Tag: Innovation

Innovation in Everything

What distinguishes the ‘scientific’ economist from all the other people who think, talk, and write about economic topics is a command of techniques that we class under three heads: history, statistics, and ‘theory.’ The three together make up what we call Economic Analysis.

That’s Joseph Schumpeter in Chapter 2 of his famous History of Economic Analysis. He believed that economics programs should emphasize and connect all three of those approaches. Those of us in ECON 405, The Economics of Innovation and Entrepreneurship, have been working to do just that, or at least the history and theory bit. To take a break from immersing themselves in the history of innovation and mathematical models of innovation and entrepreneurship, students have been exploring innovation in a variety of fields, and recording their journeys weekly on a blog. So, you can also learn about theatrical innovationmicrofinance in Pakistan, the habits of the poor, private equity and innovation, innovation in the construction industry, multisided markets, telematics, or big data and consumer goods. Enjoy!

Summer Innovation Links: Disruption, Stagnation, and Fame

Clayton Christensen’s well-known theory of disruptive innovation has been applied all over the place, from personal computers to cellular telephones to higher education — he seems to have written about 500 books on the topic. From his perch at the Harvard business school, he has established himself as one of the more influential thinkers on the planet.

Jill Lepore, also from Harvard, has been spreading her influence via her explorations of various academic “literatures” (including this one) for the New Yorker. This week Lepore sets to disrupt the disruptive innovation mojo with a lengthy, critical takedown of Christensen’s prime examples (“easy targets” according to Joshua Gans).

It seems to be making some noise on my RSS feed (do people still have RSS feeds?) along these lines:

I suppose I should offer my thoughts (Gerard on Klein on Gans on Lepore on Christensen) to keep that whole thing rolling, but instead I return to the “stagnation” debate, this time between Northwestern heavyweights, Joel Mokyr and Robert Gordon.  If you know a Google trick or two, you can get access to this piece in the Wall Street Journal.  

The upshot is that Mokyr thinks innovation is booming, whereas Gordon thinks it isn’t.   We’ve seen this before in the Gordon v. Brynjolfsson  TED smackdown, and I suspect we will continue to see it going forward.

We get the pointer via the Cheap Talk guys — also from Northwestern — who are somewhat bemused by the WSJ reporter’s assertion that Gordon is “more famous” than Mokyr:

Since when is Bob Gordon more famous than Joel Mokyr?  I suppose it depends on the audience you ask – Joel is not known to journalists. But in academic circles, the fame ranking is reversed.

For a summer starter kit, you can learn a lot about how people think about innovation by reading through some of these links.

UPDATE:  Christensen responds to Lepore!


Welcome to Wisconsin

Those of you out-of-staters venturing into Wisconsin for the first time perhaps have noticed a few things — the verdant landscape, the ubiquitous beer-drinking establishments on and around College Avenue, people wearing green and mustard yellow clothing as if that were a normal thing to do, and, of course, the Wisconsin dairy culture (so to speak).

Indeed, Wisconsin dairy farming is second to none (well, second to California, but California is really big) and the locals here embrace the cheese culture in ways that Californians could only dream.  Firstly, of course, the locals actually call themselves cheeseheads, and will go so far to wear cheese-themed headwear.

We also have something else the median Californian doesn’t see much of — winter.  As you might expect, the cheeseheads are busy looking for innovative ways to defray the considerable costs of combating roadway snow and ice.  And, as it turns out, they need look no farther than the cheese on top of their heads.

The Milwaukee Journal-Sentinel is on top of the story:

The [Milwaukee] Department of Public Works will go ahead this winter with a pilot program to determine whether cheese brine — a liquid waste product left over from cheesemaking — can be added to rock salt and applied directly to the street…

Tiny Polk County, in the northwest part of the state, has been using cheese brine since 2009. According to the city report, Polk County saved approximately $40,000 in the first year by using cheese brine as a pre-wet agent to salt or a combination of salt/sand.

It seems they spray the cheese on the ground as a primer and then dump the rock salt on top of that.  Rock salt is more expensive than cheese brine (generally, I guess) so it seems to make sense.  Except the cheese is kind of stinky, it seems.

I really liked the writing in the story and the somewhat comical undertones  (though my spell check doesn’t seem to recognize the word cheesemaking, it seems to flow quite naturally in the  Journal-Sentinel prose).  Perhaps the most interesting aspect is that cheese wasn’t the first choice — the city has been toying around with salt-brine, molasses, and beet juice as supplements to defray the cost of rock salt.  

Beet juice!?!

Next time they’ll know better.

