Lessons from Bell Labs

In today’s NYT, we’ve got an important article lauding Bell Labs, with the headline “True Innovation: We should emulate Bell Labs, which took the long view, with a preference for usefulness.” Jon Gertner writes:

…we idealize America’s present culture of innovation too much. In fact, our trailblazing digital firms may not be the hothouse environments for creativity we might think. I find myself arriving at these doubts after spending five years looking at the innovative process at Bell Labs, the onetime research and development organization of the country’s formerly monopolistic telephone company, AT&T.

Why study Bell Labs? It offers a number of lessons about how our country’s technology companies — and our country’s longstanding innovative edge — actually came about. Yet Bell Labs also presents a more encompassing and ambitious approach to innovation than what prevails today. Its staff worked on the incremental improvements necessary for a complex national communications network while simultaneously thinking far ahead, toward the most revolutionary inventions imaginable.

Indeed, in the search for innovative models to address seemingly intractable problems like climate change, we would do well to consider Bell Labs’ example — an effort that rivals the Apollo program and the Manhattan Project in size, scope and expense. Its mission, and its great triumph, was to connect all of us, and all of our new machines, together.

Gertner is the author of the forthcoming “The Idea Factory: Bell Labs and the Great Age of American Innovation.”  He goes on to talk about how innovation was structured at Bell Labs, and what we can learn from it.It’s a really good piece. Gertner does a deep dive on issues that I just touched on in my December 2011 paper  “Scale and Innovation in Today’s Economy”. The key is that in their own way, big companies can be just as innovative as small companies, and perhaps more so.  We may need a return to the era of big, systematic innovation.

Lessons from the App Economy

My latest Atlantic.com column is entitled “What the App Economy Can Teach the Whole Economy.”  Take a look.

Innovation and job creation: The role of 4G

Over the years, I’ve written repeatedly about the role of innovation in creating jobs. Industries with stagnant innovation lose jobs to more dynamic competitors, while innovative industries lead the jobs parade.  For example, in July 2010 I wrote a paper entitled “The Coming Communications Boom? Jobs, Innovation and Countercyclical Regulatory Policy”, where I argued that the communications sector is going to be the jobs leader in the current expansion:

Today, the broad communications sector is an innovation success story in an otherwise sluggish economy. And that success feeds on itself. The Internet companies have access to bigger potential markets as the broadband providers deepen and extend their networks. The broadband companies benefit from innovative applications that drive traffic and demand. And the applications developers, small and large, are able to take advantage of new capabilities.

This interconnected and self-reinforcing collection of industries is reminiscent of the early stages of past booms, which were never driven by a single industry. In this case, the employment expansion of several communications-related industries, despite the overall weak labor market, is a sign that the broad communications sector is going to be a leader in the coming recovery.

Now there’s a new study from Rob Shapiro and Kevin Hassett  which provides confirmation of this thesis, as it applies to 4G.

we find that the adoption and use of successive generations of cell phones from April 2007 to June 2011, supported by the transitions from 2G to 3G, led to the creation of more than 1,585,000 new jobs across the United States. Moreover, every 10 percentage point increase in the penetration rate of 3G and 4G phones and devices occurring as we write today — in the last quarter of 2011 — should add 231,690 jobs to the economy by the third quarter of 2012.

 This implies that accelerating the rate of 4G adoption, in whatever way possible, can accelerate job creation. Good stuff!

Yglesias responds to PPI scale and innovation paper

Matt Yglesias has responded to my paper on scale and innovation with his piece “Small Is Still Beautiful: The trendy—and wrong—new argument that because big businesses innovate better, we should let them become monopolies.”

Well, I’ve been accused of many things over the years (how about “Nostradamus of the New Economy“?). But no one has ever called me trendy before.

Let me break down my argument into three statements.
–Innovation is the most important force driving long-term growth.
–Current economic trends suggest that big companies can in some circumstances have an innovative edge over small companies.
–If antitrust regulators care about long-term growth and competitiveness, they should factor the innovative potential of large companies into their calculations, rather than simply assuming small companies are more innovative.

Matt seems to agree with statements 1 and 2. But then he freaks out about statement 3, accusing me of encouraging monopolies.

Least persuasive of all is his idea that the health care, education, and energy sectors are “large-scale integrated systems” and that the need to transform those sectors should lead us to relax our vigilance about competition. If anything, these are sectors of the economy where we should be exceptionally worried that lack of competition is creating dysfunctional results. Higher-education incumbents use accreditation rules to stymie potentially disruptive competition, and health care markets remain fundamentally localized, with lack of hospital competition driving higher prices.

Here Matt has completely missed my point. Yes, education and health care suffer from a lack of competition. But partly what protects incumbents is the very interlockedness of the sectors. Small disruptive firms get co-opted into the existing system, which includes the government in both education and health care. I am arguing that the only companies that can challenge the existing status quo successfully have to have enough scale and heft.

On a broader level, Matt’s argument is implicitly founded on the belief that we have *enough* innovation. In Matt’s world, it’s more important to discourage market power than to encourage new technologies. In that sense, this post follows logically from his “The Crisis We Should Have Had Had” post (here and my response here). In Matt’s world, the U.S. innovation/productivity machine is doing just fine, and the only problem is “a pretty banal monetary crunch.”

Matt’s view is shared by most of the economics and policy establishment. This “pro-complacency” assessment leads to the belief that the U.S. competitive position is fine. The right-wing version of the pro-complacency position says that the only thing that we need is a smaller budget deficit and less government in general. The left-wing version says that all we need is to regulate the financial sector a bit more and pump a lot more monetary and fiscal stimulus into the economy.

But in the end, it’s complacency that is the big danger.

