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WILLIAM BONVILLIAN: So
today, we really kind of talk

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00:00:24,230 --> 00:00:27,800
more about the system, the
kind of third direct innovation

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00:00:27,800 --> 00:00:31,790
factor, and then about
these indirect factors that

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00:00:31,790 --> 00:00:36,093
are important and significant,
but not as powerful, I'd argue,

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00:00:36,093 --> 00:00:37,010
as the direct factors.

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00:00:39,540 --> 00:00:45,150
But first, let me just
recap last week just really

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00:00:45,150 --> 00:00:47,858
in a few seconds,
and then give us

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00:00:47,858 --> 00:00:49,400
a glimpse of what
we're getting into.

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00:00:49,400 --> 00:00:57,830
So last week, Robert Solow,
the great growth economist,

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00:00:57,830 --> 00:01:02,810
developed-- really
created growth economics--

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00:01:02,810 --> 00:01:06,890
developed the theory that
the dominant causative

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00:01:06,890 --> 00:01:08,870
factor in economic
growth was, quote,

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00:01:08,870 --> 00:01:10,980
technological and
related innovation,

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00:01:10,980 --> 00:01:13,742
a phrase that you'll
hear all the time here.

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00:01:13,742 --> 00:01:17,660
And then we followed up
that discussion with talk

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00:01:17,660 --> 00:01:20,510
about Paul Romer and his
work on human capital

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00:01:20,510 --> 00:01:26,450
engaged in research as a kind
of second key direct innovation

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factor.

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00:01:27,740 --> 00:01:33,170
That's the talent base that has
to be behind the R&D system.

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00:01:33,170 --> 00:01:39,440
We read Dale Jorgenson who
told us that, yes, in fact,

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this innovation based
economic growth model

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is in fact correct.

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That's what happened
in the IT wave

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and he showed us, in
effect, how that occurred.

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00:01:52,490 --> 00:01:57,550
The model was you do an
invention or a core group

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00:01:57,550 --> 00:02:00,910
of inventions, they
begin to scale up,

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00:02:00,910 --> 00:02:04,960
applications pile on them,
they enter into the economy

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00:02:04,960 --> 00:02:07,720
and really begin to
scale up in the economy.

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00:02:07,720 --> 00:02:11,110
And eventually, over time,
become a true innovation wave.

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00:02:11,110 --> 00:02:13,720
And we'll talk more today, as
you know, about innovation wave

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00:02:13,720 --> 00:02:15,130
theory.

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00:02:15,130 --> 00:02:20,650
We also read a piece by
some Merrill Lynch analysts,

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00:02:20,650 --> 00:02:24,670
and the fundamental
point in that piece

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00:02:24,670 --> 00:02:27,370
was that industry is very
interested in innovation,

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00:02:27,370 --> 00:02:31,960
but they're only prepared to
fund the very short late stage

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00:02:31,960 --> 00:02:33,160
of it.

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00:02:33,160 --> 00:02:37,360
So somehow, even though
the evolution to innovation

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00:02:37,360 --> 00:02:42,310
is a very long-term process,
the financial sector

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00:02:42,310 --> 00:02:44,740
is only going to
dive in as close

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00:02:44,740 --> 00:02:46,970
as they can to certainty--
in other words,

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00:02:46,970 --> 00:02:48,910
at a very late stage.

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00:02:48,910 --> 00:02:53,480
So those were kind of
our four core readings.

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00:02:53,480 --> 00:02:56,590
And one other idea in
that Merrill Lynch piece

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was this notion that
innovation needs

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00:02:59,890 --> 00:03:02,590
to move through a series of
stages to kind of get there.

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00:03:02,590 --> 00:03:05,740
There needs to be
an early vision--

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00:03:05,740 --> 00:03:09,130
kind of a visionary who will
set out what could happen.

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And then enabling
technologies evolve

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that become technical
enablers for the evolution

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to an innovation wave.

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And then there's going to be
substantial talent on task.

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In other words, people have
got to be-- researchers

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have got to be working on this
in significant depth in order

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for this thing to evolve.

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So it's going to take a
community scale kind of effort.

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So the first class
left us with two

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direct or explicit
innovation factors.

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And we could in a--

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oversimplify them and
put them in shorthand,

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00:03:42,790 --> 00:03:44,410
but we could say
you've got to do R&D

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and you've got to have a talent
base staffing that R&D system.

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And we worked on a definition
of innovation as a system

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for introducing
technical advance,

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and we talked briefly about
innovation waves, which

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we'll spend more time on today.

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00:04:02,050 --> 00:04:08,590
So that's a quick recap
of last week's discussion.

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And Chris, you and
I can follow up

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00:04:12,670 --> 00:04:15,820
so you catch up on some of
the issues that came up there.

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00:04:15,820 --> 00:04:19,042
And I've posted the slides
to the STELLAR site which

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will help as well, but I'd be
happy to talk to you further

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00:04:21,459 --> 00:04:22,146
about it.

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00:04:25,270 --> 00:04:27,610
So let me just do
a quick snapshot

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to open up today's discussion.

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So that's Thomas Edison.

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That's his idea factory
and that's the group

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that does the light bulb.

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It's the light bulb
and you can see

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the idea factory-- this building
in that scheme at the top.

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00:04:54,730 --> 00:04:56,500
And then you can
see the farmhouse

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back behind which
is where Edison

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00:04:58,177 --> 00:05:00,760
lived with his wife except that
he never spent any time there.

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00:05:00,760 --> 00:05:04,810
He was in the idea
factory pretty much 24/7.

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00:05:04,810 --> 00:05:06,820
I just want to give
you a feel for what

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00:05:06,820 --> 00:05:09,250
innovation is like when
it starts to take off.

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And this is a good--

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Edison is a classic example.

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So he-- very limited education.

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He was homeschooled
by his mother.

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He's probably pretty dyslexic.

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00:05:22,870 --> 00:05:27,250
We don't quite know that,
but it's probably the case.

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As a kid, he understands
the early evolution

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of the telegraph and he develops
kind of a newspaper sales

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scheme during the
Civil War where

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he gets the newspapers
ahead of time in Cleveland,

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gets them out to the trains
coming into Cleveland,

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and then sells
them on the trains.

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00:05:48,850 --> 00:05:50,912
And he's kind of kept--

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in other words, he kind
of beats the news cycle

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00:05:52,870 --> 00:05:56,470
and then unloads newspapers on
these early commuting efforts

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as people are coming
into the city.

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He gets his big
break by scooping up

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00:06:03,400 --> 00:06:06,250
the child of the
telegraph operator.

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00:06:06,250 --> 00:06:08,890
So trains had to operate
by telegraph systems--

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they were a crucial technology
to enable trains to work.

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00:06:12,190 --> 00:06:17,700
And the telegraph operator for a
train system is very important,

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00:06:17,700 --> 00:06:20,790
but also obviously serves a
larger community communications

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purpose.

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So the kid of the
telegraph operator

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is down on the tracks--

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00:06:25,860 --> 00:06:28,080
train is coming down the tracks.

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00:06:28,080 --> 00:06:31,190
Edison, as a boy,
sees what's happening,

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00:06:31,190 --> 00:06:35,155
rushes, scoops the child up,
barely escapes the train.

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00:06:35,155 --> 00:06:36,780
Needless to say, the
telegraph operator

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is appreciative, so he
trains Edison in Morse code

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00:06:41,610 --> 00:06:44,130
and how telegraph
operations work.

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So he becomes an expert on
telegraph, which is obviously

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00:06:46,980 --> 00:06:50,130
early electrical technology.

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And he becomes a master
at it, and then he

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00:06:53,190 --> 00:06:55,080
becomes very interested
in technology itself.

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So over time, he
goes to New York--

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he develops what
becomes, in effect,

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an early stock
ticker, which can--

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00:07:01,530 --> 00:07:03,060
what we would call multiplex.

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00:07:03,060 --> 00:07:06,330
In other words, you could
receive multiple telegraphing

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00:07:06,330 --> 00:07:10,050
signals and communications
over the same line, which

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obviously was a key enabler
for keeping track of stocks.

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So he becomes very close to
the scions of Wall Street,

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including JP Morgan.

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He gets to know them all
because he's like their enabler.

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And then he sees this thing
in Ansonia Connecticut.

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It's not-- it's a much
bigger version of this,

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but there's this
kind of gimmick--

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00:07:34,780 --> 00:07:41,190
these nine foot tall
polls with a spark,

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because they're
positive and negative

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a spark travels across--

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00:07:44,910 --> 00:07:46,743
looks really cool.

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00:07:46,743 --> 00:07:48,160
People are wondering
around-- they

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00:07:48,160 --> 00:07:49,910
don't know what to do
with it, but they're

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awestruck by this kind of
electric movement of lightning

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going across the two poles.

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Edison has the idea-- oh, light.

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So he takes the-- he makes
his money on Wall Street,

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he takes all his money out.

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He goes off into a farm
in Menlo Park, New Jersey

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out into this rural area.

