Gladwell for The New Yorker.

Gladwell has written a couple of pieces on innovation and entrepreneurship over the past year or two.   He even rediscovered some Schumpeterian ideas in a piece from a few weeks back.

No shortage of ideas, that’s for sure.

Innovation & the World Economy

That’s the title of Robert Litan’s speech from the Foreign Policy Research Institute, and it is a crisp and interesting read.  Here’s a taste:

Entrepreneurs are vital to the economy not only because of the innovations they bring to the market, but also for the jobs they create. The Kauffman Foundation sponsored a study recently to look at the source of job growth in the United States since 1980. The conclusion is remarkable, or at least I believe it to be. Since 1980 until the recession, all net new jobs—net meaning gross jobs minus layoffs — have been created by firms under five years old. Think about that. That means all existing firms as of 1980 have not increased their employment since that year. In fact, if anything, the firms that existed in 1980, as a group, have lost employees. Using these data, we have made a rough estimate that at least 1/3 percent of our employment and a somewhat smaller fraction of our GDP since 1980 is due to young new firms that have since grown. These are amazing facts.

The piece contains some nice blurbs about the difference between state-guided capitalism, managerial capitalism, and entrepreneurial capitalism.   These concepts seem to follow the Schumpeterian notion of innovation, which is why it’s important to understand Schumpeter (!)

Happy Valentine’s from The I & E Reading Group

Early in life I had three ambitions. I wanted to be the greatest economist in the world, the greatest horseman in Austria, and the best lover in Vienna. Well, I never became the greatest horseman in Austria.

That, of course, is from Joseph Schumpeter, the subject of the first book in the Innovation & Entrepreneurship Reading Group.

If you are interested in reading with us, let Professor Gerard know. You can usually catch him around the office, or at the Economics Tea, Mondays at 4 p.m. somewhere on Briggs 2nd.

We will begin blogging about the book this week and plan to meet and discuss it at the Bjorklunden weekend and in early March.

Watch this space.

Looking for a Talented Innovation Research Fellow

If you are interested in topics on innovation, let one of us know. The Skran Fellowship applies broadly to students with interests in innovation, including students of economics and policy. The deadline is right before we adjourn to Bjorklunden.

Here’s the announcement:

DALE L. SKRAN, SR., SUMMER RESEARCH FELLOWSHIPS IN SCIENCE, TECHNOLOGY AND INNOVATION

Two student research fellowships at Lawrence University, created in honor Mr. Dale L. Skran, Sr., reflect Mr. Skran’s strong endorsement of “hands-on” research and engineering involving faculty/student research collaboration. Mr. Skran was a graduate of the General Motors Institute and the Advanced Management Program at Harvard, and he enjoyed a 40-year engineering career in the auto industry, retiring in 1981 as the manager of Quality Assurance for Front End Brakes at Chevrolet Saginaw Manufacturing. During his tenure in this position, his factory won many awards for the safety of its brakes and other products.

Awards: The Dale L. Skran, Sr., Summer Research Fellowships at Lawrence are awarded on a competitive basis to two students each year who complete an application to conduct summer research in collaboration with a member of the Lawrence faculty. Each fellowship will consist of $5,000, $3,500 of which will constitute a stipend for a student, $500 will cover any ancillary costs of the project, and the remaining $1,000 of each fellowship will be awarded to the supervising faculty member either in the form of a stipend or reimbursement for costs associated with the fellowship.

Selection Criteria: All Lawrence University students are eligible for these fellowships with preference being given to rising seniors. These funds are awarded without consideration of race, gender, religion, sexual orientation, or international student status.

Guidelines and Selection Process: Possible areas of focus will relate in most cases to physics, applied physics, engineering, or innovation and entrepreneurship ventures. The selection committee for these fellowships will be chaired by Professor John Brandenberger or his designee. At least one member of the selection committee will represent the innovation and entrepreneurship program at Lawrence; another member is to represent the Department of Physics.

Applications: Interested students should consult with the chair of the selection committee (currently Mr. Brandenberger in Youngchild-116) to collect the application forms, part of which will call for a research proposal. The deadline for applications is February 26, 2010.

Schumpeter Day Tea, That Is

The folks over at Organizations & Markets remind us that it’s Schumpeter Day again (where does the time go?). The nation-wide celebrations commemorate the birthday of the prominent economist, who plied us with such memorable lines as this:

The process of Creative Destruction is the essential fact about capitalism … it is not [price] competition which counts but the competition from . . . new technology . . . competition which strikes not at the margins of profits . . . of existing firms but at their foundations and their very lives.

The Economics TBA / Schumpeter Day High Tea at 4 p.m. today (along with “Reading Days”) will serve as a kick off for the Innovation and Entrepreneurship Reading Group. We will begin blogging the text later this week.

See you at 4

Update: The tea was once again a resounding success, with the student faculty ratio of better than 3:1. I still think offering caffeine could boost our numbers.