Innovation Policy and the Hidden Developmental State in the USA

Fred BlockFord Foundation Conference on Financial Institutions for Innovation

and Development Beijing, October 17-18, 2013

What the U.S. tells other nations to do.

OR

What the U.S. practices at home—a decentralized and aggressive set of industrial policies.

Which U.S. Model ?

“The development of MP3 technologies illustrates the unexpected benefits of basic research. In 1965, a hand-sized storage and playback device that would hold 15,000 recorded songs was the stuff of science fiction. Even simple hand-held calculators were rare and expensive at that time. Research funded by the Department of Defense, the National Science Foundation, the National Institutes of Health, the Department of Energy, and the National Institute of Standards and Technology contributed to the breakthrough technologies of magnetic storage drives, lithium-ion batteries, and the liquid crystal display which came together in the development of the MP3 device. The device itself is innovative, but it built upon a broad platform of component technologies, each derived from fundamental studies in physical science, mathematics, and engineering.”

Apple’s iPod: From the Bush White House Web Page

Mobilize university and federal laboratory based researchers to focus on critical technology challenges.

Encourage and support new small firms that will compete directly with established firms.

Highly decentralized; multiple initiatives to overcome key technological barriers co-exist often with little coordination.

The Key Features of this Model

Department of Energy laboratories Lawrence Berkeley National Renewable Energy Laboratory Sandia Oak Ridge

National Institutes of Health laboratories National Nanotechnology Infrastructure Network 14 User Facilities at research universities National Institute of Standards and Technology(previously National Bureau of Standards)

Key role of federal laboratories

Collaborations between public and private scientists and engineers

Big and small corporations sometimes pay the laboratories to help overcome technological barriers

Government scientists and engineers are encouraged to spin off new firms

Many of these new firms get support from SBIR—Small Business Innovation Research

What happens at these laboratories?

SBIR: Set-aside program for small business concerns to engage in federal R&D --with potential for commercialization.

STTR: Set-aside program to facilitatecooperative R&D between small business concerns and U.S. research institutions -- with potential for commercialization.

Program Descriptions

PHASE I Feasibility study $100K and 6 months (SBIR) or 12 months (STTR)

SBIR/STTR: 3-Phase Program

• PHASE II Full R/R&D 2-Year Award and $750K

(SBIR) or $500K (STTR)

• PHASE III Commercialization Stage Use of non-SBIR Funds

SBIR Grants and Shift of Ph.D Scientists

"The Oscars of Invention"- The Chicago Tribune

For 45 years, the prestigious R&D 100 Awards have been helping companies provide the important initial push a new product needs to compete successfully in the marketplace. The winning of an R&D 100 Award provides a mark of excellence known to industry, government, and academia as proof that the product is one of the most innovative ideas of the year.

R&D 100 Awards

Past winners of R&D 100 Awards include “Polacolor film (1963), the flashcube

(1965), the automated teller machine (1973), the halogen lamp (1974), the fax machine (1975), the liquid crystal display (1980), the printer (1986), the Kodak Photo CD (1991), the Nicoderm antismoking patch (1992), Taxol anticancer drug (1993), lab on a chip (1996), and HDTV (1998).

Past Winners

Antibody Profiling Indentification-AbP IDIdaho National Laboratory, Idaho Falls, IDIdentity Sciences, Alpharetta, GA

Rynaxypyr InsecticideDuPont Crop Protection, Newark, DE

FormulatorFormulatrix, Inc., Waltham, MA

Berkeley Lab PhyloChipLawrence Berkeley National Laboratory, Berkeley, CA

2008 Winners Include:

"The Oscars of Invention"- The Chicago Tribune

For 45 years, the prestigious R&D 100 Awards have been helping companies provide the important initial push a new product needs to compete successfully in the marketplace. The winning of an R&D 100 Award provides a mark of excellence known to industry, government, and academia as proof that the product is one of the most innovative ideas of the year.

Awards to Inter-organizational collaborations

Awards to Fortune 500 Companies

Awards to Public and Mixed Entities

WTO Agreement outlaws export subsidies but initial language permits governments to fund 50% of pre-competitive R&D.

That language expired in 1999, but with the exception of the ongoing litigation pitting Boeing against Airbus, there have been few cases in which nations have taken action against pre-competitive R&D.

Entities receiving 50% of their pre-competitive funding could be worker owned or nonprofit firms as long as they are able to raise some nongovernment financing.

Global rules have been shaped to support the U.S. Model

Awards to SBIR Firms

Winners with federal funding

Occur in decentralized production systems when:1. Firms cannot find the partners they need.2. The potential partners lack the needed competence.3. The potential partners lack integrity and honesty.Public programs can help participants with all of these

issues. Source: Josh Whitford and Andrew Schrank.

Why these programs work: Overcoming Network Failures

Chile’s Example in Agro-industry

Public sector does initial research to test feasibility of salmon farming, expanding viticulture, and specialty fruit for export markets.

Public agencies recruit entrepreneurs, organize them into associations, and create channels for finance.

Consequence has been considerable growth of exports in these industries.