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He hires this team which
consists of an interesting mix

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of artisans--

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like, there's an incredibly
important glass blower here,

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00:08:24,910 --> 00:08:27,490
which heralds back to the
MIT glass lab which I always

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buy stuff from.

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And there's also
scientists and engineers

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in here, but a lot
of people who just

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know how to do things
who are very good at sort

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00:08:37,270 --> 00:08:39,850
of mechanical tinkering.

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And it's an interesting
team, and he

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has to take this idea
of this weird arc

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00:08:45,190 --> 00:08:47,650
that he saw-- these nine
foot tall couple of poles

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that he saw in
Ansonia Connecticut

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and turn it into a light bulb.

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It's not an easy job
and it's very intense.

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There's only a certain
amount of money--

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the money is going to run out.

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He's gotta get this thing done
before he runs out of cash.

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00:09:03,550 --> 00:09:08,610
And they work
literally all the time.

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They're always on it but they're
having the time of their lives.

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So there's a wood
stove in here over in--

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00:09:16,110 --> 00:09:19,140
I'm not sure-- maybe
it's in another corner.

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But around midnight, they all
gather around the wood stove

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and they're--

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00:09:24,290 --> 00:09:26,860
rap music has not
been invented yet,

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00:09:26,860 --> 00:09:33,360
so they do doggerel verses which
they throw at one another--

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00:09:33,360 --> 00:09:36,450
insulting and funny and
this incredible doggerel

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00:09:36,450 --> 00:09:38,700
verse back and forth going on.

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00:09:38,700 --> 00:09:42,360
And they all have big cherry
pies and apple pies at midnight

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and gather around the stove.

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00:09:45,390 --> 00:09:47,670
It's a very intense effort.

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And actually, Edison
is away for so long

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00:09:50,880 --> 00:09:54,127
from the farmhouse which is
further back on the property

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00:09:54,127 --> 00:09:56,460
that at one point, when he
comes in at like 2:00 o'clock

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00:09:56,460 --> 00:09:58,440
in the morning, his wife
pulls a revolver on him

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00:09:58,440 --> 00:10:00,065
thinking he's an
intruder because she's

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00:10:00,065 --> 00:10:01,850
seen him so rarely.

190
00:10:01,850 --> 00:10:04,080
Fortunately, she doesn't shoot.

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00:10:04,080 --> 00:10:06,840
But there they are gathered
on the idea factory,

192
00:10:06,840 --> 00:10:12,330
and eventually they come
up with the core concepts.

193
00:10:12,330 --> 00:10:14,550
The vacuum tube
obviously is core here

194
00:10:14,550 --> 00:10:16,380
and the right
filament is core here.

195
00:10:16,380 --> 00:10:19,860
They come up with a working
model of the electric light.

196
00:10:19,860 --> 00:10:21,420
There's only one problem--

197
00:10:21,420 --> 00:10:23,910
there's no electrical system.

198
00:10:23,910 --> 00:10:25,717
There's no nothing.

199
00:10:25,717 --> 00:10:27,300
So they've got a
wonderful application

200
00:10:27,300 --> 00:10:29,220
for a nonexistent system.

201
00:10:29,220 --> 00:10:35,510
So the real innovation here
is not simply the invention,

202
00:10:35,510 --> 00:10:38,570
it's creating the whole system.

203
00:10:38,570 --> 00:10:40,850
So they have to envision--

204
00:10:40,850 --> 00:10:43,880
they have to think of what
an electric utility might be.

205
00:10:43,880 --> 00:10:46,970
They envision the
utility, they envision

206
00:10:46,970 --> 00:10:48,620
what a generator would be.

207
00:10:48,620 --> 00:10:50,690
They have to think through
all these early safety

208
00:10:50,690 --> 00:10:52,610
requirements.

209
00:10:52,610 --> 00:10:56,660
So it's an incredibly big
thing that they're launching.

210
00:10:56,660 --> 00:10:59,120
They're launching the
electrical system, not simply

211
00:10:59,120 --> 00:11:00,380
the light bulb.

212
00:11:00,380 --> 00:11:01,880
But the light bulb
is the enabler

213
00:11:01,880 --> 00:11:04,760
that's going to enable
them to sell the system.

214
00:11:04,760 --> 00:11:06,440
Eventually, they do
a big demonstration

215
00:11:06,440 --> 00:11:10,160
on a couple of city blocks in
New York-- everybody loves it.

216
00:11:10,160 --> 00:11:11,630
Gas lighting is
not what you call

217
00:11:11,630 --> 00:11:14,690
optimal since you have a good
chance of blowing yourself up.

218
00:11:14,690 --> 00:11:17,950
And the nation
eventually switches over,

219
00:11:17,950 --> 00:11:21,380
but I just wanted you to
see what that innovation

220
00:11:21,380 --> 00:11:23,313
moment looks like.

221
00:11:23,313 --> 00:11:24,980
And we'll talk about
great group theory,

222
00:11:24,980 --> 00:11:27,230
and this is certainly
a great group.

223
00:11:27,230 --> 00:11:32,313
But that's the moment
we're after in this class.

224
00:11:32,313 --> 00:11:33,980
That's the moment we
want to understand.

225
00:11:33,980 --> 00:11:38,420
We want to understand how
that innovation emerges

226
00:11:38,420 --> 00:11:42,410
from the group, but
importantly, how it scales--

227
00:11:42,410 --> 00:11:43,940
what happens to it.

228
00:11:43,940 --> 00:11:45,510
So that's kind of a little--

229
00:11:45,510 --> 00:11:47,310
that's story time
for today's class.

230
00:11:47,310 --> 00:11:51,080
Now we'll do serious work.

231
00:11:51,080 --> 00:11:53,100
I want to get some
other basic ideas down.

232
00:11:53,100 --> 00:11:55,430
So we talked about some
basic concepts last time.

233
00:11:55,430 --> 00:11:57,290
I want to put a few
more on the table.

234
00:11:59,900 --> 00:12:04,180
Steps in the technology
development process.

235
00:12:04,180 --> 00:12:07,060
So we talked a
little bit last week

236
00:12:07,060 --> 00:12:11,690
about three of those
steps, but let me put them

237
00:12:11,690 --> 00:12:13,030
into a larger context.

238
00:12:13,030 --> 00:12:15,370
So typically,
you're going to have

239
00:12:15,370 --> 00:12:18,760
to go through a
series of steps here

240
00:12:18,760 --> 00:12:22,930
to actually get to really
scaling a technology up.

241
00:12:22,930 --> 00:12:26,140
We talked last week
about having a vision.

242
00:12:26,140 --> 00:12:28,990
We talked last week
about supporting

243
00:12:28,990 --> 00:12:31,960
enabling technologies.

244
00:12:31,960 --> 00:12:34,930
Then you're going to do
your particular invention.

245
00:12:34,930 --> 00:12:37,720
Idea-- you're going to need to
do some research to perfect it.

246
00:12:37,720 --> 00:12:40,305
You're going to need to
develop a prototype of it.

247
00:12:40,305 --> 00:12:42,430
Then you're going to need
to go through engineering

248
00:12:42,430 --> 00:12:44,200
development.

249
00:12:44,200 --> 00:12:46,360
Then you can start to
think about production,

250
00:12:46,360 --> 00:12:48,430
and manufacturing that
prototype, and then

251
00:12:48,430 --> 00:12:51,260
eventually scaling up to
commercial production.

252
00:12:51,260 --> 00:12:54,730
You've got to have a supporting
infrastructure system

253
00:12:54,730 --> 00:12:57,640
and there may be additional
applications that you

254
00:12:57,640 --> 00:12:59,795
can use and pile on here.

255
00:12:59,795 --> 00:13:02,170
And then you've got to go
through a series of generations

256
00:13:02,170 --> 00:13:03,420
of the product.

257
00:13:03,420 --> 00:13:07,590
So that's a lot of
stuff to get through.

258
00:13:07,590 --> 00:13:14,050
So the US typically thinks
about innovation as, like,

259
00:13:14,050 --> 00:13:17,790
in the vision idea
research realm,

260
00:13:17,790 --> 00:13:20,850
but it's a much
more complex process

261
00:13:20,850 --> 00:13:25,290
that has to be mastered to
actually get from the discovery

262
00:13:25,290 --> 00:13:28,480
to the innovation.

263
00:13:28,480 --> 00:13:30,810
So there's models for
technology change,

264
00:13:30,810 --> 00:13:32,940
and we'll talk more about
those in a later class,

265
00:13:32,940 --> 00:13:37,890
but just a couple of core ideas
to put on the table right now.

266
00:13:37,890 --> 00:13:43,560
Technology push-- so we talked
a bit about the innovation

267
00:13:43,560 --> 00:13:46,650
pipeline last week.

268
00:13:46,650 --> 00:13:51,990
Technology push is typically
where you support research,

269
00:13:51,990 --> 00:13:55,200
something emerges from
that research in effect,

270
00:13:55,200 --> 00:13:59,670
and then enters into
widespread use--

271
00:13:59,670 --> 00:14:01,890
typically a
commercializable product.

