Innovation

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Guns and butter?

A new working paper by Mirko Draca examines the impact of military procurement on economic growth. While military procurement is primarily justified from a security standpoint, it can also have significant impacts on the economy. However, there are opposing theories of how military procurement affects the economy relative to civilian sales or other government procurement: one side says that military spending may be more wasteful because it is too specialized and directed primarily at non-commercial activities, while the other side argues that military spending is better at stimulating innovation because firms are given incentives to push the technological frontier.

Draca finds support for the latter argument—that military spending provides outsized benefits for the economy. Using a database of U.S. military procurement from companies between 1966 and 2003, he examines the elasticity between defense spending and company-sponsored R&D and patenting, finding that a 1 percent increase in military procurement leads to a 0.07 percent increase in both corporate R&D spending and patenting. While this may seem small, it is twice the rate at which simple increases in civilian sales raises the same innovation indicators. Thus it appears that military spending, from … Read the rest

The Nanny Police Are at IT Again

The Washington Post printed a story about how the Campaign for a Commercial-Free Childhood has submitted the opinions of six experts on child development to the Federal Trade Commission in support of CCFC’s complaint against toy maker Fisher-Price for marketing its “Laugh and Learn” app for infants and small children.

One of the six experts, Herbert Ginsburg writes, “Existing research suggests that infants and very young children are not cognitively ready to learn key abstract ideas about numbers. Although some children at the upper bounds of this age range might learn to parrot some number words they are highly unlikely to learn important concepts of numbers.”

To be sure I am not a child development expert (although I did study child development in college.) I am a parent of a wonderful daughter. When she was 19 months old I ran across a Fisher Price online game, “The ABC Game“, which taught infants and toddlers their letters. (This was pre-tablet so I used a laptop). My daughter would press keys on my laptop and up would pop a picture of the letter, a picture of an animal whose first … Read the rest

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ITIF hosts Dr. William Janeway

Economist, venture capitalist, and co-founder of the Institute for New Economic Thinking Dr. William Janeway stopped by ITIF this week for a discussion about his new book, Doing Capitalism in an Innovation Economy. Dr. Janeway presented a compelling view of the economy and touched on a number of important issues along the way.

Janeway explained that the government plays a critical role in innovation by providing research funding through institutions such as DARPA and the NIH, by leveraging the buying power of the federal coffers, and by creating policies that encourage business investment in R&D. Economists have long understood that private markets fail to allocate adequate resources to innovation and research: the benefits are too hard for individual corporations to capture. For this reason, policies like the R&D tax credit and public investment in basic research have long been uncontroversial.

Contrary to what recent high-profile failures like Solyndra might lead people to believe, government policies to spur innovation in the United States have had great success. This is apparent in the vast amount of money the private sector has poured into IT and Biotech businesses based on initial … Read the rest

Prescription Drug

Is it Useful? A Drug Patent Enigma

Obtaining a drug patent isn’t easy:  it requires, on average, 14.6 years and $1.2 billion in pre-approval research and development and clinical testing. In addition, it also requires the developer to meet a set of three internationally accepted conditions. According to the World Trade Organization’s (WTO) Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement, in order to obtain a patent, a drug must:

  1. Be new,
  2. Involve an inventive step, and
  3. Be capable of industrial application.

TRIPS also clarifies that “involving an inventive step” and “being capable of industrial application” are synonymous with “non-obvious” and “useful”, respectively. For being a WTO legal document, it’s actually surprisingly clear: be new, be non-obvious and be useful.

Typically, the patent is issued prior to a drug’s clinical testing, primarily because if a commercially viable drug is developed from the clinical testing, it is vulnerable to theft and copying. In other words, patents are filed upon discovery of a chemical formula, as part of the United States Patent and Trademark Office’s “first to file” rule. Without the patent, innovative pharmaceutical companies would not have an incentive to research and develop this formula into … Read the rest

Nordic countries

Effective Innovation Policies and Institutions Continue to Help Drive Success of Nordic Economies

On Wednesday, October 16, ITIF hosted representatives from innovation and government agencies from Denmark, Finland, and Sweden to discuss Nordic Innovation: What Can America Learn from the Scandinavian Innovation Ecosystem. (Video and audio from the event are available here.) The speakers credited the recent success of the Nordic economies to several factors, including: a strong bipartisan consensus regarding the importance of federal investment in education, scientific research, and innovation; well-organized national innovation systems that benefit from formally articulated national innovation strategies (Finland’s, Sweden’s, Denmark’s) and well-funded national innovation agencies; and fundamental reforms undertaken in these economies over the past two decades that have made their tax structures more globally competitive, markets more competition-based, federal budgets better balanced, and workers greater skilled.

