Tag Archives: Economics

Innovation, Science and Money II

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In my last blog I discussed some of the budgetary cuts occurring in the US and how these cuts are going to impact the future of science. I want to spend some time explaining why this is the case. I mentioned something called Path Dependency, what do I mean by this? Well it’s a pretty simple concept, once you start down a policy path your choices are constrained by your previous choices and the results based on those choices.

This type of path dependency can be seen in scientific and technological changes. For example, if a piece of technology has three parts each one can be improved independently. If each one can be changed in one direction, from a 0 to a 1 each change could impact how likely a specific technology would be selected by consumers. Each change could lead to a local optimal, and could prevent the technology from becoming a global optimal. Additionally, these changes over time, with further research, could lead to radical different technologies. This happening from changing a single feature from on or off. Basically, it’s an evolutionary process.

Policy works the same way. There’s a paper written by Mustar et al (2008) that discusses the policy choices in France and the UK. The objective of the paper was to investigate the impact of policy choices on the creating of academic spin-offs. Some of the results lead to additional technology incubators in the UK and in France. However, the number of academic spin-offs in France actually decreased, however in the UK they increased significantly.

These differences came about because of previous policy choices. For example, France has laws related to civil servants and starting a new company. In France all professors are considered civil servants, so there is a history of professors not starting companies. There’s a lack of culture for entrepreneurship in France for increasing the number of academic spin-offs.

This is what I meant by path dependencies. Decreasing the amount of money going into meaningful academic research will have an impact in other ways. In the US there has been an increased push for increasing the number of companies being started. Scientific research can be turned into new companies through academic spin-offs. Decreasing the funding at two of the biggest funding agencies will decrease the number of academic spin-offs.

References:
Mustar et al 2008 http://www.springerlink.com/content/68282r1460889062/

Innovation, Science and Money

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The death of Steve Jobs has really shaken the technology community. It has really made people do a lot of thinking about innovation and the impact of technology based companies on the economy. The Economist notes that the American work force is on the decline and the high tech companies aren’t making up enough jobs. That now companies like Apple and Google employ less than a third of what companies like GM used to employ. These high tech companies don’t need as many employees. Additionally, it’s a different type of work force that are required in the US. Apple outsources manufacturing because they are really concerned with driving down the cost of manufacturing and maximize profits. This is good business.

In a long article by Peter Thiel, co-founder of Pay Pal and a venture capitalist, he discusses what he calls the end of the future. Where he claims that we’ve been in an innovation slow down since the 70’s. He also argues that scientists and technologists aren’t living up to the claims they are making. He argues that in a lot of ways we’ve been technologically stagnant. Politicians have been making the same promises on energy since the 70’s and that we’ve been slowing down are rate of increase of production for food barely keeping up with population growth. I think that he does make some good points, but he definitely goes a bit over the top with his statements. He’s looking at things only within the national and regional context and is ignoring the fact that there have been cultural changes that have driven a change in how companies innovate.

Historically, companies don’t find value in doing basic research. If you look at the history of research labs within industry, they hire researchers to do incremental and radical innovation. However, this research is carried out within a scientific paradigm which was created in basic research.

In fact we’ve seen a decrease in the amount of R&D being spent by companies. This has lead to some of the stagnation in innovation that Thiel mentions. To combat this and to reduce the risk borne by the company they have been doing more and more contract research with universities and have increase the amount of money they spend with universities.

Thiel also mentions that the government might be able to help but doesn’t see it ever going to happen when you have to justify the expense by cutting something else. Since he’s a libertarian he feels that the budget must be balanced. However, our politicians are cutting budgets to the largest scientific funding agencies in the US. My wife sent me an email with some of the funding cuts, National Science Foundation is getting cut by 2.3%, in fact it’s 14% below the budget requested by the administration. The National Institute for Standards and Technology’s budget is getting cut by 9.3%. Both of these agencies create a large number of jobs. It’s been shown that one research job creates several other jobs. Cutting these budgets will reduce the amount of research which can be conducted. This will impact the number of researchers, impact the quality of education at universities and slow down the ability for universities and firms to exploit new research.

It typically takes 10 years for research to be monetizable. Cutting funding now impacts employment now and future employment. In fact, these changes will have a long term lasting impact. These choices create a path dependency within our society. Without proper funding we’ll be passed by some one that feels research is paramount.

Future of Employment II

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Yesterday I talked a little bit about the future of employment. Apparently this isn’t the most interesting topic. However, it’s important. The Slate series ends with some startling research that shows even scientists could eventually be replaced. I think we are a long way from those things happening. In my opinion the first things that  machines will do in R&D is replace humans in the creation of incremental innovations. In fact, to some extent computers already do replace humans in some of these things. Computers do a great deal of CPU, DRAM and Flash designing. Typically, these are incremental innovations. They are building on a current technology and making improvements. Humans are required for the radical innovations, such as a new chip set, calculation methodology or what have you.

Even some advanced R&D work could easily be improved by computers. Researchers have to read a great deal of papers to keep up with the state of the art in research. As the slate series points out, this is a form of data mining and lawyers are currently using automated programs to find specific words. There’s actually a branch of Science and Technology Studies that focuses on word analysis. They use similar programs and dump a few papers into it and figure out what verbal connections between the papers exist. This is a way of creating maps of knowledge. You are able to see through citations and similar word usage that a specific theory is prevalent or not. How would this apply to R&D? You could put in the materials that you’re using the problems you’re seeing and a bunch of papers that might be related and see what comes out. It could give you new materials new designs things of this nature. For this to work though, it’s a ways away.