272
00:14:01,890 --> 00:14:04,680
So in effect, you're nurturing
and developing a technology,

273
00:14:04,680 --> 00:14:09,120
and you're pushing it
towards the economy.

274
00:14:09,120 --> 00:14:12,390
Technology pull, or
sometimes called demand pull,

275
00:14:12,390 --> 00:14:14,410
is a different model.

276
00:14:14,410 --> 00:14:19,530
So in this case, the market
will create an opportunity.

277
00:14:19,530 --> 00:14:22,260
The market may create
a niche or someone

278
00:14:22,260 --> 00:14:24,690
may spot the opportunity
or the niche.

279
00:14:24,690 --> 00:14:27,390
And in effect, the
market is going

280
00:14:27,390 --> 00:14:29,510
to pull that technology out--

281
00:14:29,510 --> 00:14:32,310
is going to be, in
a way, the enabler

282
00:14:32,310 --> 00:14:34,320
for that technology to evolve.

283
00:14:34,320 --> 00:14:37,310
So these are two very
different processes,

284
00:14:37,310 --> 00:14:40,090
and we'll talk more
about who does which.

285
00:14:40,090 --> 00:14:43,670
There's incremental innovation
and there's radical innovation.

286
00:14:43,670 --> 00:14:47,790
So incremental innovation--
as a definition here,

287
00:14:47,790 --> 00:14:50,070
it improves function,
aesthetics, performance,

288
00:14:50,070 --> 00:14:53,350
efficiency, manufacturability
and so forth.

289
00:14:53,350 --> 00:14:57,540
In other words, modest
incremental steps.

290
00:14:57,540 --> 00:15:00,030
It's very important.

291
00:15:00,030 --> 00:15:03,000
We all kind of love
radical innovation,

292
00:15:03,000 --> 00:15:06,420
and there's actually
good evidence

293
00:15:06,420 --> 00:15:10,080
that radical innovation
will lead to a really

294
00:15:10,080 --> 00:15:13,440
disproportionate profit impact.

295
00:15:13,440 --> 00:15:16,620
In other words, if you can
launch a radical innovation,

296
00:15:16,620 --> 00:15:19,297
the gains can really
be big, and that

297
00:15:19,297 --> 00:15:21,630
will become an important idea
when we talk about venture

298
00:15:21,630 --> 00:15:23,270
capital later in the class.

299
00:15:23,270 --> 00:15:24,812
AUDIENCE: From what
year to what year

300
00:15:24,812 --> 00:15:26,877
is that-- is the
scale of that graph?

301
00:15:26,877 --> 00:15:28,710
WILLIAM BONVILLIAN: Now
you're calling on me

302
00:15:28,710 --> 00:15:31,080
to really look closely.

303
00:15:31,080 --> 00:15:32,250
I don't know how many years.

304
00:15:32,250 --> 00:15:34,890
This is a '97 study out of
the Harvard Business School,

305
00:15:34,890 --> 00:15:36,920
and I just don't
remember, Martine,

306
00:15:36,920 --> 00:15:38,072
how many years this covers.

307
00:15:38,072 --> 00:15:39,780
But I'll be happy to
look that up for you

308
00:15:39,780 --> 00:15:42,090
because I don't see it on here.

309
00:15:42,090 --> 00:15:45,180
But it's gotta be at
least a 10 year look,

310
00:15:45,180 --> 00:15:48,330
I think, to be meaningful.

311
00:15:48,330 --> 00:15:51,473
So I don't want you
to get the idea though

312
00:15:51,473 --> 00:15:52,890
that one is better
than the other.

313
00:15:52,890 --> 00:15:56,130
That incremental or radical
are better than one another.

314
00:15:56,130 --> 00:16:00,510
I just think-- the Wright
Brothers aircraft would

315
00:16:00,510 --> 00:16:04,327
be a good example of
a radical innovation,

316
00:16:04,327 --> 00:16:06,660
but you and I would not want
to take the Wright Brothers

317
00:16:06,660 --> 00:16:08,370
aircraft across
the Atlantic Ocean.

318
00:16:08,370 --> 00:16:11,370
We would rather do the 787.

319
00:16:11,370 --> 00:16:15,020
So incremental can be
extremely important.

320
00:16:15,020 --> 00:16:19,620
Historically, industry
does the incremental.

321
00:16:19,620 --> 00:16:24,960
That's more of a technology
demand kind of model--

322
00:16:24,960 --> 00:16:27,990
a technology pull
kind of model--

323
00:16:27,990 --> 00:16:31,500
as opposed to the
radical, which tends

324
00:16:31,500 --> 00:16:36,678
to be more out of a
technology push research base.

325
00:16:36,678 --> 00:16:38,970
And we'll talk more about
those things as time goes by,

326
00:16:38,970 --> 00:16:42,840
but I wanted to get
those out on the table.

327
00:16:42,840 --> 00:16:45,090
So although radical
may be more profitable,

328
00:16:45,090 --> 00:16:47,230
incremental is easier,
and obviously, there

329
00:16:47,230 --> 00:16:48,860
is much more
incremental advance.

330
00:16:48,860 --> 00:16:50,040
Max?

331
00:16:50,040 --> 00:16:52,170
AUDIENCE: Regarding
the technology push,

332
00:16:52,170 --> 00:16:54,310
is that more funded
by governments

333
00:16:54,310 --> 00:16:57,130
and big institutions,
universities, or?

334
00:16:57,130 --> 00:16:58,380
WILLIAM BONVILLIAN: Yes.

335
00:16:58,380 --> 00:17:03,930
Because in our system, as we
talked a bit about last week,

336
00:17:03,930 --> 00:17:07,589
research is predominantly
funded by government

337
00:17:07,589 --> 00:17:12,930
and the actors are
universities, and development

338
00:17:12,930 --> 00:17:15,330
is predominantly
funded by industry,

339
00:17:15,330 --> 00:17:17,205
which tends to be a more
incremental advance.

340
00:17:22,550 --> 00:17:24,859
And there's something also
that you just kind of need

341
00:17:24,859 --> 00:17:26,276
to keep in the
back of your minds,

342
00:17:26,276 --> 00:17:29,060
which is product cycle theory.

343
00:17:29,060 --> 00:17:31,310
That products go
through cycles--

344
00:17:31,310 --> 00:17:33,600
go through evolutionary stages.

345
00:17:33,600 --> 00:17:37,400
So a firm defines a product,
it develops a market for it,

346
00:17:37,400 --> 00:17:39,890
then it standardizes
the product.

347
00:17:39,890 --> 00:17:43,100
And then typically
over time, one design

348
00:17:43,100 --> 00:17:45,950
will tend to dominate.

349
00:17:45,950 --> 00:17:49,580
And then the number of competing
companies with varying designs

350
00:17:49,580 --> 00:17:52,430
will tend to shrink.

351
00:17:52,430 --> 00:17:55,430
And over time, the
product will sometimes

352
00:17:55,430 --> 00:17:58,940
become a true commodity product.

353
00:17:58,940 --> 00:18:01,970
High volume, the price
goes significantly down,

354
00:18:01,970 --> 00:18:05,570
and the profit margin
is much lower, so

355
00:18:05,570 --> 00:18:10,370
the uniqueness of the
product kind of ebbs.

356
00:18:10,370 --> 00:18:13,910
At that stage in the US
system, the production

357
00:18:13,910 --> 00:18:15,362
often goes offshore.

358
00:18:15,362 --> 00:18:17,570
That's the moment where it
occurs where the commodity

359
00:18:17,570 --> 00:18:19,910
production begins.

360
00:18:19,910 --> 00:18:22,400
Barriers to entry
increase at this point

361
00:18:22,400 --> 00:18:25,760
because only a modest number of
firms on a standardized product

362
00:18:25,760 --> 00:18:27,530
tend to dominate.

363
00:18:27,530 --> 00:18:31,802
And the surviving firms
have to have the capacity

364
00:18:31,802 --> 00:18:33,260
to keep advancing
their technology,

365
00:18:33,260 --> 00:18:35,210
keep making
incremental advances.

366
00:18:35,210 --> 00:18:37,993
They've gotta be able to
master large scale production,

367
00:18:37,993 --> 00:18:40,160
they've gotta have strong
distribution and marketing

368
00:18:40,160 --> 00:18:41,952
arms, and they've gotta
have the management

369
00:18:41,952 --> 00:18:45,050
talent to kind of work
across all those pieces.

370
00:18:45,050 --> 00:18:45,663
Matt?

371
00:18:45,663 --> 00:18:47,330
AUDIENCE: Could you
explain just briefly

372
00:18:47,330 --> 00:18:50,980
how you go from the number of
competing companies reducing

373
00:18:50,980 --> 00:18:53,938
[INAUDIBLE] commodity
[INAUDIBLE]??

374
00:18:53,938 --> 00:18:54,980
WILLIAM BONVILLIAN: Yeah.

375
00:18:54,980 --> 00:18:57,530
I mean, think about things
you see all the time,

376
00:18:57,530 --> 00:18:58,640
like search engines.

