INDUSTRIAL POLICIES, THE CREATION OF A LEARNING SOCIETY, AND ECONOMIC

DEVELOPMENT

A Discussion by Josh Lerner

Harvard University and NBER

Fundamental conflict:• Low social cost of

using knowledge.• High cost of

producing it. Implications for firms

seeking to appropriate returns and for social welfare are substantial.

5000+ citations on Google Scholar!

BACK TO 1962

IMPLICATIONS FOR INDUSTRIAL POLICY

Policymakers must not just focus on “picking winners.”

Addressing externalities is a major challenge:• This means, of course, limiting negative

externalities.• But also encouraging positive ones:

• Knowledge spillovers are a key component!• These may be hard technologies or else

methods of doing business.

IMPLICATIONS (2)

A stable environment to encourage cumulative learning.

Public R&D funding. Investment in human capital

accumulation, along with public support. Co-location. Development of financial intermediaries.

TAKING STOCK

Undoubtedly key points. Focus on learning is much neglected. But many complexities along way…

• As the authors acknowledge!

MANY ITEMS FOR THOUGHT

The development and nurturing of human capital. The role of intellectual property. The political economy of encouraging spillovers. Etc. Will just focus on one area… firm scale and scope…

• “In large organizations… the required degree of stability and continuity is much more likely to be present… Long-lived firms can value these distant benefits>”

R&D BY TYPE AND NATION

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Source: OECD [2011]

TOP 2010 R&D FIRMS

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Rank Company Name Country R&D in 2010 (US$ B)

1 Roche Switzerland 9.62 Pfizer United States 9.43 Novartis Switzerland 9.04 Microsoft United States 8.75 Merck United States 8.16 Samsung South Korea 8.07 Toyota Japan 7.88 General Motors United States 7.09 Johnson & Johnson United States 6.9

10 Nokia Finland 6.611 Intel United States 6.612 Volkswagen Germany 6.213 IBM United States 6.014 Glaxosmithkline United Kingdom 6.015 Sanofi France 5.916 Cisco Systems United States 5.317 Siemens Germany 5.318 Panasonic Japan 5.119 Ford Motor United States 5.020 Honda Motor Japan 5.021 General Electric United States 4.922 Eli Lilly United States 4.923 Daimler Germany 4.724 Sony Japan 4.625 Daimler Germany 4.6

A BIG COMPANY GAME—EVEN IN U.S.

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THE THEORETICAL RATIONALE

Creation of a portfolio of projects. Ability to adopt a long-term

perspective. Synergies between different activities.

• Can internalize these externalities.• Strong cooperation between researchers

encouraged with flat compensation schemes.

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BUT DARK SIDE…

Motorola has long history of product innovation.

In late 1980s, introduced reward scheme for researchers based on patent filings…• Financial rewards and

colored badges. Results were 50+ filings on

battery latches in late 1990s alone…• While missed smart phone

transition. Indicative of more general

questions.

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REACTION: THE DECLINE OF CENTRAL RESEARCH

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Source: Industrial Research Institute [various years]

AND COMPENSATION SCHEMES FOR R&D HEADS

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Source: Lerner and Wulf [2007]

AND BORNE OUT IN INDUSTRIAL POLICY

French effort to consolidate computer industry under Honeywell Bull, 1981-1997:• Largely motivated by desire to achieve knowledge

spillovers, economies of scale through central R&D and production.

• Instead created stultifying bureaucracy:• R&D languished in labs.• Young firms with cutting-edge technologies were consolidated

into large firm and work abandoned.

• In addition to usual problems of inability to cut jobs and product lines.• Contrast with Taiwanese approach of encouraging

entrepreneurial computer firms, many of which failed.

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FINAL THOUGHTS

Undoubtedly important issue.Policy makes must care about

these issues.But implementation of these

policies pose numerous tricky issues.