innovation

The province of Ontario is increasing funding for 6,000 graduate students in high demand areas such as engineering, health, and environmental sciences. Dalton McGuinty’s Liberal government is set to increase funding for 60,000 total students by 2015-2016.

I think this is a step in the right direction for Ontario and Canada to address the innovation and productivity gaps that plague the economy. AnnaLee Saxenian, author of Regional Advantage, examined the innovation clusters of Silicon Valley and Route 128 in Massachusetts. Historically, both are areas with strong technical universities that were generously funded during the Cold War, but what emerged in California was a culture of innovation.

“In the 1970’s both the Route 128 complex of Boston and the Silicon Valley were centers of high technology industry, but by the 1980’s the Route 128 area was stagnating while the Silicon Valley, after experiencing economics shocks, was moving ahead to become the unchallenged global leader in high technology. The difference in the two areas was not in resources or location but in their commercial culture. Route 128 firms tended to be insular and proprietary, whereas the Silicon Valley firms were open and linked by social and economic networks which enabled them to adjust to the vissitudes of market shifts.”

In today’s Toronto Star, an article on a Toronto Board of Trade report cited a need for increased regional coöperation among the economic development entities in the Greater Toronto Area. The report cites the regional transportation planning of Metrolinx as an exemplar of regional planning. I think there’s a tremendous opportunity for the development of Toronto as an innovation cluster, but I think the big challenge won’t be in terms of funding, but in terms of creating an innovative localized culture that permeates the regional institutions, including government, higher education, hospitals {in medicine and healthcare}, and business. So, I can see the Ontario Liberals touting plans to integrate their higher education policy with one for regional innovation incubation. The MPP for Toronto Centre, Glen Murray, is the Minister for Research and Innovation, which runs the Ontario Network of Excellence (ONE). One on the ONE members is MaRS, an organization designed to bridge science, government, and business, which the Ontario Liberals have committed funding to::

“To continue to foster that environment, Murray announced a $2.25 million commitment over the next three years for MaRS so that it may continue its mandate to foster innovation in Toronto by harnessing expertise from across academic and business sectors to aid in launching and developing companies. MaRS will become one of 14 centres in the province-wide ‘Network of Excellence’ being built to foster innovation.”

Toronto is a confluence of different types of capital and global flows, with high levels of educational attainment, being a landing area for immigration, serving as a financial centre, and being a hub for the culture industries. What I’ve been reading is that much of Canada’s innovation occurs in extraverted industry clusters, which would tend to dilute regional advantages that take advantage of localized networks. The exception being the entertainment and culture industries. What I don’t know is what the business culture is like in innovative sectors in Ontario–is it more like California {informal, open, networked, greater mobility} or Massachusetts {formal, closed, hierarchical, and path dependent} in the 70s and 80s? The stakes are high, given the state of the economy and hopes pinned on innovation for future growth in GDP and jobs, which Murray is keenly aware of::

I was doing a post over on r h i z o m i c o n on innovation policy in Canada and also had a conversation with a future ThickCulture blogger on the future of biomedical innovation in the United States, which was the genesis of this post. I’ve been thinking about innovation policy, particularly in light of the Big Recession and the rise of global economies in places like China, India, and Brazil. Specifically, I’ve been thinking about the implications for biomedical innovation in the US, given how the pharmaceutical industry is likely to get squeezed on: {1} the demand-side {through universal healthcare being a monopsonist buyer} and {2} how public expenditures on basic science and technology are threatened, in that are deemed by some as unsustainable in the near term {due to the deficit} and the long term {due to concerns about efficiencies}.

Innovation in General

US policy has a somewhat favourable tax treatment for innovation, along with a high public expenditure contributing to business and enterprise research and development {BERD}::

While it’s fully understood the BERD is not the same as innovation, it nevertheless serves as a useful proxy measure. The sizes of the bubbles represent a measure for the productivity of BERD, with respect to value-added. The implication here is that the US government is spending a great deal on BERD and offering some tax incentives, while the outcomes aren’t that extraordinary.

As an aside, Canada’s government isn’t spending much, but offers a fairly generous tax treatment. Nevertheless, the R&D {and BERD levels} are disappointing and while some studies show some of this is due to industry effects [pdf], there are nevertheless structural issues that need to be addressed by policy, not the market alone.