More on Scale and Innovation

PPI’s scale and innovation paper continues to attract discussion. Irving Wladawsky-Berger,  a former leading tech exec at IBM,  discusses the paper, and concludes that

Large companies that make the successful transition to an open, collaborative style of innovation will emerge as effective ecosystem leaders.  Such companies will find that their scale is a major asset for the kind of complex systemic innovation that will be increasingly important in the decades ahead.

At the National Review, Jim Manzi addresses the issues I raise in my paper:

I’m glad to see somebody on the left arguing for a modernized view of antitrust, but I think that what is essential if we are to do this is to reduce simultaneously the political power of large companies to stifle competition, as manifest in manipulation of patents, financial regulation, safety rules, and the endless list of regulations, subsidies, and tax breaks that govern the modern economy. This is similar to what Reihan called in his post “completing the neoliberal revolution.”

The market process is imperfect and takes time, but in my view is preferable to one in which we allow large companies (which will always have an advantage in lobbying and compliance) to use the political process to protect their position, which we then counter-balance with antitrust regulation.

At Mother Jones, Kevin Drum  responds to Manzi by citing my paper, and going on to say:

One of these days, when the Republican Party returns to sanity and Democrats feel like they can safely sit across a table from them again, I suspect that this will be a fruitful area for conversation. Obviously conservatives are always going to have a more expansive view of deregulation than liberals, but if everyone is being honest this is the kind of regulatory reform that can fit the agenda of both sides. For a variety of reasons of political economy, liberals dislike entrenched corporate power and should be eager to dismantle regulations and tax breaks that protect the interests of big corporations and put up barriers to entry that keep smaller companies at bay. Likewise, conservative dedication to the principles of competition and free enterprise should lead them in the same direction. There won’t be any Kumbaya moments here, just a lot of grueling political horsetrading, but there’s still plenty of scope for agreement here. And it’s the only way this stuff will ever happen. Neither party alone will ever be willing or able to stand up to the tsunami of corporate lobbying that stands in the way of this kind of reform.

We’re years away from anything like this taking place. Democrats will have to decide that deregulation per se isn’t a dirty word, and Republicans will need to edge away from the tea party cliff and agree to genuinely deregulate in the interests of competition, not their corporate masters. Maybe it’ll happen someday.

Great stuff.

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”

December 1 doubleheader…

…let’s play two.

In a miracle of scheduling, I’m going to be speaking at two different events on the morning of December 1 in DC. At 9AM I’ll be the lead-off speaker at a PPI event:

Is Tech Antitrust Off-Target? Debating the impact of high-tech acquisitions

Should be fun.

At noontime I’ll be speaking to the National Economists Club on

“The Cheshire Cat Economy: Why We are Underestimating the Impact of Trade”

‘All right,’ said the Cat; and this time it vanished quite slowly, beginning with the end of the tail, and ending with the grin, which remained some time after the rest of it had gone.

Alice’s Adventures in Wonderland, by Lewis Carroll

Only 2 Ways to Save the Economy: Innovation or Inflation

I have a new piece on the Atlantic website. It starts this way:

We have only two ways out of our current global economic mess: innovation and inflation. And as the saying goes, we should hope for the best (more innovation) and prepare for the worst (higher inflation).

Looking across the world, the underlying problem is that borrowers–households and governments–have taken on debt that they can’t afford to pay back, given the current rate of income and economic growth. In the U.S, too many homeowners are struggling with mortgages that far exceed the value of their homes and cannot be repaid from their current incomes. In Europe, Greece and perhaps other countries have issued bonds that they cannot pay back unless growth unexpectedly skyrockets.

Down the road the same principle of matching growth to debt allows us to perceive potential financial crises to come. Young male college graduates, for example, have seen their real earnings plunge by 19% since 2000, with young female college grads experiencing a similar decline. Meanwhile education borrowing has soared, suggesting that we are on the verge of a student loan crisis, where young grads simply cannot pay back their mountain of debt.

And goes on from there.  Take a look.

Richard Florida on spiky innovation

Richard Florida seems to be embracing, somewhat, my thesis  that the U.S. is suffering from an innovation shortfall.

The economist Michael Mandel has argued that America’s capacity for innovation is faltering. Silicon Valley is of course this country’s powerhouse region for technological innovation–and seemingly a statistical outlier. With nearly 400 patents issued per 100,000 residents, the region is eight times more productive than the national average. But it wasn’t always this way. Manufacturing centers such as Detroit and Pittsburgh once led the country in patents per capita. In the last 35 years, metropolitan regions have surged and dipped in innovation, but the San Jose-Sunnyvale metro area has only climbed higher.

I’m going to do a post soon about creative economy jobs.

 

 

FDA Reverses Course on Melafind

Remember that a couple of months ago I wrote a piece about FDA overregulation, applied to the particular case of Melafind, a handheld computer vision system intended to help dermatologists decide which suspicious skin lesions should be biopsied for potential melanoma a system for assessing. The FDA’s original response to Melafind had been to deem it  “not approvable,” saying that MelaFind “puts the health of the public at risk.”

In my piece I analyzed why the FDA had unreasonable and contradictory expectations for Melafind. I then testified before a Congressional subcommittee on the subject.

Well, the FDA has surprisingly changed its mind. From the WSJ today:

Doctors in the coming months are likely to have a new tool to diagnose the deadly skin cancer melanoma, after the Food and Drug Administration reversed its earlier decision and said the MelaFind device was “approvable,” pending some final negotiations.

The FDA cleared the path for approval in a letter it sent to Mela Sciences Inc. Thursday night. The letter hasn’t previously been disclosed.

More to follow.

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