377
00:18:58,640 --> 00:19:02,390
How was it that Google really
came to dominate the search

378
00:19:02,390 --> 00:19:03,290
engine business?

379
00:19:03,290 --> 00:19:05,480
Or think about
operating systems--

380
00:19:05,480 --> 00:19:10,040
how was it that Microsoft really
came to dominate the operating

381
00:19:10,040 --> 00:19:12,320
system world?

382
00:19:12,320 --> 00:19:16,640
So that's just--
consumers tend to lock

383
00:19:16,640 --> 00:19:18,950
into the dominant product.

384
00:19:18,950 --> 00:19:21,860
How was it that apple
came to dominate iPhones--

385
00:19:21,860 --> 00:19:26,300
Although that's obviously up
for grabs every few years.

386
00:19:26,300 --> 00:19:29,240
It's not to say there
can't be entry of others

387
00:19:29,240 --> 00:19:32,930
into these fields, but
the barriers to entry

388
00:19:32,930 --> 00:19:35,150
tend to get higher because
how many firms can really

389
00:19:35,150 --> 00:19:38,390
master all these skill sets?

390
00:19:38,390 --> 00:19:41,200
That's pretty sophisticated.

391
00:19:41,200 --> 00:19:42,195
Does that help?

392
00:19:42,195 --> 00:19:42,820
AUDIENCE: Yeah.

393
00:19:42,820 --> 00:19:44,465
I was just thinking
about, like, I

394
00:19:44,465 --> 00:19:47,620
would expect stiffer competition
to lead to that commodity

395
00:19:47,620 --> 00:19:50,100
market where you have
a lower profit margin.

396
00:19:50,100 --> 00:19:52,630
WILLIAM BONVILLIAN: Yeah.

397
00:19:52,630 --> 00:19:56,650
So you really have to
systematize the operation

398
00:19:56,650 --> 00:20:01,990
to be able to continue to make
strong gains out of that more

399
00:20:01,990 --> 00:20:03,467
commodity product line.

400
00:20:03,467 --> 00:20:05,050
And then typically,
you've got to keep

401
00:20:05,050 --> 00:20:06,342
driving the costs down as well.

402
00:20:09,340 --> 00:20:11,140
Now this is not
eternally true, and you

403
00:20:11,140 --> 00:20:14,170
began to poke at some of
the problems in this model.

404
00:20:14,170 --> 00:20:17,950
You can think about ways
of disrupting this pattern.

405
00:20:17,950 --> 00:20:20,710
So for example,
some companies are

406
00:20:20,710 --> 00:20:25,570
learning how to do continuing
radical innovations.

407
00:20:25,570 --> 00:20:28,270
That was-- Apple is a
good example of that.

408
00:20:28,270 --> 00:20:30,610
That was Apple's magic.

409
00:20:30,610 --> 00:20:32,870
It does the Mac, and
then it does the iPod,

410
00:20:32,870 --> 00:20:35,008
and then it does the
iPhone and so forth.

411
00:20:35,008 --> 00:20:36,550
In other words, it's
able to continue

412
00:20:36,550 --> 00:20:40,630
to do pretty radical innovations
on a continuing basis.

413
00:20:40,630 --> 00:20:43,360
What enables a company to keep--

414
00:20:43,360 --> 00:20:46,390
that ability to keep innovating.

415
00:20:46,390 --> 00:20:49,540
Because it's not--
there are only

416
00:20:49,540 --> 00:20:52,180
a handful of companies in the
world that are over 100 years

417
00:20:52,180 --> 00:20:54,220
old.

418
00:20:54,220 --> 00:20:57,970
They burn themselves out.

419
00:20:57,970 --> 00:21:00,310
Globalization obviously
spurs competitiveness,

420
00:21:00,310 --> 00:21:04,210
and it spurs entry and
increased competition.

421
00:21:04,210 --> 00:21:07,150
It speeds the
product cycle, so it

422
00:21:07,150 --> 00:21:11,650
can be disruptive of this
traditional product cycle.

423
00:21:11,650 --> 00:21:14,920
There may be-- and we'll talk
about it more in our next

424
00:21:14,920 --> 00:21:15,530
class--

425
00:21:15,530 --> 00:21:19,660
but a kind of rebirth
of manufacturing process

426
00:21:19,660 --> 00:21:24,880
improvements that could disrupt
this cycle and change it.

427
00:21:24,880 --> 00:21:29,150
And there's now a very
interesting service sector

428
00:21:29,150 --> 00:21:32,030
that's not hard-product
based that's emerging,

429
00:21:32,030 --> 00:21:36,940
and the possibility of
tying services to hardware.

430
00:21:36,940 --> 00:21:41,650
So an Apple iPhone
is a classic example

431
00:21:41,650 --> 00:21:46,252
of a hard technology that is
also a service delivery model.

432
00:21:46,252 --> 00:21:47,710
So we're getting
these combinations

433
00:21:47,710 --> 00:21:50,260
in interesting new ways.

434
00:21:50,260 --> 00:21:53,990
That will change this
product cycle as well.

435
00:21:53,990 --> 00:21:57,700
So it's not a eternal, but I
want you to get an idea product

436
00:21:57,700 --> 00:21:59,790
cycle theory.

437
00:21:59,790 --> 00:22:04,290
And then our final idea before
we dig in on the readings--

438
00:22:04,290 --> 00:22:08,260
dynamic versus static
competitive advantage.

439
00:22:08,260 --> 00:22:13,230
So David Ricardo, great
economist in the 19th century,

440
00:22:13,230 --> 00:22:18,660
develops essentially a theory
of static comparative advantage.

441
00:22:18,660 --> 00:22:21,240
That advantage would be
intrinsic to a country

442
00:22:21,240 --> 00:22:23,520
typically based on
natural resources,

443
00:22:23,520 --> 00:22:28,620
and his famous
economic example was--

444
00:22:28,620 --> 00:22:33,120
and we talked about it
a little bit last week--

445
00:22:33,120 --> 00:22:37,320
but England has a lot of
rain, has a lot of grass--

446
00:22:37,320 --> 00:22:41,730
it can have sheep, it
can do wool very well.

447
00:22:41,730 --> 00:22:44,130
And Portugal doesn't have
that much rain, doesn't

448
00:22:44,130 --> 00:22:47,880
have that much grass, but
it's great for growing grapes,

449
00:22:47,880 --> 00:22:51,810
so it's going to do
wine, England will wool.

450
00:22:51,810 --> 00:22:54,120
Each has a natural
comparative advantage

451
00:22:54,120 --> 00:23:01,140
based on a resource advantage
and it benefits both to trade.

452
00:23:01,140 --> 00:23:03,180
Portugal expands
its market for wine

453
00:23:03,180 --> 00:23:04,920
by growing outside
its own borders.

454
00:23:04,920 --> 00:23:06,720
England expands
its market for wool

455
00:23:06,720 --> 00:23:08,340
by growing outside its borders.

456
00:23:08,340 --> 00:23:10,060
There's a benefit to each.

457
00:23:10,060 --> 00:23:13,530
So that's the kind of 19th
century concept that's

458
00:23:13,530 --> 00:23:17,370
the heart of free trade theory.

459
00:23:17,370 --> 00:23:20,340
That's a static
comparative advantage.

460
00:23:20,340 --> 00:23:22,500
Starting around the middle
of the 20th century,

461
00:23:22,500 --> 00:23:25,200
something very different
began to evolve.

462
00:23:25,200 --> 00:23:30,240
A dynamic comparative
advantage, and this

463
00:23:30,240 --> 00:23:31,930
is based on growth theory.

464
00:23:31,930 --> 00:23:35,160
In other words, if
you can be innovative

465
00:23:35,160 --> 00:23:36,930
and you can lead
innovation waves,

466
00:23:36,930 --> 00:23:39,660
you can capture a lot of the
early gains of that innovation

467
00:23:39,660 --> 00:23:41,010
wave.

468
00:23:41,010 --> 00:23:44,550
It's Solow innovation
based growth theory.

469
00:23:44,550 --> 00:23:49,140
So that is a dynamic
advantage created by--

470
00:23:49,140 --> 00:23:52,050
and we have to understand the
menu-- but investments in R&D,

471
00:23:52,050 --> 00:23:54,360
and education, and
efficient governance,

472
00:23:54,360 --> 00:23:56,930
those could all be inputs--

473
00:23:56,930 --> 00:23:59,400
and we'll talk more about
the system later today--

474
00:23:59,400 --> 00:24:03,930
into a dynamic
comparative advantage.

475
00:24:03,930 --> 00:24:08,130
Now a dynamic comparative
advantage is not eternal--

476
00:24:08,130 --> 00:24:08,970
it may get lost.

477
00:24:08,970 --> 00:24:10,595
And we're going to
talk about some work

478
00:24:10,595 --> 00:24:15,410
by Paul Samuelson who laid
a lot of that thinking out

479
00:24:15,410 --> 00:24:20,710
in a famous 2004 article in one
of the next couple of classes.