Biomedical Research in the US

The US federal government is a big spender on health research, but these funds also go towards training and infrastructure. Historically, the funds for one of the big expenditures, the National institute for Health {NIH}, have been highly volatile::

and while the Obama administration wanted to boost funding, in order to avert a government shutdown, the great budget compromise of 2011 saw the NIH budget cut by $260M. The CDC was also cut to the tune of $730M from FY2010.

While the pharmaceutical industry invests more in R&D than the government, this represents a division of labour—the government spends on basic research, while the industry focuses on commercialization and expensive sets of clinical trials. The problem is that the governmental basic science subsidy is unlikely to be sustainable, particularly if the returns aren’t there. What I mean by returns are both in terms of value-added and health-beneffitting therapies. Under scrutiny, the lack of accountability of NIH funds and the grant practices are unlikely to show either. So, first off, reform of the NIH is in order. The current situation is leading to increased cynicism by stakeholders::

“Today, the primacy of biomedical research and technology development is being challenged. Patients, physicians, insurers, and policymakers are all questioning the slow pace of advance, escalating cost, dubious clinical value, inappropriate commercial exploitation, and lure of false hope for patients with serious diseases.”

On the pharmaceutical industry side, value-added is must likely to come from is…marketing, not biomedical science. The industry is dependent on this public subsidy, so the cutting of NIH funding isn’t in their best interests. In order to address the volatility of and cuts to NIH funding, some are advocating for more public-private partnerships and a greater reliance on non-profits and medical philanthropy. Given that the pharmaceutical industry is likely to get squeezed by universal healthcare and the possibility of less publicly-funded basic science, this sounds like a perfect solution to leverage scarce resources by both. While this sounds good, it’s a myth.

Public-Private Collaborations in the Current Biomedical Paradigm

A recent NEJM “sounding board” doesn’t show much promise for such collaborations::

“We reviewed the lessons from 70 such alliances from the mid-1960s through 2000. Although it is too soon to judge the success of the most recent models, in the main, earlier ones have not accelerated the pace of either discovery or clinical application. The sources of difficulty are idiosyncratic, but recurrent problems are a failure at inception to agree on intellectual-property provisions, excessive secrecy, and disagreements over research aims.”

This isn’t surprising at all from an organizational sociology point of view. It’s a problem of governance and intellectual property rights. The source of the failure? Good old organizational inertia, stemming from the characteristics of large, bureaucratic behemoths::

“In our view, the most salient reason for failure is the centralization of authority within large, inherently cautious bureaucracies in government, universities, foundations, and companies.”

While advances in areas such as biotechnology done by smaller innovative firms may seem like a possible avenue for collaborations and value-creation, there remains the thorny issue of financial capitalization. The pharmaceutical industry {Pharma} with its deep pockets has been buying up startup biotech firms, although it remains to be seen if there’s a pattern of imposing its innovation-killing bureaucratic baggage on them. The idea of the old paradigm {Pharma} seamlessly integrating the new {biotech} is a stretch, particularly for an industry that has had pricing carte blanche in the US, in a world of pharmaceutical price controls. Looming is the possibility of revenue declines, given that the government will be one huge buyer and will have the ability to dictate price. I’m not stating that public-private ventures are categorically bad, although I am wary of private enterprise tied to public purpose, and I can see a role for these arrangements within a rival model of innovation—one that’s open.

A More Open Innovation System

I would argue that early stage biomedical research has to be open and patents should be deferred to later in the discovery chain [See Moses III & Martin]. Locking down intellectual property rights creates knowledge silos that inhibit scientific creativity and a federal court has resisted allowing the patenting of genes for this reason [See Myriad case, on appeal with a decision pending this summer]. In the “discovery” of DNA, Watson and Crick had the theory, but Rosalind Franklin had the x-ray crystallography data that supported the idea of a double helix shape. If these knowledge silos were kept apart, discovery would have needlessly waited. Other examples abound. Within 3M, an innovation officer position was created to prevent managers from “hoarding” discoveries, allowing ideas to cross divisions, giving credit where credit was due. Open innovation embraces the Schumpeterian economics idea of “creative destruction” in innovation, where the old paradigms are destroyed to make way for the new. For example, if there was open scientific knowledge about oncology or neurology, the low barriers to information would allow for more rapid modes of discovery. The development of fruitful areas and elimination of dead ends could be facilitated.

The current mode has an unholy alignment of interests of government, industry, philanthropic nonprofits, and academe, where discovery has nothing to do with patient benefit, but with ancillary objectives of organizations and the individuals within them. More public-private ventures would merely formalize the alliances and the results will be along the lines of “innovations” that have the most profitable potential markets, “junk science” in journal articles promoting certain biomedical paradigms and building careers, and a philanthropic sector throwing money at both.