An Apples to Apple Comparison?

Those of you who have been around the economics department the last few years have probably had a brush with Winners, Losers, and Microsoft, where Stan Liebowitz and Steven Margolis examine the antitrust case against Microsoft from the late 1990s.

In today’s New York Times, Paul Krugman makes the case that “Apple’s position in mobile devices now bears a strong resemblance to Microsoft’s former position in operating systems.”  That is, Krugman claims that Apple has considerable market power that is substantially augmented by network “externalities.”*  As a result, Krugman claims that though Apple produces high-quality products…   they are, by most accounts, little if any better than those of rivals, while selling at premium prices.”

University of Toronto’s Joshua Gans provides an interesting response to Krugman, both in terms of the history of the Microsoft-Apple competition, as well as the extent to which Apple products are a contestable market. Indeed, Gans thinks that the extent of Apple’s market power via network effects is constrained:

Krugman in trying to understand the iPhone relies on network effects (people have apps and are locked in) but apps are so cheap it is hard to imagine this is anything remotely the same as that in the past. Krugman also considers Apple high priced but that is very recent. Before the followers came in, Apple’s iPhone was significant precisely because it was so cheap compared to other proposed smart phones. The same is true of the iPad.

Indeed, that gives us the current narrative. Competitors can use price to compete with Apple (which they couldn’t do with the old Microsoft). Apple, therefore, has to keep quality high and consumers satisfied to survive. That is precisely why the share market has such a hard time with it than with say Amazon that arguably relies more on switching costs to keep its customers. The important point is that that is what we want in the tech world. We want competition on the basis of price and quality and we want it to be tough. In many respects, therefore, we have the free from monopoly cost market that we tried to get in the 1990s and should be happy for it.

Continue reading An Apples to Apple Comparison?

Will the US Economy Continue to Grow at 20th Century Rates? Robert Gordon and Eric Brynjolffson Square Off in a Lively Debate

This week Lawrence will be hosting a TEDx conference on re-imagining liberal education.  Thanks to Professors Galambos and Gerard, and a few other colleagues from other departments, this live discussion will be video streamed for all of us to watch.

Earlier this month, another TED conference took place.  This one featured economist Robert Gordon (Northwestern) and Eric Brynjolffson (MIT).  Some of you will be familiar with the arguments.  Those who took Capital and Growth last year read Gordon’s paper on the headwinds that will drive economic growth back to the level experienced prior to the first industrial revolution in the 18th century in England.   Gordon believes that our most productive innovations are behind us and innovation will be insufficient to enable us to sustain the 2% per capita real growth of the 20th century.

Some of you may recall the discussion we had in one of our reading groups of Brynjolffson and McAfee’s book, Race Against the Machine. In his TED talk, Brynjolffson explains why innovation is far from over and that we have the potential to continue the rate of growth of economic prosperity that we experienced in the 20th century.  Of course, the challenge, as he puts it is: “can we race with the machine?”

View both talks as well as a follow-up debate between these two economists here.

Colorado College Economics

Prof. Dan Johnson sans Safari Hat

We’ve received late notice that the Colorado College is hosting its 2nd Annual Research Symposium, and we are invited.

Can’t get out to CC in an expeditious fashion?  Well, come join me in Briggs 223 where I will stream a few of the presentations LIVE.    There are a couple of presentations on innovation, capped off with the big kahuna himself, Dan Johnson, talking about some sort of esoteric bidding system.

All times are CDT.

  • 3:40 p.m. Bryce Daniels.  “Drilling for innovation:  examining induced innovation in the oil and gas industry.”
  • 4:00 p.m.  Rafael A. Arenas.  “The value of social networks on innovation.”
  • 4:20 p.m. Dan Johnson.  “Bidding for Classes: Course Allocation using the Colorado College Auction System”

Competition in High Tech

That’s the topic for the Spring Reading Group, featuring Liebowitz and Margolis’ Winners, Losers, and Microsoft: Competition and Antitrust in High Technology. For those of you who plowed through the book in IO, I am compiling an auxiliary set of readings to complement (and update) the Liebowitz and Margolis book.   

We will meet Thursdays from 11:10 to 12:15 in Briggs 217. The sign-up sheets are posted on the board outside of Professor Gerard and Professor Galambos’ office. 

Spring Econ Reading Group

The Spring Economics Reading Group will feature the astonishing Winners, Losers, and Microsoft: Competition and Antitrust in High Technology by Stan Liebowitz and Steven Margolis.  The book is more about competition in high technology than it is about Microsoft itself, and it was written back when people still used VHS players and Apple was a bit player in the computer market (pun possibly intended).

