Innovation, Science and Money II

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.

Mustar et al 2008

Innovation, Science and Money

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.