What also needs to happen with open information for innovation is a function of connecting the dots, be it public, private, or public-private. The open information needs to be scrutinized, not only to winnow the wheat from the chaff, but to make inferences about how knowledge in one area can be applied to another.

Good jobs, that is.  Not to be a cassandra, but I have concerns about the structure of the economy.  History has shown that the high standard of living in late-Renaissance Venice wasn’t sustainable [*].  While the relatively expensive goods of Venice were often of high quality, cheaper, mass-market goods produced in Britain, France, and the Netherlands were gaining in popularity.  Will the US suffer from the same fate?  In other words, are the high wages and standard of living in the US sustainable, economically?  Robert Reich has a gloomy outlook on his blog::

“But here’s the real worry. The basic assumption that jobs will eventually return when the economy recovers is probably wrong. Some jobs will come back, of course. But the reality that no one wants to talk about is a structural change in the economy that’s been going on for years but which the Great Recession has dramatically accelerated.

Under the pressure of this awful recession, many companies have found ways to cut their payrolls for good. They’ve discovered that new software and computer technologies have made workers in Asia and Latin America just about as productive as Americans, and that the Internet allows far more work to be efficiently outsourced abroad.

This means many Americans won’t be rehired unless they’re willing to settle for much lower wages and benefits. Today’s official unemployment numbers hide the extent to which Americans are already on this path. Among those with jobs, a large and growing number have had to accept lower pay as a condition for keeping them. Or they’ve lost higher-paying jobs and are now in a new ones that pays less.”

I think he might be on to something and I tend to be an optimist.  If this were 1992, I’d say we’re going to grow out of the recession the US was in back then.  Innovation, efficiency, and productivity increases would be part of the upswing in the ever-present business cycles.  But, are we in a different economic situation?  Have we maxed-out efficiency?  What about innovation?  Will we still be competitive in that arena?

I have two main concerns.  One is of industrial organization and the other is of income inequality, which I believe are inter-related.

1. Industrial organization.  In the US, smaller businesses are expected to create the most new jobs, but the deck is stacked against them, which is also a political and policy issue.  There’s a pressure towards increased scale and size.  Larger enterprises may be more efficient, but often are less innovative, categorically, due to constraints on “dynamic capabilities” {ability to innovate, learn, or continuously reposition itself more effectively than its rivals} and disincentives in the form of disruptions to current income streams {e.g., pharmaceuticals selling several profitable on-patent drugs in a category of drugs having little incentive to develop and market a “cure” for a particular disease in a new category of drugs.  Hence “incremental” innovations of slight modifications and new patents based on them.}
2. Income distribution.  I feel that over time, the pressure towards increased the scale of organizations will put downwards pressure on wages and the standard of living for most employees.  Why?  If industries are dominated by a few players there will be a tendency towards oligopsony {few “buyers” and many “sellers”} in labour markets.  Employees will have less bargaining power because the few employers will tend to tacitly collude.  If global competition inhibits growth, there will be further pressure to cut wages and/or outsource.

The feather in the US’s cap is human capital talents and a large skilled labour pool, but these matter the most in innovative and high value-added firms.  If the US starts to lose its innovative edge, there will be less demand for skilled workers and managers.  More income inequality.  While hardly definitive, the gini coefficient measures this::

In the US, the gini is on the rise, indicating a growing gap between the wealthy and poor.  What would be really telling is to examine what’s happening to the middle class over time, i.e., the shape of the Lorenz curve}.  I think for the vast majority of Americans, there may be more diminished expectations in store.  The top 2% have no worries.

So, I agree with much of what Reich has to say.  The goal isn’t just jobs, but good paying ones.  In my opinion, part of this in the private sector {as opposed to public sector efforts, such as stimulus spending} is more basic R&D that fuels innovation and more entrepreneurship, which will require policies to support it.

Twitterversion:: #RobertReich blogs on jobs in US. Given his take, are big firms&lack of innovation a big part of problem? #ThickCulture http://url.ie/3f80 @Prof_K

Song:: The Bleeding Heart Show-The New Pornographers

On the UC Berkeley campus, the Center for Open Innovation is doing work in this interesting new area::

“Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. [This paradigm] assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology.”

