The Talk can be Accessed HERE.
The most interesting part of the
Mazzucato talk was the nugget that the drug companies were returning more of
their capital to shareholders in terms of buybacks than they were using for
research and development (4:41). I write this as I was thinking before seeing
the talk that governments and large monopolistic corporations are the seat of
innovation because they have something that short-term focused public companies
do not have: time. There is a long history in the United States if innovation,
from the railroads to Menlo Park to mass electrification to harnessing atomic
energy to the microchip. Most of those were done through the government or with
government facilitations. The transistor was developed at Bell Labs when
AT&T was a behemoth of its own before the break-up and it was able to play
the long game because its monopoly was protected as some sort of natural
monopoly.
I was under the understanding that the
drug companies were acted somewhat like AT&T. The argument is often made in
public that one of the reasons that prices are so high for pharmaceuticals is
because the cost of R&D is so high. Consumers pay so much because they have
to find the molecules and then usher them through the FDA testing process. The
costly drugs are not monopoly rents, the argument goes, but they are instead
compensation for all the drugs that the companies tested but have failed. I had
known that a lot of the fundamental research has long been funded by the
federal government through grants to scientists, but that little nugget
surprised me more than it should have. It is as if by not reinvesting the
excess profits generated by longer patents, the drug companies violate the
public trust.
Like Mazzucato, I hope that the
next revolution will be green (11:46), but in terms of green technology, I can
only think incrementally. Solar panels are going down in price, to the point
where electricity generated through the sun is reaching price parity with
electricity generated though the burning of hydrocarbons. The first world will
need to lead though, because solar power, as well as other green electricity
generating devices, have their weaknesses. The biggest for solar power is that
battery technology is the limiting factor. Research into capacitor or battery technology could help run
the world of tomorrow.
The big issue is that a big part of the
politicians in the world’s biggest economy believes some version of the idea
that there is no climate change; there is climate change but it is part of a natural
cycle; climate change is nothing that we can do anything about, even if it
exists or was caused by human activity. The political resistance at this point
where the United States needs to lead makes me think that if the next big
innovation is a green innovation, it will be in spite of and not because of the
US Public sector. There is a good chance that it will happen, as even some of
the larger developing countries recognize the climate as an issue. If it does
happen in spite of US political intransigence, it will ironically be that that US will be locked out and miss
out on the gains and it will be the fault of the party that pays much lip
service to the idea of American exceptionalism.
I
hope that some green technology will be the next big thing, because as a
planetary society, there is nothing that is needed more and has the potential
to save the most lives than refiguring the global energy system. Either that or
it will be something for people in the developed world to forget themselves for
a minute, such as an immersive virtual reality with strong artificial
intelligence.
Broadly, entrepreneurship and
innovation are positive for the economy’s continued growth. For example, even
if many of the technologies existed for outside of Apple for the iPod, which
led to Apple’s resurgence, and the fact that other companies had already,
released portable digital music players, Steve Jobs came along and resurrected
his mythos. He was able to put the elements together that existed already to
make a product that was accessible to the masses.
In the same way a century earlier,
Thomas Edison was able to grow his name and his company by finding novel ways
to take advantage of the scientific discoveries of the age. James Clerk Maxwell
was able to codify the equations that showed the relationship between
electricity and magnetism: it took Edison to make the phonograph. Edison was
able to formalize his innovation in his Menlo Park lab as the forerunner to GE,
a founding company on the Dow Jones Industrial Index (Krugman & Wells,
2013, p. 255). People like to romanticize Tesla, as the lone inventor with
suppressed genius ideas, but Edison got the lights shining in street.
This innovation is not without its
risks. Before Edison got the lights shining in the street, there was an
occupation called a “Lamplighter”. This man had the responsibility of going
through the streets at dusk on the main thoroughfares and he lit the lamps in
the streets. They were first oil lamps and then later the infrastructure in
places turned to pressurized gas. When Edison perfected the electric
incandescent light bulb, that man’s job was immediately threatened. There is
hope that he would be able to be retrained to a different position at the
department of public works. However, the efficiency gained by having bright,
consistent light was greater than the loss of the poor lamplighter’s job. Let
us hope that he did not find a new position driving a horse-drawn cart.
Two things that the government can
do to help promote grow are to set rules and to spend money.
Less glibly, one of the things a
successful country has is property rights. This is not just being able to set
up fences at the border of your property and know that the government and other
private parties will acknowledge them. Some of the most useful property for encouraging
growth is intellectual property. By providing a temporary monopoly on the
fruits mental labor, the state can provide incentive for individuals and firms
to create new things in the world, and to make gains form the mental work
(Krugman & Wells, 2013, p. 257). .
There is a fine line though, as some patents and trademarks can serve not to
facilitate innovation and thus impede growth. If the state makes the lengths of
patents too long, then those who want to use the technology can be locked out.
If the patent is too broad, then the potential exists for competing firms to
inadvertently violate the patent exists. In short, the setting of these rules
is very important to get right to provide innovators with the right amount of
carrot, but not too much that they are bogged down in nonproductive litigation.
` The second way to facilitate
innovation is by helping the growth of human capital. In the United States, a
majority of the funding for primary and secondary school comes from the local
municipality. The institutions of tertiary education are funded by the state
and federal government directly. Alternatively, even the private universities
receive funds through government grants for research or through financial aid
in the form of grants or loans. By helping the development of human capital,
the state can let those gaining the capital in the form of greater education
attainment go out in the world and be more productive.
References
Krugman,
P. & Wells, R. (2013). Macroeconomics. New York, NY : Worth Publishers
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