480
00:24:20,710 --> 00:24:26,070
So the US created, in many
ways, the biggest innovating

481
00:24:26,070 --> 00:24:30,840
economy in the world coming out
of that World War II period.

482
00:24:30,840 --> 00:24:34,860
So it built a
competitive advantage

483
00:24:34,860 --> 00:24:42,237
based on innovation, which
had been evolving in Europe.

484
00:24:42,237 --> 00:24:43,820
And countries like
Britain and Germany

485
00:24:43,820 --> 00:24:46,700
had been doing something
similar starting

486
00:24:46,700 --> 00:24:48,920
in the second half
of the 19th century,

487
00:24:48,920 --> 00:24:51,860
but the US really scaled that
model up and really built

488
00:24:51,860 --> 00:24:55,850
a very strong early
stage innovation system.

489
00:24:55,850 --> 00:24:58,700
It became the richest
nation on earth.

490
00:24:58,700 --> 00:25:01,610
That was its model, that was
its comparative advantage.

491
00:25:01,610 --> 00:25:06,200
Now the problem with a
comparative advantage

492
00:25:06,200 --> 00:25:09,410
based on innovation
is that others

493
00:25:09,410 --> 00:25:10,950
can figure out how to innovate.

494
00:25:14,420 --> 00:25:17,090
England is always going to
have rain, and sheep, and wool,

495
00:25:17,090 --> 00:25:21,980
and Portugal is always going to
have sun, and grapes, and wine.

496
00:25:21,980 --> 00:25:24,860
Those are inherent, static
comparative advantages--

497
00:25:24,860 --> 00:25:26,190
they are not going to change.

498
00:25:26,190 --> 00:25:29,570
An innovation
advantage can change.

499
00:25:29,570 --> 00:25:33,050
So the US had an incredible mass
production system coming out

500
00:25:33,050 --> 00:25:34,820
of the end of World War II.

501
00:25:34,820 --> 00:25:37,700
Japan figures out a
better innovation model

502
00:25:37,700 --> 00:25:42,710
based on quality production
and takes consumer electronics

503
00:25:42,710 --> 00:25:44,960
and large parts of
the auto sector.

504
00:25:44,960 --> 00:25:50,990
So that's how a comparative
innovation advantage can erode.

505
00:25:50,990 --> 00:25:55,430
So it's powerful-- you can
get very rich as a nation

506
00:25:55,430 --> 00:25:57,330
and as a society--

507
00:25:57,330 --> 00:26:01,010
but it's also up for grabs.

508
00:26:01,010 --> 00:26:05,350
Anything so far on this?

509
00:26:05,350 --> 00:26:08,510
Any questions so far?

510
00:26:08,510 --> 00:26:09,010
All right.

511
00:26:09,010 --> 00:26:12,490
And these slides will be
parked on the STELLAR site

512
00:26:12,490 --> 00:26:13,420
and accessible to you.

513
00:26:13,420 --> 00:26:15,962
So these underlying foundational
ideas will be around for you

514
00:26:15,962 --> 00:26:17,740
to glance at.

515
00:26:17,740 --> 00:26:21,460
So today, we move to our
discussion leader system,

516
00:26:21,460 --> 00:26:23,120
and so here's how
it's going to work.

517
00:26:23,120 --> 00:26:25,310
I'm going to talk for
10 minutes or so--

518
00:26:25,310 --> 00:26:26,890
12 minutes,
something like that--

519
00:26:26,890 --> 00:26:29,080
about the readings.

520
00:26:29,080 --> 00:26:34,690
And then each of our
able discussion leaders

521
00:26:34,690 --> 00:26:39,760
is going to in turn
take that reading.

522
00:26:39,760 --> 00:26:45,310
So Beth has got Nelson
and did you have Atkinson?

523
00:26:45,310 --> 00:26:46,037
AUDIENCE: Yes.

524
00:26:46,037 --> 00:26:48,370
WILLIAM BONVILLIAN: Beth
somehow got the really two hard

525
00:26:48,370 --> 00:26:48,870
readings.

526
00:26:48,870 --> 00:26:51,270
I don't know how she
lost in the jump ball.

527
00:26:51,270 --> 00:26:57,520
But lily will take the
next couple of readings,

528
00:26:57,520 --> 00:27:01,390
and then Martine will follow
up with actually the really fun

529
00:27:01,390 --> 00:27:03,700
stuff as we get towards
the end of the class.

530
00:27:03,700 --> 00:27:06,520
So we'll have to make sure
we find full time for it.

531
00:27:06,520 --> 00:27:07,780
But let me start with Nelson.

532
00:27:07,780 --> 00:27:13,420
And he's our third grade
growth economist-- a Columbia

533
00:27:13,420 --> 00:27:15,610
professor of economics.

534
00:27:15,610 --> 00:27:21,700
And he writes in 1993 this
really interesting book

535
00:27:21,700 --> 00:27:24,230
about national
innovation systems--

536
00:27:24,230 --> 00:27:26,590
a comparative analysis.

537
00:27:26,590 --> 00:27:32,910
And he essentially
puts out another--

538
00:27:32,910 --> 00:27:34,570
a third innovation factor.

539
00:27:34,570 --> 00:27:36,960
So we've got Solow's and
Romer's, and Nelson really adds

540
00:27:36,960 --> 00:27:39,720
a third.

541
00:27:39,720 --> 00:27:42,480
He develops this term
national innovation system.

542
00:27:42,480 --> 00:27:43,940
He's not the first
one to use it.

543
00:27:43,940 --> 00:27:46,440
An economist named Chris Freeman
at the University of Sussex

544
00:27:46,440 --> 00:27:49,490
in Britain actually is probably
the first to use that term

545
00:27:49,490 --> 00:27:52,540
in looking at the
Japanese economy.

546
00:27:52,540 --> 00:27:58,830
But he in this book really
kind of spells that out.

547
00:27:58,830 --> 00:28:01,620
So he talks about how the
technological capabilities

548
00:28:01,620 --> 00:28:04,860
of a nation's firms and
other innovation actors

549
00:28:04,860 --> 00:28:07,965
are a key source of the
nation's competitive palace.

550
00:28:10,720 --> 00:28:13,240
Does the term
national innovation

551
00:28:13,240 --> 00:28:16,930
system still make
sense in what is

552
00:28:16,930 --> 00:28:19,940
a much more globalized world?

553
00:28:19,940 --> 00:28:22,350
This is, after all, being
written back in 1993.

554
00:28:22,350 --> 00:28:24,050
A lot has changed.

555
00:28:24,050 --> 00:28:26,490
It is a much more
integrated, globalized world.

556
00:28:26,490 --> 00:28:29,970
Is it still a term
that you can look at?

557
00:28:29,970 --> 00:28:33,090
If Nelson was sitting here,
I think he would argue, yes.

558
00:28:33,090 --> 00:28:38,640
He would say that enough
of the factors that

559
00:28:38,640 --> 00:28:40,620
go into an innovation
system are still

560
00:28:40,620 --> 00:28:44,520
tied to national investments.

561
00:28:44,520 --> 00:28:49,600
That you can still do a national
analysis, but it's harder.

562
00:28:49,600 --> 00:28:52,150
And we'll talk about what
some of those national factors

563
00:28:52,150 --> 00:28:53,890
are in a bit.

564
00:28:53,890 --> 00:28:57,250
And Nelson here uses the same
broad definition of innovation

565
00:28:57,250 --> 00:29:01,000
that we've been using so far
in our first two classes.

566
00:29:01,000 --> 00:29:03,880
And he refers to it as the
process by which firms master

567
00:29:03,880 --> 00:29:07,510
and get into practice product
designs and new manufacturing

568
00:29:07,510 --> 00:29:08,330
processes.

569
00:29:08,330 --> 00:29:13,280
So it's not the invention,
it's something much larger.

570
00:29:13,280 --> 00:29:16,270
So let's do some background--

571
00:29:16,270 --> 00:29:19,060
some of his background points.

572
00:29:19,060 --> 00:29:26,060
He argues that capitalism is
destructive and disruptive.

573
00:29:26,060 --> 00:29:31,760
That's a term from a great
economist named Schumpeter.

574
00:29:31,760 --> 00:29:34,490
Destructive capitalism
occurs via innovation.

575
00:29:34,490 --> 00:29:37,670
It's not necessarily
the first innovator

576
00:29:37,670 --> 00:29:40,670
that gets all of the rewards
or even most of the rewards.

577
00:29:40,670 --> 00:29:43,550
Sometimes, the second
follow-on innovator

578
00:29:43,550 --> 00:29:46,610
captures a lot of the
rewards because they

579
00:29:46,610 --> 00:29:50,120
pick up from what the first
innovator's mistakes were

580
00:29:50,120 --> 00:29:51,530
and improve them.

581
00:29:51,530 --> 00:29:56,760
But a nation's
concern, therefore,

582
00:29:56,760 --> 00:30:01,470
shouldn't be necessarily with
sponsoring the first innovator.

