Scale and Innovation in Today’s Economy

I have a new paper on “Scale and Innovation in Today’s Economy”. The paper was also written up in this week’s Economist, in a piece entitled “Big and Clever”


  1. How typical, a “progressive” making the usual dumb “economies of scale” arguments. Obviously there’s no magic “best” size for innovation, but there’s good evidence that smaller is generally better, particularly in the information age. Using Nobel prizes as a metric of innovation is just silly. Nobody is ever going to win a Nobel prize for Google’s search algorithms or Apple’s efficient software stack, no matter how valuable they are, and it is ridiculous to expect a Nobel level of innovation from companies, at least as currently run. Apple and other small startups were putting out personal computers years before IBM ever deigned to enter the market, yet you credit IBM for the PC simply because they then took the market over based on their brand name. Your R&D spending and survey metrics are also flawed, as they don’t try to actually measure the results of innovation, only proxies like how much money was spent.

    If you’re relying on some list that says Apple is the most innovative company, no wonder so much that’s written about innovation is so clueless. 🙂 Apple simply integrates new hardware, mostly developed by others, earlier than other PC manufacturers, then makes fat margins off coming to market first. But simply integrating other’s innovations first doesn’t make you the most innovative, except in the eyes of the ignorant. Your notion of competing tech ecosystems is particularly ironic, because many people, including me, believe that Apple’s dictatorial control of their system, what’s called a “walled garden,” will be their downfall. They write all their software and integrate all their hardware on their own and tightly control what apps can be sold in their app store, famously blocking everything from pornography to editorial cartoons that they thought inflammatory. Google, by contrast, has taken a much more open approach with Android, where any hardware manufacturer can add their own proprietary features and UI and the user doesn’t need Google’s permission to install any app they want.

    Since Android is open source, it is developed by many different companies, thought it probably still fits your description of one firm driving the ecosystem, since Google probably contributes the most to Android by far. As for an ecosystem around AT&T, don’t make me laugh. 🙂 There’s nothing stopping a group of smaller companies from banding together to form their own ecosystem, indeed RIM is trying to create their own and Samsung/Intel and others are still working on their own platforms. There is nothing intrinsic about having core firms to buttress an ecosystem, in fact, you could argue that they are also massive single points of failure, as we just saw with the banking sector and “too big to fail.” As for the fear of Chinese standards or subsidies, please, where has that gotten them thus far? Exactly.

    Regarding energy, medicine, and education, it is precisely the problem that those sectors are supposedly delivered by “large-scale” systems. The solution is to break them up by getting the govt out of those sectors, not hope for some magic large corporation or govt that can change them. In fact, there is nothing “integrated” about medicine, a sea of startups would probably do a better job of picking off the disparate hospitals and clinics and finally modernizing the medical system. As for education, why would we care that all students get the same education, when we don’t care about all of them now? The level of education varies wildly from place to place in the currently broken govt system, so asserting that it has to be the same for a new system is just ludicrous. Energy is the only one where some scale is probably necessary, but considering that electricity is mostly generated by coal, which I hear is dirtier and pollutes more than gas, I don’t see the point.

    The best line in your paper is this one, “Scale is not the enemy of American prosperity, when achieved through honest competition.” Google got big by creating a product that nobody had to use, internet search, yet billions choose to use it everyday. They can stop using it at any moment and there would be nothing stopping them from switching, other than the better quality of Google’s results. Unfortunately, when Microsoft or Apple go suing other companies with their ridiculous patents gained by gaming the incredibly broken patent system, they’re not relying on their products but another form of govt support so they don’t have to keep competing. Such mafia tactics, aided and abetted by the govt, are the main reason why the big thrive, while the small only break through occasionally.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s


%d bloggers like this: