Innovation and Globalization: A Misunderstood Relation?

In a recent article called “How to Build an American Job,” former Intel chairman Andy Grove suggests that there is no neat division between “high-value” design and conceptual work and the “scaling” necessary to bring products to market. He calls on the US to “rebuild our industrial commons,” lest we get locked out of the innovation markets of the future:

You could say, as many do, that shipping jobs overseas is no big deal because the high-value work—and much of the profits—remain in the U.S. . . . [B]ut [a] new industry needs an effective ecosystem in which technology knowhow accumulates, experience builds on experience, and close relationships develop between supplier and customer. The U.S. lost its lead in batteries 30 years ago when it stopped making consumer electronics devices. Whoever made batteries then gained the exposure and relationships needed to learn to supply batteries for the more demanding laptop PC market, and after that, for the even more demanding automobile market. U.S. companies did not participate in the first phase and consequently were not in the running for all that followed. I doubt they will ever catch up.

It has taken years and many false starts, but finally we are about to witness mass-produced electric cars and trucks. They all rely on lithium-ion batteries. What microprocessors are to computing, batteries are to electric vehicles. Unlike with microprocessors, the U.S. share of lithium-ion battery production is tiny.

I hope that Grove takes a look at the series of works by co-bloggers/friends Michael J. Madison, Brett M. Frischmann and Katherine J. Strandburg on commons and innovation, because I think they do a great job exploring the real bases of innovation. I’d also recommend Brad Delong and Stephen Cohen’s work The End of Influence, which does a terrific job illuminating role of law & policy in shaping the US economy. On the basis of a number of questionable policies over the past 15 years, they note,

the United States has half-consciously re-shaped its economy. The country shifted some 7 percent of its GDP out of manufacturing and added some 7 percent of GDP in the expansion of finance, insurance, and real estate transactions. . . . The communities of engineering practice and innovative technological development do move and emerge elsewhere as you shift labor from real engineering, which calculates stresses in materials and quantum tunneling in doped semiconductors, into financial engineering, which calculated delta-hedge decay and vega convexity for synthetic securities. It also means that you must create more and more debt so that other nations have the dollars to accumulate and not balance their trade–and yours.

Slowly, fitfully, the taboo against industrial policy is being broken. We who study law-saturated sectors like IP and health care have seen in some detail the inevitability of government involvement in innovation; the question is only whether such involvement is productive or nonproductive. Given that “fully half of economic growth–1.5% per year–comes from technological and organizational progress,” we have to hope that the government does a better job stimulating it this decade than it did in the last.