Oh, how times have changed.

This book is tried-and-true.  Last year students gave it rave reviews as the featured reading for the Economics Senior Experience, and we also read it in my Industrial Organization this past term.

If you happened to have already read it, don’t despair, I am compiling an auxiliary set of readings to complement (and update) the Liebowitz and Margolis book.  Indeed, the group discussion might be the ideal setting for you to augment your knowledge of the knowledge economy.

We will meet Thursdays from 11:10 to 12:15, provisionally in Briggs 217.    


More From Rogoff on Innovation v. Stagnation

As we saw recently, Ken Rogoff is interested in engaging on the “innovation v. stagnation” hypotheses for the continuing global economic malaise. Rogoff comes down on the financial crisis as the root of the issue (see here), but the jury is still out.  Here is an Oxford Union Debate where Rogoff discusses these matters with the likes of technology legend Peter Thiel (the Thiel Fellowship guy) and chess great Garry Kasparov.

Listen / watch in if you have a few minutes.  Here’s some more background on the debate and the principals. That’s a lot of brainpower in that room.  The first ten minutes or so are predominantly pleasantries.

Innovation or Stagnation?

Harvard’s Ken Rogoff — of Reinhart and Rogoff fame — has a delicious Project Syndicate piece on the dueling theories of current global economic woes — “Innovation Crisis or Financial Crisis?”

As the title implies, once potential cause is that new innovation is simply not bringing the value added to world economic growth — advances such as the internet, iPhones, LED holiday lighting and the like are a lot more hat than they are cattle, so to speak. We have seen this stagnation argument from economists such as Tyler Cowen and Robert Gordon.

The other explanation is that the global economy is still feeling the effects of the financial meltdown from a few years back.  Indeed, Rogoff argues that excessive leverage overhang (in other words, lots of debt) is a prime reason why western economies have failed to ramp growth back up.  The purpose of the article is to weigh in on the stagnation thesis:

These are very interesting ideas, but the evidence still seems overwhelming that the drag on the global economy mainly reflects the aftermath of a deep systemic financial crisis, not a long-term secular innovation crisis.

Indeed, Rogoff is something of a technology optimist:

There are certainly those who believe that the wellsprings of science are running dry, and that, when one looks closely, the latest gadgets and ideas driving global commerce are essentially derivative. But the vast majority of my scientist colleagues at top universities seem awfully excited about their projects in nanotechnology, neuroscience, and energy, among other cutting-edge fields. They think they are changing the world at a pace as rapid as we have ever seen.

And the punchline:

Frankly, when I think of stagnating innovation as an economist, I worry about how overweening monopolies stifle ideas, and how recent changes extending the validity of patents have exacerbated this problem.

Overweening, an underused word if ever there was one.  But the point is solid — the economics profession since at least Schumpeter has fretted about the tradeoffs between providing incentives and the deadweight losses of monopoly power.  For some, that isn’t really the point anymore, as we learned reading Liebowitz and Margolis last year, as they focus on the serial monopoly phenomenon especially as it relates to high tech.

Nonetheless, it’s certainly the starting point and these are the types of questions that aren’t likely to go away.

This is Flickey

It looks like the In Pursuit of Innovation crowd is at it again, this time trotting out the revolutionary new Flickey app.  Check out the This is Lawrence video currently featured at the LU homepage for the transformative nature of some of these I&E projects.

And, if you happen to be the ambitious type, you might consider taking ECON 211 / PHYS 201 this fall — perhaps you will be next year’s feature from the thought to action crowd.

Abundance, not Stagnation, Characterizes the Future

If you believe that Tyler Cowen has appropriately declared the end of serious economic growth in the so-called “developed world,” check out the work of Peter Diamandis.  If you fervently disagree with Cowen’s view, also check out Diamondis.  In Abundance, the Future is Better than You Think, Diamondis (with co-author Steven Kotler) calls upon human ingenuity and innovation as the drivers of future abundance.  No Peak Oil here.  He reminds me of Julian Simon (the Ultimate Resource ) who challenged Paul Ehrlich (The Population Bomb) in a famous 1980 bet on the price of various metals and natural resources.  Spare the 16 minutes it takes to watch Diamandis give a Ted talk.

Tweakers, not Inventors

A recent New Yorker piece by Malcolm Gladwell argues that Steve Jobs was a tweaker, not an inventor. He quotes a paper in which Meisenzahl and Mokyr make the argument that England took the lead during the industrial revolution partly because it had more “tweakers.” In explaining England’s success, they say people “who had the dexterity and competence to tweak, adapt, combine, improve, and debug existing ideas, build them according to specifications, but with the knowledge to add in what the blueprints left out were critical to the story.”

