R&D

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Where Do New Products Come From? Insights from a new study of innovation in manufacturing

A recent NBER working paper offers up some interesting new survey data on innovation in U.S. manufacturing industries. Authors Ashish Arora, Wesley M. Cohen, and John P. Walsh surveyed more than 5000 U.S. manufacturing firms in 2010, asking whether or not they brought new products to market in the previous three years.

Most notably, the data shows that the number of truly innovative manufacturing firms is relatively small. In the aggregate, it finds that 43 percent of firms introduced new products in the past three years, but only 18 percent of firms introduced new products that were wholly new to their market. In other words, one quarter of firms, and more than half of firms introducing new products, introduced “imitation” products following the lead of other companies. The percent of firms introducing totally new products ranged significantly between industries, from just 10 percent of firms in the “Wood” and the “Metals” industries, to 44 percent in the “Instruments” industry.

The survey also breaks down the results in a number of interesting ways, including where the innovations originated. It finds that the most common source of innovation is customers. This is … Read the rest

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New Paper Confirms Growth Benefits of R&D

Productivity is one of the most fundamental determinants of our income and overall wellbeing, so the question of where productivity growth comes from is extremely important. There are many different ways to increase productivity, but increases that have a continued impact over time are the most important because accumulated productivity increases end up having a much larger impact than one-off changes.

Economists have understood for years that R&D is an important source of productivity growth. However, it hasn’t been entirely clear whether R&D affects productivity growth in short, one-time boosts, or whether it raises growth rates for longer periods.

A new paper by Italian economists Antonio Minniti and Francesco Venturini looks at data from the U.S. manufacturing sector and concludes that R&D policies have indeed created “persistent, if not permanent” changes in the rate of productivity growth. It also drills down into the type of R&D spending, finding that only R&D tax credits have a long-term impact on the growth rate while R&D subsidies provide just a temporary boost.

These results are good news for both the economy and for policymakers because they show the powerful impact that innovation policies … Read the rest

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Both Guns and Butter? New Study Shows Innovation Benefits from Military Procurement

For much of the postwar era the United States led the world in technology, which brought significant economic benefits to the nation. That leadership was due in large part to generous federal government funding for R&D, much of it channeled through military spending. That this occurred during the Cold War was no coincidence: as William Janeway argues in Doing Capitalism in the Innovation Economy, nations have historically been unable to muster the political will for significant spending on innovation without it being part of a “national mission,” since such spending means giving up current consumption for uncertain future benefits.  In the last half of the 1800s, nation building provided the mission for America—just as that does now for China.  But after the late 1940s the animating mission that helped drive technology innovation was winning the Cold War, which we did.

The threat from the Soviet Union meant that Americans were willing to sacrifice present consumption for the good of the nation–in this case keeping the world safe for freedom and democracy. And it meant we did what it took to win—and that meant innovating. The fact that Lockheed’s Skunk … Read the rest

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Government Support Actually Integral to Silicon Valley’s Development

In an otherwise quite nice report from the Government Accounting Office (GAO) called Global Manufacturing: Foreign Government Programs Differ in Some Key Respects from those in the United States, the authors discuss the efforts of countries including Canada, Germany, Japan, South Korea, and the United States to support manufacturing, in part through the development of regional high-tech clusters. Yet the report’s authors argue that “the effectiveness of cluster policy has not been established; the formation of successful clusters in the United States, such as California’s Silicon Valley, suggests that government support for clusters may not be necessary.”

Unfortunately, here the GAO authors are echoing the point of view of individuals such as Michael Arrington, who believes that the Best Way to Fix Silicon Valley is to Leave it Alone. But as Robert Atkinson convincingly argues in Divorce Washington at Your Peril, Silicon Valley—as will a forthcoming MIT-ITIF report, Federally Supported Innovations: 22 Examples of Major Technology Advances that Stem from Federal Research Support (February 2014)—government support has actually played a fundamental underlying role in the development of Silicon Valley (as it has in the development of other … 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

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Critique of OECD R&D Tax Credit Report

R&D is fundamentally important to economies because it is a primary source for innovation and new technologies. But markets rarely provide enough incentives for innovation on their own—innovations are expensive to create but easy to copy.

For those reasons many countries provide R&D tax incentives to companies that spend money on basic or applied research. The best way to think of this policy is as actually as a fix—R&D has positive benefits for the economy as a whole, but because individual companies have trouble capturing all the benefits of R&D they are unlikely to invest the socially optimal amount.