583
00:30:01,470 --> 00:30:04,500
It's got to have
a broader concern

584
00:30:04,500 --> 00:30:07,120
about innovative capability.

585
00:30:07,120 --> 00:30:08,970
So again, if the
dominant causative factor

586
00:30:08,970 --> 00:30:11,790
of economic growth is
technological and related

587
00:30:11,790 --> 00:30:15,500
innovation as Solow
taught all of us,

588
00:30:15,500 --> 00:30:17,870
Nelson goes on to
start to think about

589
00:30:17,870 --> 00:30:22,490
what do you do to make sure
you're getting a lot of that?

590
00:30:22,490 --> 00:30:28,610
And his point is that you need
a system to be able to do that.

591
00:30:28,610 --> 00:30:34,280
A system of actors that can
be connected and influence,

592
00:30:34,280 --> 00:30:38,120
and affect, and drive
your innovative outcomes.

593
00:30:38,120 --> 00:30:40,020
So who are these
institutional actors?

594
00:30:40,020 --> 00:30:43,040
Universities, firms,
government agencies,

595
00:30:43,040 --> 00:30:45,680
and the policies around them.

596
00:30:45,680 --> 00:30:47,540
And he argues that,
yes, there can

597
00:30:47,540 --> 00:30:53,060
be a common analytical
framework across nations

598
00:30:53,060 --> 00:30:54,770
by looking at these actors.

599
00:30:54,770 --> 00:30:56,900
So this is a really
important idea that's

600
00:30:56,900 --> 00:30:58,970
at the heart of today's class.

601
00:30:58,970 --> 00:31:01,280
Here it is.

602
00:31:01,280 --> 00:31:03,620
Innovation is a
system and you can

603
00:31:03,620 --> 00:31:05,480
look at the strength
of that system

604
00:31:05,480 --> 00:31:07,880
based on the strength
and connectedness

605
00:31:07,880 --> 00:31:11,070
of the actors in that system.

606
00:31:11,070 --> 00:31:16,520
So you can now go to
any nation region area

607
00:31:16,520 --> 00:31:20,990
and you can start doing
an analysis of just how

608
00:31:20,990 --> 00:31:23,060
strong that innovation
system is by looking

609
00:31:23,060 --> 00:31:25,460
at the strength of the actors.

610
00:31:25,460 --> 00:31:28,880
Things like the firms,
government agencies,

611
00:31:28,880 --> 00:31:32,120
universities, related policies.

612
00:31:32,120 --> 00:31:36,500
You can do an assessment
on innovation strengths,

613
00:31:36,500 --> 00:31:39,680
so this is a key tool.

614
00:31:39,680 --> 00:31:42,330
And a lot of your-- a lot
of the paper in this class

615
00:31:42,330 --> 00:31:47,840
is going to be built around
this Nelson system idea.

616
00:31:47,840 --> 00:31:50,030
He goes off and makes
some interesting points

617
00:31:50,030 --> 00:31:52,460
about the relationship between
science and technology,

618
00:31:52,460 --> 00:31:55,070
which is also really a
point about the relationship

619
00:31:55,070 --> 00:31:57,590
between basic research,
and applied research,

620
00:31:57,590 --> 00:32:02,120
and development, and
between university research,

621
00:32:02,120 --> 00:32:05,900
government sponsored
research, and firms.

622
00:32:05,900 --> 00:32:08,360
And his point is
that new science

623
00:32:08,360 --> 00:32:13,580
can give rise to new
technology and vise versa.

624
00:32:16,510 --> 00:32:21,180
So he cites an example
of science leading

625
00:32:21,180 --> 00:32:24,060
to a technology
such as electricity,

626
00:32:24,060 --> 00:32:26,010
and he cites Faraday
and so forth.

627
00:32:26,010 --> 00:32:30,710
He cites chemistry as
science as a follower.

628
00:32:30,710 --> 00:32:33,370
That it really came
out of a whole series

629
00:32:33,370 --> 00:32:35,980
of pretty practical professions.

630
00:32:35,980 --> 00:32:38,410
Some other examples.

631
00:32:38,410 --> 00:32:41,530
Gibbs creates the whole
science of thermodynamics

632
00:32:41,530 --> 00:32:45,370
because he's analyzing
steam engines.

633
00:32:45,370 --> 00:32:49,540
That's where he
develops his thesis.

634
00:32:49,540 --> 00:32:51,250
Edison is the other way around.

635
00:32:51,250 --> 00:32:55,030
Edison is trying to do a
very practical electrical

636
00:32:55,030 --> 00:32:56,920
technology-- the light bulb--

637
00:32:56,920 --> 00:32:59,890
but he stumbles into science,
something called the Edison

638
00:32:59,890 --> 00:33:02,590
effect, which actually is kind
of an early way of looking

639
00:33:02,590 --> 00:33:06,250
at electron theory,
as part of that.

640
00:33:06,250 --> 00:33:07,780
But this development
of electricity

641
00:33:07,780 --> 00:33:12,040
yields all kinds of follow-on
scientific advances.

642
00:33:12,040 --> 00:33:15,130
Aircraft technology starts with
the Wright Brothers who are--

643
00:33:15,130 --> 00:33:17,770
these are mechanics,
these are tinkerers--

644
00:33:17,770 --> 00:33:24,640
but then leads to very
deep aerospace engineering.

645
00:33:24,640 --> 00:33:29,320
The transistor is an attempt
to solve a practical problem--

646
00:33:29,320 --> 00:33:35,860
high speed switching-- and yet
that leads directly to solid

647
00:33:35,860 --> 00:33:36,760
state physics--

648
00:33:36,760 --> 00:33:39,460
a whole new field in physics.

649
00:33:39,460 --> 00:33:42,610
Computing yields
computing science.

650
00:33:42,610 --> 00:33:44,980
So it's a two-way street here.

651
00:33:44,980 --> 00:33:48,970
Science can yield technology,
but technology can also

652
00:33:48,970 --> 00:33:50,470
yield science.

653
00:33:50,470 --> 00:33:55,585
So you've got to have that
two-way street operating, which

654
00:33:55,585 --> 00:33:57,460
means that you've got
to have some connection

655
00:33:57,460 --> 00:33:58,978
between the forces
in your society

656
00:33:58,978 --> 00:34:01,270
that are more focused on
technology, which is typically

657
00:34:01,270 --> 00:34:05,440
firms, and the research
side and vise versa.

658
00:34:09,738 --> 00:34:10,655
The limits of science.

659
00:34:14,000 --> 00:34:16,400
Again, innovation is not
simply the invention.

660
00:34:16,400 --> 00:34:19,790
It's bigger and it
includes design.

661
00:34:19,790 --> 00:34:21,500
So you engineers
in the room will

662
00:34:21,500 --> 00:34:23,840
know what we're
talking about here,

663
00:34:23,840 --> 00:34:26,780
but that really means choosing
the right, quote, "mix

664
00:34:26,780 --> 00:34:29,969
of performance
characteristics," for example

665
00:34:29,969 --> 00:34:33,380
in designing a
modern aircraft wing.

666
00:34:33,380 --> 00:34:36,440
It's not enough to get
the discovery right.

667
00:34:36,440 --> 00:34:38,210
You've gotta get the
design right too.

668
00:34:38,210 --> 00:34:42,199
In other words, you need
to select the right mix

669
00:34:42,199 --> 00:34:44,138
of performance characteristics.

670
00:34:48,130 --> 00:34:51,040
Who are these innovation actors?

671
00:34:51,040 --> 00:34:56,710
First and foremost-- and
this was written in 1993--

672
00:34:56,710 --> 00:34:58,510
is the industry lab.

673
00:34:58,510 --> 00:35:02,740
So in 1993, something like Bell
Labs, or the great GE labs,

674
00:35:02,740 --> 00:35:05,440
or the great IBM labs.

675
00:35:05,440 --> 00:35:09,370
These dominated, in many ways,
the industrial innovation

676
00:35:09,370 --> 00:35:10,910
landscape.

677
00:35:10,910 --> 00:35:12,700
They are by and large gone.

678
00:35:12,700 --> 00:35:16,600
That has dramatically
changed since 1993.

679
00:35:16,600 --> 00:35:19,600
Now it's not that
large firms don't

680
00:35:19,600 --> 00:35:26,800
do R&D. They do a lot of it
and that number is growing,

681
00:35:26,800 --> 00:35:33,320
but it's increasingly
D and less R.

682
00:35:33,320 --> 00:35:37,850
Also there's a reminder
here that R&D is only part

683
00:35:37,850 --> 00:35:39,350
of a larger innovation picture.

684
00:35:39,350 --> 00:35:43,370
So things like management
and management organization--

685
00:35:43,370 --> 00:35:46,130
organization of R&D can
have major roles here too.

686
00:35:46,130 --> 00:35:48,410
So actor number one is industry.

687
00:35:48,410 --> 00:35:51,290
And at the time he writes,
it's industry labs.

688
00:35:51,290 --> 00:35:53,810
Now that's a much more
dispersed model now,

689
00:35:53,810 --> 00:35:57,065
because industries have largely
abandoned their old labs

690
00:35:57,065 --> 00:36:00,050
that used to a lot more
fundamental work to really

691
00:36:00,050 --> 00:36:03,560
development processes and
rounding up innovators,

692
00:36:03,560 --> 00:36:05,420
and in some cases,
acquiring them

693
00:36:05,420 --> 00:36:08,090
like in the biotech sector.

694
00:36:08,090 --> 00:36:11,190
But industry is still a
central player obviously.

695
00:36:11,190 --> 00:36:12,830
There are also
university laboratories.

696
00:36:12,830 --> 00:36:14,163
You all are familiar with those.

697
00:36:14,163 --> 00:36:16,640
The government laboratories
like the great labs

698
00:36:16,640 --> 00:36:20,000
for the Department of Energy
or the Department of Defense.

699
00:36:20,000 --> 00:36:21,770
Then there's a whole
public sector support

700
00:36:21,770 --> 00:36:27,030
system that's an actor
here as well for R&D,

701
00:36:27,030 --> 00:36:29,420
and there is an
element historically

702
00:36:29,420 --> 00:36:33,050
that has supported
industry R&D, particularly

703
00:36:33,050 --> 00:36:36,710
through the Defense Department.

704
00:36:36,710 --> 00:36:41,340
So one way to look at
this is the actors.

705
00:36:41,340 --> 00:36:44,430
The actors will be different in
different industrial sectors.

706
00:36:44,430 --> 00:36:47,462
They're going to look different,
and they'll be a different mix,

707
00:36:47,462 --> 00:36:49,170
and they're going to
organize differently

708
00:36:49,170 --> 00:36:51,480
in different industrial sectors.

709
00:36:51,480 --> 00:36:58,170
So steel is really
different than aviation.

710
00:36:58,170 --> 00:37:00,870
These are differently organized
things, but you can see--

711
00:37:00,870 --> 00:37:04,980
you can nonetheless look at the
innovation actors in a system

712
00:37:04,980 --> 00:37:08,370
and look at their
strengths and weaknesses.

713
00:37:08,370 --> 00:37:11,340
Complex technologies
require supply chains,

714
00:37:11,340 --> 00:37:13,710
and therefore
customers and users

715
00:37:13,710 --> 00:37:16,740
play a role in the
innovation system

716
00:37:16,740 --> 00:37:22,500
because there's a whole
feedback system that comes in.

717
00:37:22,500 --> 00:37:25,780
So the customers play a role
for complex technologies

718
00:37:25,780 --> 00:37:27,300
particularly.

719
00:37:27,300 --> 00:37:29,610
So it's not only the actors
I've gone through so far.

720
00:37:29,610 --> 00:37:33,360
Customers can be brought in
and users can be brought in.

721
00:37:33,360 --> 00:37:36,690
So you've got much closer to an
idea of an innovation network

722
00:37:36,690 --> 00:37:39,680
here, and we'll talk a
bit about Rycroft and Kash

723
00:37:39,680 --> 00:37:41,280
to kind of spell that out.

724
00:37:41,280 --> 00:37:43,860
So he does a comparison.

725
00:37:43,860 --> 00:37:48,150
He compares the US
innovation system in the 1945

726
00:37:48,150 --> 00:37:50,210
the 1975 time frame--

727
00:37:50,210 --> 00:37:52,530
he compares that to
the Japanese innovation

728
00:37:52,530 --> 00:37:55,260
system in the '70s and '80s.

729
00:37:55,260 --> 00:38:01,190
It's a very different
innovation systems,

730
00:38:01,190 --> 00:38:04,620
hence, help driving the theory
of national innovation systems.

731
00:38:04,620 --> 00:38:07,730
So in that time
period, the US firms

732
00:38:07,730 --> 00:38:09,290
tended to be larger in scale.

733
00:38:09,290 --> 00:38:11,990
They served a
continent-sized market.

734
00:38:11,990 --> 00:38:16,430
The firms spent more in the US
on R&D. The government spends

735
00:38:16,430 --> 00:38:19,672
a lot more on R&D at the
time, particularly because

736
00:38:19,672 --> 00:38:20,630
of the defense mission.

737
00:38:20,630 --> 00:38:24,410
US university
research was stronger

738
00:38:24,410 --> 00:38:26,600
as a result of some
post-war decision making

739
00:38:26,600 --> 00:38:28,040
that the US made.

740
00:38:28,040 --> 00:38:31,110
And most US goods were
sold into US markets.

741
00:38:31,110 --> 00:38:35,510
So that's some framing
ideas around the US model.

742
00:38:35,510 --> 00:38:36,770
Japan is really different.

743
00:38:36,770 --> 00:38:39,830
Japan is very
resource poor, so it

744
00:38:39,830 --> 00:38:44,480
has to have strong exports to
be able to get the resources.

745
00:38:44,480 --> 00:38:47,510
So it's got to be an
export led economy.

746
00:38:47,510 --> 00:38:49,610
Whereas the US can
organize essentially

747
00:38:49,610 --> 00:38:51,710
on national consumer
markets, Japan

748
00:38:51,710 --> 00:38:54,560
has got to expand globally.

749
00:38:54,560 --> 00:38:56,762
R&D in Japan in
this time period--

750
00:38:56,762 --> 00:38:58,220
and still pretty
much to this day--

751
00:38:58,220 --> 00:39:02,840
is more tied to industry
than is the case with the US.

752
00:39:02,840 --> 00:39:04,338
There's less
fundamental research.

753
00:39:04,338 --> 00:39:06,380
There's much more applied
and development support

754
00:39:06,380 --> 00:39:08,630
from government.

755
00:39:08,630 --> 00:39:12,740
And there are, from government,
very explicit technology

756
00:39:12,740 --> 00:39:17,070
development policies
at this time.

757
00:39:17,070 --> 00:39:20,348
So that's just a way of looking
at two different countries

758
00:39:20,348 --> 00:39:22,640
and beginning to think about
their different innovation

759
00:39:22,640 --> 00:39:24,410
systems and some of
the underlying factors

760
00:39:24,410 --> 00:39:26,600
that will drive them.

761
00:39:26,600 --> 00:39:30,470
He argues that there's several
basic categories of countries.

762
00:39:30,470 --> 00:39:34,100
Large high income, small
high income, and then

763
00:39:34,100 --> 00:39:36,860
lower income countries.

764
00:39:36,860 --> 00:39:40,220
Countries without resources have
to have an export orientation,

765
00:39:40,220 --> 00:39:43,970
and he cites Germany,
Japan, Korea.

766
00:39:43,970 --> 00:39:46,910
The US, and to some
extent the UK and France,

767
00:39:46,910 --> 00:39:49,130
have a national
security orientation

768
00:39:49,130 --> 00:39:50,900
for their innovation systems.

769
00:39:50,900 --> 00:39:53,690
We justify a lot
of R&D investment

770
00:39:53,690 --> 00:39:55,760
for national security
reasons in the US.

771
00:39:55,760 --> 00:39:58,940
Other countries don't do that.

772
00:39:58,940 --> 00:40:01,940
There's differences in
the governmental role.

773
00:40:01,940 --> 00:40:06,085
The US government tends to
be a lot less interventionist

774
00:40:06,085 --> 00:40:08,210
in the innovation system,
in the economy in general

775
00:40:08,210 --> 00:40:12,030
than, for example, Japan
was in this time period.

776
00:40:12,030 --> 00:40:14,060
So there are
country differences.

777
00:40:14,060 --> 00:40:16,850
What's innovation's success?

778
00:40:16,850 --> 00:40:20,450
Strong firms, in Nelson's
mind, is the critical factor.

779
00:40:20,450 --> 00:40:22,970
They have got to do
all the translation,

780
00:40:22,970 --> 00:40:28,340
moving from discovery, to
fit a whole raft of tasks

781
00:40:28,340 --> 00:40:30,980
that they've got to perform
in this translation task.

782
00:40:30,980 --> 00:40:33,110
So without strong firms,
you got a serious problem

783
00:40:33,110 --> 00:40:35,213
in your innovation system.

784
00:40:35,213 --> 00:40:36,380
But there are other factors.

785
00:40:36,380 --> 00:40:40,400
Education and training,
trade policy, fiscal policy,

786
00:40:40,400 --> 00:40:43,110
public support of
university research.

787
00:40:43,110 --> 00:40:45,680
These are all elements,
again, in the system.

788
00:40:45,680 --> 00:40:48,680
But he places the firm
kind of front and center.

789
00:40:48,680 --> 00:40:52,340
And given what firms
look like in 1993,

790
00:40:52,340 --> 00:40:53,420
you can kind of see why.

791
00:40:53,420 --> 00:40:55,500
It's a more complicated,
complex story now.

792
00:40:58,670 --> 00:41:02,420
How about an explicit
governmental role

793
00:41:02,420 --> 00:41:05,620
in innovation?

794
00:41:05,620 --> 00:41:08,830
How direct should that
governmental role be?