What does mean in the long run? That no position is safe. I don’t think this will happen in our life time though. People are much too conservative to leave everything to computers. They just simply won’t be accepted. Even by our generation there’s too much distrust. It’s going to take one or two more generations for there to be enough trust in computing and technology to allow more control to shift to them. Sure some companies will be on the cutting edge with accepting these changes, others will be laggers.

If computers can do everything why do we need any jobs, isn’t the guy from CNN is right? I disagree. People will always want to work. People need to work. I’m not saying this because I’m hoping there won’t be a robotic take over or anything, but because people will not allow it to happen. In general people like to feel in control. Even if you aren’t the bus driver, knowing that it’s a person that you can relate to makes you feel like your more in control. Leaving everything to computers requires a level of surrender. Many people will simply refuse to give up that level of control. We won’t have fancy automatically driving cars for this very reason. People love to feel in control of where they go. It doesn’t matter if they would be safer, save money and get places faster. They would rail against the change because they loose control.

Would we leave the future of our economy in the hands of machines? You could argue that some companies already have. For instance take the May flash crash on Wall street. This has been attributed to high frequency trading following logical algorithms, it wiped about $1 trillion in wealth, most of it was restored.

In much of my research on academic spin-offs and technology incubators there is an important component related to tacit knowledge. Know how of the inventor of a technology. This is something that we’d lose if all of our work was robotized. There’s no difference in that than outsourcing. In developmental economics and innovation theories the ability to create copycat technologies is a precursor to developing their own technologies in that field. I think this is something we must keep in mind when discussing the reality of full automation. Without tacit knowledge and hands on experience with the devices and machines building the product it’s very difficult to develop improvements on either.

I think that we’ll have many legacy jobs hanging around for a long time. Simply because we need them to continue growing economically. Otherwise, we’ll stagnate and keep producing the same technologies.

The future of employment

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I posted this Slate series a little bit ago on my facebook and twitter feeds. It’s an interesting read about the future of robotics in the work place. Most people think of robots only in the automobile industry. However, they are in nearly every major industry now. All new semiconductor fabs can be run with only a handful of people over seeing the production of the product. The author notes that robots are making headway into pharmacies and other professions with menial tasks being a large component. In pharmacy computers also help ensure patients aren’t on conflicting medicines, with medical records in the computer it can easily flag potential issues. You could argue that this isn’t robotics it’s automation, personally I don’t see much of a difference. You use a machine to make a task faster and automated, it doesn’t matter if there are moving parts or not.

This isn’t the only recent discussion on the longevity of jobs. CNN had an opinion piece about 3 weeks ago discussing if jobs were obsolete. Which if this is the case we will have to take a serious look at our current capitalistic system. As an evolutionary economist (or at least having some training in it) I can see that this perspective is somewhat accurate. Between these two articles it really indicates that in the near future we’ll have a great deal of mechanized labor through robotics and computer programs. We will need dramatically less and less people employed in the western societies. This will even eventually trickle down into the developing societies.

My roommate argued that we should stop creating pointless jobs. That we should create a system that supports these people that continually fall out of the labor pool through job type elimination. This would take a complete reworking of our society to make this sort of change happen. Also, for a huge amount of people this freeloading kills them. We hear anecdotal evidence about some old fart at a company that is forced to retire and then within the year is dead. Whether we want to admit it or not, for the vast majority of people employment is tied to self worth. There’s increases in suicide rates when people aren’t able to work and cannot support their families. Depression is also higher among the unemployed.

There are further problems with this future. The CNN article discusses how we should be ok with just a white collar work force. I completely disagree. When I worked at Samsung some great ideas came from the technicians fixing our tools. The greater the variety of knowledge sets the higher the number of ideas. Sure a great deal of them may be really crappy, but the ones that end up surviving through the competition end up being better ideas. Make the workforce more homogeneous would reduce this affect.

I don’t have an answer to this. We need to be realistic and try to understand the fundamental changes that our economy is going through. If we see that jobs are in fact going the way of the dodo we basically have to throw out all free-market economics. Why? Because there’s no one to buy anything except an elite few and they just do not have the buying power to keep an economy of this size going. We will have to evaluate our morals, ethics and goals in life. It will not be easy.

Accessibility to Copyrighted Content

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Torrent Freak had this article today that discusses how the amount of piracy in Sweeden. In fact, it discusses how it has dropped with the introduction of Spotify. This isn’t the only case where access to material impacts piracy. Hulu (US only) has introduced an 8 day waiting period for new Fox episodes, this has lead to an increase in the amount of pirating of Hell’s Kitchen. If people are going to pirate Hell’s Kitchen, HELL’S KITCHEN!, then why wouldn’t they pirate just about all Fox episodes? Limiting access drives people to pirate.

Why are people willing to use Spotify over other streaming services? For one, it’s free with ads, but people are also able to share. They are able to share legally too. I am able to access music, which my friends on facebook have shared, from friends back in the US. From people that I only talk to on an irregular basis. My friends are able to share with me, where before I would have had to ask them for music and either bought it or download it. Since, I’ve decided to forgo using Apple products I’m limited by what is on Amazon or other music sites. Not all of the songs that my friends listen to are on those services. They like a lot of indie music.

I think that it’s time for copyright holders to wake up to the fact that people don’t really want to illegally acquire music. Sure they’d like to pay as little as possible, but they are willing to have ads, visual or audio, to listen to the music they like. The other good thing about a service like spotify is the fact that on your phone, if you pay, you can access your music there. Access is the important thing. If I’ve bought something once I should be able to access that product on any device in any manner that I want.

The differences in ability to view copyrighted material drives piracy. If copyright holders want to reduce piracy they need to increase accessibility for users. Users are willing to put up with a great deal of things if they are able to easily access content they want. Copyright holders, like Fox, should figure out a way to include online viewership into their rating system. People don’t want to be forced to watch shows when they are on TV. They want to watch shows when they are able to.