HT: Cheap Talk

The World Schumpeter Made, or the World That Made Schumpeter?


Warch Campus Center

Saturday, October 22,  4:30 p.m.

David A. Hounshell

Roderick Professor of Technology & Social Change

Carnegie Mellon University

I present a brief overview of Joseph A. Schumpeter’s fundamental theory of innovation and the entrepreneurial function in capitalism.  I further demonstrate how Schumpeter realized that the principal locus of innovation had changed between the time he first launched his ideas in Theory of Economic Development (1911) and 1942, when Capitalism, Socialism, and Democracy first appeared.  The shift in locus had profound repercussions for Schumpeter’s thinking about capitalism, which I discuss.  I also demonstrate that just as there was an intermediate position between the Schumpeter of 1911 (often called “Schumpeter, Mark 1”) and the Schumpeter of 1942 (“Schumpeter, Mark 2”), what I call “Schumpeter, Mark 1.5.”  Drawing from my research on the history of industrial R&D in the United States, I historicize these three versions of Schumpeterian theory about the entrepreneurial function in capitalism.  I go further, however, to channel Schumpeter’s thoughts about the entrepreneur and the locus of innovation in American capitalism over the last sixty-one years since his death—what I am calling “Schumpeter, Mark 3” (ca. 1965) and “Schumpeter 4.0” (ca. 2011, to express it in the lexicon we use today).  Looking into the future, I complete the Schumpeterian arc of capitalism by concluding with thoughts about the locus of innovation in 2050, the centennial year of Schumpeter’s death, when the principal locus of innovation might well be where Schumpeter believed it was in 1911, under what he called Competitive Capitalism.

About the Speaker: David Hounshell was originally trained as an electrical engineer (BSEE, Southern Methodist University, 1972) before he saw the bright light of history of science, technology, business, and public policy (Ph.D., History, University of Delaware, 1978).   His early publications include work on inventors in electrical and communications technologies of the 19th-century, for which he received the Browder J. Thompson Prize of the IEEE in 1978.  His first book, From the American System to Mass Production, 1800-1932 (Johns Hopkins University Press, 1984) remains in print today; the Society for the History of Technology (SHOT) awarded it the Dexter Prize in 1987.  Science and Corporate Strategy:  DuPont R&D, 1902-1980 (Cambridge University Press, 1988), co-authored with John Kenly Smith, Jr.,  received the Newcomen Prize in 1991.  He is the recipient of the Business History Conference’s Williamson Medal (1992) and the Society for the History of Technology’s Leonardo DaVinci Medal (2007).  He served as President of SHOT in 2002 and 2003.  He has published on Cold War science and technology, the history of industrial research and development, and technology-forcing regulation in post-World War II United States.

Coming Saturday: “The World Schumpeter Made”

Historian David Hounshell from Carnegie Mellon University will be on campus this weekend to deliver a talk, “The World Schumpeter Made: Innovation, Entrepreneurship, and the New Economy.”  Professor Hounshell has deep knowledge of the U.S. innovation system, and the talk will touch on who funds R&D and why it matters. If you would like to see him in action, here is a talk he gave at the Kaufman Foundation last year: “Innovation and the Growth of the American Economy.”

Professor Hounshell is a pretty good source for this type of insight. He literally wrote the book on the  genesis and evolution of the U.S. industrial system with From the American System to Mass Production, 1800-1932.  Murray Rothbard himself had this to say about Hounshell’s influence:

Until recent years, the history of technology used to be written, and taught, for its own sake and almost completely isolated from economic and social history…

This tiresome tradition came to a sudden end with the arrival of the fascinating and crucially important work of David A. Hounshell, From the American System to Mass Production, 1800-1932, which created a new paradigm dominating the field of American technological history.  Hounshell’s achievement was to integrate technological with economic and social history, and bring us, for the first time, a genuine history of the development of mass production.  Thus, for example, in his pioneering history of the bicycle industry of the 1890s, Hounshell showed that the bicycle was, in two ways, a critical prelude to the invention and development of the automobile because, (1) the bicycle taught consumers the possibility and the joy of individual mobile transportation (in contrast to the mass transportation between fixed points essential to the railroad; and (2) it taught bicycle makers the technology of the wheel, the tire, and the axle. It is no accident that the first automobiles were made in bicycle shops.*

In addition to the opus on mass production, Professor Hounshell is also steeped in studying industrial research and development, including a definitive piece on DuPont:  Science and Corporate Strategy: Dupont R&D, 1902-1980.  This work chronicles corporate strategy and innovation, and has been described as “one of the most comprehensive business history books ever written.”