Henry Chesbrough, Open Innovation: Researching a New Paradigm

In a recent talk, part of the discussion was on innovation and how it related to higher education.  There was talk of “silos” of knowledge.  So, when students are taking courses, they specialize in tracks, in terms of a functional area like finance or a specific type of engineering.  The problem with this is that this may not be the best preparation for students to work in the area of innovation and I would extend this much more broadly.  In other words, universities should be preparing students to think and problem solve  innovatively.  My experience is that there is lip service paid to this, but what becomes the focus is instilling a corpus of knowledge.

Last spring, Mark C. Taylor created a firestorm of controversy by calling the university on the carpet as an antiquated institution…and graduate education as the “Detroit of higher learning”.  Oh, you didn’t hear about this? That’s because the controversy was mainly in the halls of acadème with the rest of the world marching on without missing a beat.  Nevertheless, Taylor brought up some excellent points, six key ones to be specific.  Two that struck me were revising the curriculum and abolishing departments.  His example on a focus on problems used “water”::

“Consider, for example, a Water program. In the coming decades, water will become a more pressing problem than oil, and the quantity, quality and distribution of water will pose significant scientific, technological and ecological difficulties as well as serious political and economic challenges. These vexing practical problems cannot be adequately addressed without also considering important philosophical, religious and ethical issues. After all, beliefs shape practices as much as practices shape beliefs.

A Water program would bring together people in the humanities, arts, social and natural sciences with representatives from professional schools like medicine, law, business, engineering, social work, theology and architecture. Through the intersection of multiple perspectives and approaches, new theoretical insights will develop and unexpected practical solutions will emerge.”

Many in the academy went ballistic, but often citing “pragmatics” that, to me, were often thinly veiled rationale for preserving extant institutional structures, power bases, and resource allocations.  In a Kuhnian philosophy of science sense, there was a lot of clinging to the existing paradigms and the marginalization of any “crisis.”  There is a crisis.  It is one of relevance.

Open innovation is a new paradigm that’s focused on problems.  If I looked back on labels that have been used to describe my work, it includes marketing, branding, Internet marketing, economic sociology, and social media.  A common theme is “technology & media,” which in my mind defines a particular paradigm examining the intersection of both, which encompasses the humanities, the social sciences, the professional disciplines, and the applied technological.  If I had my druthers, courses would be less about checkboxes and more about developing and synthesizing knowledge structures.  Maybe life sciences with a lab could be substituted with a rigorous survey of the issues, challenges, and opportunities of bionanomedicine.

While paradigms and departments are both social constructions, they can be forced into an artificial structure or allowed to evolve organically…or even die.  I once sat in on a session where local employers close to a university I was working at stated what they wanted in an ideal undergraduate candidate.  There was a lot of passive reaction to what often boiled down to a desire for vocational education for job candidates.  Can students use the advanced features of Outlook or do a mail merge?  Please.  Universities need to redesign what they’re offering after reconceptualizing what they really are trying to do, knowledgewise, starting with the curriculum.  Over a decade ago, I was reading about differential perspectives on knowledge.  Some organizations treat employees {as repositories of knowledge} like stones in a wall to be built.  Others treat them like uniform bricks.  Universities play a role in this shaping.  Over the years, I grew weary of the pressures to create bricks and questioned the true utility of this.

I also think it’s time for universities to move away from churning out undergraduates, graduate, and professional students and become true fixtures of communities with a mission of serving lifelong learning–in the era of the free.

Twitterversion:: Innovation & innovative thinking in higher ed. Will knowledge “silos” persist & how will ivory tower adapt? http://url.ie/2i59 #ThickCulture @Prof_K

Song:: LITTLE BOXES – The Submarines

Notes from north of 49ºN.

I now live in a relatively small country, ranked 36th. in population, at 33.7M {versus 306.7M in the US}, but in the top 10 in terms of economies with a GDP of $1.3T {#9 ranking}, versus 13.8T for the US {#1 ranking}.  I mention this, as I wonder about scale and innovation, i.e., can smaller countries effectively compete in technology in a global environment?  One of my interests in innovation is biotechnology, a “new economy” area focusing on better outcomes for “health, the environment, and for industrial, agricultural and energy production.”  Advances in genetics are creating a race for companies and countries, with the idea of dominating the biotech field in order to enjoying profits and prosperity.