Tax breaks for businesses are fraught with controversy because they “distort” the market and according to conventional neoclassical economics thinking distortions are by definition bad, even if they are pro-growth. To be sure certain tax incentives outlive their usefulness, as they have in the fossil fuel industry, and some tax incentives are only on the books because they serve special interests, not the public interest.

But the R&D tax incentive doesn’t suffer from any of these problems. In fact, there is solid evidence that R&D incentives spur additional R&D spending and … Read the rest

Scientists in An American Lab

Scientific Researchers at Asian Universities Attracting More Industry Funding than American Counterparts

A report released last week by Times Higher Education, the World Academic Summit Innovation Index, finds that university scientific researchers from many Asian nations—including Korea, Singapore, Taiwan, and China—are attracting substantially more industry funding per researcher than their American counterparts. For example, the report finds that on average Korean researchers receive four times as much industry funding as their American peers, with the average value of industry funding per researcher in Korea totaling a world-leading $97,900, compared to just $25,800 for American researchers, which placed the United States 14th in the thirty-nation study. What makes this all the more striking is that American researchers tend to cost more than their Korean counterparts, and yet the latter still receive more funding.

Unfortunately, this report merely continues to present evidence from a long and troubling trend of faltering industry investment in university research in the United States. As ITIF found in its 2011 report University Research: The United States is Behind and Falling, from 2000 to 2008 the United States ranked just 23rd among 30 leading economies in percent change in business-funded research performed in the higher … Read the rest

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New Evidence in Favor of Government R&D Funding

A new policy research working paper from the World Bank has combed through recent evidence on government funding for Research and Development, and finds that government funding significantly increases R&D investment. Paulo Correa, Luis Andres, and Christian Borja-Vega’s paper, “The Impact of Government Support on Firm R&D Investments: A Meta-Analysis” analyzes nearly 40 papers published worldwide from 2004-2011.

Although there is a large variation in the type of R&D funding examined, the study methodologies, and location of the studies, the results are clear: government funding boosts R&D spending. The paper tackles another important question as well—whether government spending “crowds out” private sector spending. (Crowding out is the idea that private companies will not invest if the government is doing it for them.) The paper finds evidence of the opposite, however, with data that shows public funding actually incentivizes firms to invest more in R&D.

(photo credit Idaho National Laboratory)Read the rest

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Finding a New Direction in Climate Change Policy

It’s clear that the world is losing the race against global climate change. The International Energy Agency put numbers to this fact in a new report, Tracking Clean Energy Progress 2013, which finds that, “the amount of CO2 emitted for each unit of energy supplied has fallen by less than one percent since 1990.” In other words, for all of the global growth in renewable energy in the last decade, the world continues to rely on fossil fuels to the detriment of more global warming. Of course, this has to change and change fast.

This past weekend, I participated in a day-long symposium at Villanova University aimed at discussing what kind of changes need to be made. The conference hook was brought on by Rutgers Law Professor Howard Latin who provided the keynote address based on a book he published late last year titled Climate Change Policy Failures that argues conventional climate policy approaches fought for during the last twenty years such as cap-and-trade, international negotiations, and emission regulations won’t successfully produce deep carbon reductions. Latin contends that these “incremental” policy approaches simply kick the emission reduction can … Read the rest

Obama’s Budget Boosts Support for Energy Innovation

President Obama released his long-awaited FY2014 budget request and while it’s unlikely the budget will be taken up by Congress in its entirety, it remains an important document. Namely, the proposal is significant because it steadfastly argues that America can continue to support next-generation industries like clean energy. In fact, the President’s proposal budgets for a number of high-profile, high-impact programs, including those aimed at growing the domestic clean energy manufacturing sector, reduce transportation fuel use, and calls on Congress to fund a new Energy Innovation Hub to transform the electricity grid.

Across the board, the FY2014 request boosts key energy innovation offices at DOE by about 15 percent compared to the FY2013 Continuing Resolution and seven percent higher than the President’s FY2013 request. The lion’s share of budget gains are aimed at the Office of Energy Efficiency and Renewable Energy (EERE), which would see a budget increase of 54 percent from FY2013 CR levels, and at the Advanced Research Projects Agency-Energy (ARPA-E),  which would see a budget increase of 46 percent.

Expanding Research Capabilities in Advanced Energy Manufacturing

The largest budget increase target at EERE – 22 percent to … Read the rest