Of course, he continues to keep busy, and his talk Saturday will incorporate some of his current work on the evolution of industrial innovation.  I am looking forward to hearing what he has to say.

Professor Hounshell’s talk is at 4:30 in the Warsh Campus Cinema.  We hope to see you there.

Innovation and Entrepreneurship Ride to the Rescue

Although there is some disagreement amongst economists, many argue that traditional monetary and fiscal policy will not take the US economy from its current relatively stagnant state to the robust growth needed to employ many of the 8 million who were unemployed during the recent recession as well as the new entrants into the labor force.  As those in Intermediate Macroeconomics learned, since we add roughly 1.5 million people to the work force each year, we need about that number of jobs just to keep  unemployment from worsening.

As several studies from the Kauffman Foundation have shown, the vast majority of new jobs created in the United States come from new firms (that is firms that are five years old or younger),  not from large firms or small firms and not from governments.  In recent years, fewer new firms have been created than  in the past, and each of these firms has generated fewer jobs than in the past.  The Kauffman Foundation has put together a non-partisan “Startup Act Proposal” to jump start the economy.  It is entitled “Access to Capital: Fostering Job Creation and Innovation Though High-Growth Startups.”   The four key provisions are as follows:

1.  Provide a permanent capital gains exemption to investment in startups held for at least five years.

2.  Reduce the corporate tax burden for new companies in the first three years they have taxable income. (This may be already doable under subchapter S of the corporate tax code.)

3.  Reduce Sarbanes-Oxley requirements for firms with less than  $1 billion in market capitalization.

4.  Subject federal regulation to 10 year sunset.

Carl Schramm and Robert Litan, on behalf of the Kauffman Foundation also argue for removing the caps on skilled immigrants and immigrant driven entrepreneurial ventures.

These are intriguing ideas.  They should encourage Lawrence students to sample our Innovation and Entrepreneurship courses.  Check out Schramm and Litan’s presentation last week to the National Press Club.

Rabbit Redux

The weekly This is Lawrence segment is up, featuring the Rabbit Pop-Up Gallery.

Our own Ranga Wimalasuriya has a speaking part in the video talking about his role on the financial end of the project, and humbly omitting his own artistic prowess. Of course, Ranga says he doesn’t read this blog, so be sure to tell him congratulations for me.

Check out the video, and the gallery. Both look great.

Apple’s Core Competencies?

Jason Kottke has some interesting thoughts on “How to Beat Apple.”  Does this read like a page out of Clayton Christensen’s playbook?

Apple also has some weak spots which a canny competitor should be able to exploit to make compelling products that Apple won’t be able to duplicate or directly compete with.

1. Apple doesn’t do social well on a large scale. Ping? Game Center? Please. Social applications don’t seem to be in Apple’s DNA…

2. Apple can’t do the cloud either…

3. iTunes is getting long in the tooth…

4. I can’t remember if this is my own theory or I read about this on Daring Fireball or something, but the Apple products & services that Apple does well are the ones that Steve Jobs uses (or cares about) and the ones he doesn’t use/care about are less good (or just plain bad).

Might make for an interesting discussion over in one of those innovation classes I hear so much about.

The Principals are Your Pals

I’m a bit behind on both my reading and on updating this blog, so I wanted to point to a series of fascinating articles at David Warsh’s Economic Principals blog.  The first resulted from his trip to Denver for the American Economic Association meetings in early January, where he sensed a possible resurgence of interest in the history of economic ideas.  This possibly rings true for those of us plodding through Capitalism, Socialism, and Democracy this term.

Warsh followed up this dispatch from the AEA meetings with a most interesting piece on how the big brains of the profession are thinking about technological innovation and climate change. The piece starts with another dispatch from Denver, and traces its way back through the cold war to the RAND Corporation (and one of my heroes, Armen Alchian) and beyond.  The piece touches on the contributions of Kenneth Arrow and Richard Nelson, now are both familiar names to anyone interested in the economics of innovation.

And if that’s not enough, this week’s column looks at Paul Samuelson and hedge funds, another hat tip to the history of thought that includes David Ricardo’s Waterloo.  If nothing else, the blog seems to get its principals right.

I also continue to recommend Warsh’s Knowledge and the Wealth of Nations: A Story of Economic Discovery — an excellent pick for the summer reading list.