Last summer, I saw on a Canadian network a segment on how Canadian government investments in biotech were getting bought up by US firms, implying that the relatively small Canadian government was, in part, subsidizing innovations flowing south of the border.  The Matthew effect kicks in, as rich get richer and the poor get poorer, given that Canadian firms were being snapped up by US firms with deep pockets, transferring value southward.  According to a Globe & Mail article {click on license option}, another issue is that Canadian venture capital is lacking, so Canadian biotech firms often are capitalized by US venture capital firms that like to keep close tabs on operations and encourage offices/operations in the US.

Well, is Canada even a player in this biotech area?

According to 2006 OECD data, Canada is a player in terms of the number of firms {532}, the number of patents {ranked #6 in 2004}, and revenues {$83M}, along with an 11% compound annual growth rate {CAGR} of revenues from 1999-2005.

Given how collaboration and capital are now global, does it even matter where innovations are incubated?  A study by Bagchi-Sen & Scully {2004} is illuminating.  They divide biotech forms into two categories:: high R&D intensity and low R&D intensity.  Each has a different take with respect to strategies within the context of globalization::

• High R&D Intensity:: Ties to local universities/Canadian researchers & collaboration with pharmaceutical companies, but desire global capital inflows.  Prototypical firm is in health theraputics.
• Low R&D Intensity:: Emphasis on local production and development of Canadian market.  Focus on strategic alliances with foreign firms.  Prototypical firm is in diagnostics or agricultural biotech.

In terms of innovation policy, this brings up interesting food for thought for Canadian politicians in light of this recession.  Thanks to Barack Obama, Canada’s large neighbour to the south is pumping $21.5B of stimulus towards science and technology, which begs the question, how will this affect Canada?

It makes sense that Canadian policy would encourage the projects of low-intensity R&D firms with ties to the US, as these firms:: may be able to capitalize on relationships with stimulus-receiving firms, will develop innovations for the Canadian market, and will be focused on local Canadian production and manufacturing.  The high-intensity R&D firms could use funding {hint:: even more than $1B+CAN stimulus} that focuses on spurring innovations and the building of a sustainable base of Canadian talent and resources.  Dalton McGuinty’s {Liberal Premiere} efforts in Ontario might be a step in the right direction, but I’m not seeing clearly how this all fits together with an economic recovery plan.  Biotech. is not without risks, particularly with respect to agricultural biotech, which consumers are uncertain of.  Activists have alerted consumers with terms like “Frankenfood” for genetically-modified organisms {GMOs} and Monsanto’s lawsuits against journalists and farmers don’t help the cause.  So, maybe ag. biotech is a lose, but developing Canadian competitive advantage in innovations, in terms of other forms of biotech, nanotechnologies, clean energy, and green collar jobs, may provide fertile terrain for politicians and policymakers.

Well, enough of this talk of the “new economy” of biotech and innovations, what about the old economy, still prevalent in many parts of Canada?  Globalization has drawn Stephen Harper’s {Prime Minister} Conservative government into bailout fever to the tune of $9.5B, in order to secure that 16% of GM’s production remains in Canada.  This includes $3.1B that the Province of Ontario ponied up by Dalton McGuinty’s government.  Unfortunately, this might only save 4,400 jobs, after projected layoffs, according to CBC::

Given how the Tories and the Grits have played their cards in this {along with playing a current game of Federal “chicken”}, I see an opportunity for the NDP to make inroads with their platform based on developing new technologies and saving jobs.  Alas, more on “GMfail” and job losses in Canada in a future post.

So, it looks like nation matters, but in a global milieu.  Nothing surprising.  If you were to advise Canadian politicians, should new technologies {e.g., biotech, green, energy} be developed more aggressively {or at least explored} and does it make sense to commit billions to save jobs with an untested GM restructuring?

Twitterversion:: #newblogpost How should Canada compete {bio}tech, given globalzatn, US domnce, & recession? #GMfail bailout, good idea? http://bit.ly/18bBq8 @Prof_K

Song:: Genetic Engineering – Orchestral Manoeuvres In The Dark

Video::

Stuff I’d read right now if I wasn’t about to watch Baby Mama….

From Bookforum: The first chapter from Market Rebels: How Activists Make or Break Radical Innovations by Hayagreeva Rao.

Edge.org’s annual question for 2009 – What will change everything?

IT Conversations interview with Jeff Jonas – IBM Entity Analytics.

From National Journal by way of Bookforum – Hacking the Hill: How the Chinese — or someone — hacked into House of Representatives computers in 2006.

From BusinessWeek via Planetizen – Bringing Broadband to the Urban Poor.

Also, if your NetFlix queue is not piling up, check our the Contexts podcast where Jon Smajda and I talk about blogging in academia.