Indeed, across a range of indicators, it’s clear that Denmark, Finland, and Sweden represent some of the world’s most innovative and globally competitive economies. For instance, Finland, Sweden, and Denmark rank second, third, and eighth, respectively, in ITIF’s Atlantic Century II report, which benchmarks 44 nations and regions on 16 key indicators of innovation and competitiveness. In terms of national R&D intensity—how much … Read the rest

pirate

It’s Our Pirate Party, We Can Do What We Want

The Mercatus Center at George Mason University rolled out a new website this morning— piracydata.org—that attempts to collect data about whether or not the most pirated movies (as ranked by TorrentFreak) are available for lawful viewing online. The site’s authors seem to suggest that 1) the content industry is doing a poor job of making content available; and 2) piracy would go away if the content industry would just release more movies sooner, cheaper or in a different format. Both arguments are wrong.

First, let’s look at the fact. The website had several errors at launch, and it still had some errors as of this afternoon. (For example, Pacific Rim is currently available via YouTube rental.) But using corrected data we can see that six of the ten movies listed are available legally on various digital sites (Google Play, Amazon, iTunes, etc.). In addition (and not mentioned on the website), three of the ten are available for purchase On-Demand via Comcast and four of the ten are available on AT&T U-Verse. The idea that studios are not making movies available to consumers is nonsense. Today there are more ways … Read the rest

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More Evidence that Immigration is Good for Innovation

In the United States the national debate on immigration often overlooks one of its most important effects: its impact on our innovation economy. A new NBER paper by William Kerr highlights the crucial role that immigration plays in national economic growth.

High-skilled immigrant workers, that the United States allows in through the H-1B visa program, make significant contributions to economic growth in a number of ways. First of all, there is a disproportionate amount of “superstar” scientists such as Nobel Prize winners that come from immigrant backgrounds. These scientists make breakthrough contributions that often have enormous impacts on our science and technology and thus ultimately our economic growth. Second, immigration provides a large number of other STEM workers, workers that form the backbone of our productive capacity. Since 1995 immigrants have provided the majority of the increase in stem workers in the United States.

These inflows of workers clearly benefit the economy. The paper finds that “immigration is associated with higher levels of innovation for the United States and that the short-run consequences for natives are minimal.” Long-run consequences are less well understood—high-still immigrants do still compete with U.S. natives … Read the rest

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Innovation in the Market for Video Programming

Some technological changes sneak up on us so quietly we do not even know it has happened. A perfect example of this is video programming. It was not too long ago when consumers had to drive to a store to rent a movie at the local Blockbuster rather than just start streaming a movie instantly with a few clicks on Netflix. Today consumers have more options than ever for legally obtaining video content. The market shows an unprecedented amount of competition as businesses experiment with different business models and technologies to deliver consumers video content. Both ISPs and over-the-top providers deliver video on a variety of formats including traditional programming, on-demand, and “on the go” options. In fact, there are so many options—Netflix, Hulu, Amazon, iTunes, Google Play, YouTube, Vudu, HBO Go, Dish Online, Crackle, etc.—that consumers have more choice today in video programming than ever before.

These changes are not only occurring in the United States, but also globally. Worldwide there are hundreds of legitimate streaming services that consumers can access. And consumers are accessing this content in new ways. Whereas we used to measure the percent of … Read the rest

Photo Credit: Jim Hatter (2009), Wikimedia Commons

Adding Energy Innovation to the FAIR Act

In March Senators Lisa Murkowski (R-AK) and Mary Landrieu (D-LA) introduced S. 1273, the Fixing America’s Inequities with Revenues (FAIR) Act of 2013.The bill received attention again last week, when it was reexamined during a Senate Energy and Natural Resources Committee hearing. The FAIR Act, recommends allocating a set share of 27.5 percent of total federal offshore drilling revenues to coastal states with productive drilling leases up to 200 nautical miles off their coastlines.Under the FAIR Act, states that set up funds for alternative and renewable energy, energy efficiency, or conservation would be eligible to receive an additional 10 percent of revenues, which offers states an opportunity to strengthen investments in innovation.

Unfortunately, the bill as presented is weak – it does not include any measures to directly support clean energy innovation with drilling revenue. ITIF argued in its recent report, Drilling for Clean Energy Innovation, that raising revenue from fossil fuel drilling is a direct and bipartisan way to support clean energy innovation and mitigate climate change. While the FAIR Act provides a unique incentive for states to invest in energy programs, there is little guarantee that … Read the rest

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Chile Catches a Wave to the Future

If those who cannot remember the past are condemned to repeat it, then those who cannot imagine the future will never get there.

Chile is looking toward the future. Their National Innovation Council for Competitiveness (CNIC) recently released a report outlining Chile’s strategy for innovation, Surfing toward the Future (in Spanish). The report is summarized by Irving Wladawsky-Berger at the Wall Street Journal and his personal blog.

CNIC focuses on four areas: education and motivation, biology and life sciences, energy and sustainability, and “development of an innovation culture.” The latter is somewhat vague, but it appears to mean keeping society simultaneously forward-looking and adaptable, able to “ride the waves” of future technologies and societal changes. Wladawsky-Berger quotes the report: “Though the surfers cannot go anywhere they please,  it would be naive to pretend to control the sea,  by remaining in constant harmony with the waves and receptive to what appears, they can find the space of stability and a path forward.”

This is an apt description of the problem of economic planning: bull-headed programs have a way of drowning in the sea of market realities. This is because our … Read the rest