795
00:41:08,830 --> 00:41:10,900
So he's fine with
the earlier stages.

796
00:41:10,900 --> 00:41:13,960
He notes that there's a whole
ongoing debate about how far

797
00:41:13,960 --> 00:41:17,200
down the innovation pipeline
the government should intervene.

798
00:41:17,200 --> 00:41:18,820
That's been a
longstanding US debate,

799
00:41:18,820 --> 00:41:21,790
and we'll get more into
that as the class goes on.

800
00:41:21,790 --> 00:41:26,510
So that's our Nelson story.

801
00:41:26,510 --> 00:41:28,250
And Beth, why don't
I turn it over to you

802
00:41:28,250 --> 00:41:31,910
to raise some ideas about
Nelson that you saw,

803
00:41:31,910 --> 00:41:36,735
and to lead us in some and Q&A?

804
00:41:36,735 --> 00:41:37,860
AUDIENCE: OK.

805
00:41:37,860 --> 00:41:41,306
So based on the questions that
I got from people in the class,

806
00:41:41,306 --> 00:41:43,434
I kind of saw four
trends emerge in things

807
00:41:43,434 --> 00:41:45,090
that we were curious about.

808
00:41:45,090 --> 00:41:49,170
One being the stuff we
brought up in the beginning--

809
00:41:49,170 --> 00:41:52,542
is considering a national
innovation system as a better

810
00:41:52,542 --> 00:41:59,238
way to promote innovation, or
do we look at a more granular

811
00:41:59,238 --> 00:42:02,710
level by looking at industries,
or at a less granular--

812
00:42:02,710 --> 00:42:05,730
[AUDIO OUT]

813
00:42:05,730 --> 00:42:08,910
The second main topic
area that came up a lot

814
00:42:08,910 --> 00:42:11,130
was just what are the best
policies for innovation

815
00:42:11,130 --> 00:42:15,420
now, given that this paper
is a little bit older.

816
00:42:15,420 --> 00:42:17,710
As the world has
changed, what do

817
00:42:17,710 --> 00:42:21,180
we see as the best
ways to move forward.

818
00:42:21,180 --> 00:42:24,840
Third theme that came up
was technology spillover

819
00:42:24,840 --> 00:42:28,740
and how that can be
used as an advantage.

820
00:42:28,740 --> 00:42:31,680
And last was balancing
these national interests

821
00:42:31,680 --> 00:42:33,630
versus the international
relationships that

822
00:42:33,630 --> 00:42:36,180
have emerged in firms.

823
00:42:36,180 --> 00:42:39,985
So just a few summary points
before we go into those.

824
00:42:39,985 --> 00:42:41,610
I'll read through
some of the questions

825
00:42:41,610 --> 00:42:45,960
that I thought were
especially enlightening.

826
00:42:45,960 --> 00:42:50,460
Just the basis of using
national innovation systems

827
00:42:50,460 --> 00:42:53,040
from Nelson's point of
view is that countries

828
00:42:53,040 --> 00:42:55,650
have some similarities, but
because of their differences

829
00:42:55,650 --> 00:42:58,890
in history, culture, their
infrastructure, laws,

830
00:42:58,890 --> 00:43:01,980
financial institutions,
policies, and investing,

831
00:43:01,980 --> 00:43:05,430
we see that there are inherent
differences to innovation

832
00:43:05,430 --> 00:43:08,370
systems in different countries.

833
00:43:08,370 --> 00:43:11,160
And that for these
countries to be successful,

834
00:43:11,160 --> 00:43:13,995
it's not just enough
to have manufacturing--

835
00:43:13,995 --> 00:43:17,670
that's not a substitute for
technological innovation.

836
00:43:17,670 --> 00:43:21,965
So you need these strong firms
that are constantly innovating.

837
00:43:21,965 --> 00:43:23,340
And so he comes
to the conclusion

838
00:43:23,340 --> 00:43:25,860
that national innovation
systems, while they

839
00:43:25,860 --> 00:43:29,760
may seem somewhat contradictory
term considering policies are

840
00:43:29,760 --> 00:43:32,220
different for different
industries within a nation,

841
00:43:32,220 --> 00:43:37,120
are still useful for comparing
how nations foster innovation.

842
00:43:37,120 --> 00:43:38,670
And so first I
just think it'd be

843
00:43:38,670 --> 00:43:41,970
interesting to hear what people
see as the appropriate way

844
00:43:41,970 --> 00:43:43,290
to treat innovation systems.

845
00:43:43,290 --> 00:43:46,380
Is it at this national level,
is it at industry level,

846
00:43:46,380 --> 00:43:50,480
should it just be international
interactions with each other?

847
00:43:50,480 --> 00:43:52,690
So I'd like to open it up
to some thoughts on that.

848
00:43:56,563 --> 00:43:58,730
AUDIENCE: I think there was
one point that was made.

849
00:43:58,730 --> 00:44:00,188
I think it was
[INAUDIBLE] reading.

850
00:44:00,188 --> 00:44:02,320
It said, like, it
sort of depends

851
00:44:02,320 --> 00:44:06,400
on the industry as to whether
an innovation system takes

852
00:44:06,400 --> 00:44:10,090
place on a national level
or, like a firm level.

853
00:44:10,090 --> 00:44:13,010
Certain things, like
aerospace, were often--

854
00:44:13,010 --> 00:44:16,630
or defense oriented
things were very isolated

855
00:44:16,630 --> 00:44:18,220
to the nation in question.

856
00:44:18,220 --> 00:44:20,590
But other-- like
biotech type stuff

857
00:44:20,590 --> 00:44:25,230
could be more group effort
between multiple things.

858
00:44:25,230 --> 00:44:29,120
So it kind of
depends on the field.

859
00:44:29,120 --> 00:44:31,120
AUDIENCE: I think it
depends on what time period

860
00:44:31,120 --> 00:44:33,900
your analyzing it, because
a lot of the readings

861
00:44:33,900 --> 00:44:36,250
spoke about past economic
trends and, like,

862
00:44:36,250 --> 00:44:38,420
these big, long-term waves.

863
00:44:38,420 --> 00:44:40,510
But I forget which
one of the readings

864
00:44:40,510 --> 00:44:45,040
stated that [INAUDIBLE] a lot
of more global connection being

865
00:44:45,040 --> 00:44:46,780
impossible.

866
00:44:46,780 --> 00:44:50,000
The idea of a national
level doesn't make sense

867
00:44:50,000 --> 00:44:52,665
as much as a global scale does.

868
00:44:52,665 --> 00:44:54,040
But I guess that's
yet to be seen

869
00:44:54,040 --> 00:44:58,844
because we're still sort of
in the same wave, I guess.

870
00:45:02,412 --> 00:45:04,120
AUDIENCE: So you think
it might be more--

871
00:45:04,120 --> 00:45:06,460
rather than trying to make
a generalization for how

872
00:45:06,460 --> 00:45:07,960
innovation has
always happened, it's

873
00:45:07,960 --> 00:45:10,125
kind of depending on
what kind of innovation

874
00:45:10,125 --> 00:45:11,500
we're seeing that
might be how we

875
00:45:11,500 --> 00:45:14,830
want to describe the innovation
systems going forward.

876
00:45:17,370 --> 00:45:20,860
And then thinking about
policies for innovation,

877
00:45:20,860 --> 00:45:22,450
one interesting
question that came up

878
00:45:22,450 --> 00:45:25,960
was how does national
technology policy shape

879
00:45:25,960 --> 00:45:28,960
the focus of research being
conducted and company pursuits?

880
00:45:28,960 --> 00:45:32,080
And then going off that, how
should national technology

881
00:45:32,080 --> 00:45:35,770
policy shape the
focus of research?

882
00:45:35,770 --> 00:45:37,360
So that kind of comes
into that debate

883
00:45:37,360 --> 00:45:40,960
of how far in the pipeline
should the government

884
00:45:40,960 --> 00:45:43,390
be intervening, or
should it be kind

885
00:45:43,390 --> 00:45:46,087
of a societal call for action--

886
00:45:46,087 --> 00:45:47,170
where should this come up?

887
00:45:50,710 --> 00:45:53,240
AUDIENCE: Well, in general,
the history of innovation,

888
00:45:53,240 --> 00:45:55,493
like, early on, usually
it's not an expert

889
00:45:55,493 --> 00:45:56,410
anything that does it.

890
00:45:56,410 --> 00:46:00,730
Like the Wright Brothers weren't
really experts in flight,

891
00:46:00,730 --> 00:46:01,805
and the reason that--

892
00:46:01,805 --> 00:46:03,180
because they
weren't experts that

893
00:46:03,180 --> 00:46:06,440
were able to figure out a
different way of doing it.

894
00:46:06,440 --> 00:46:08,590
So probably the right
area for government

895
00:46:08,590 --> 00:46:12,923
is right after the initial
is then figured out.

896
00:46:12,923 --> 00:46:14,840
When you kind of know
there's something there,

897
00:46:14,840 --> 00:46:17,490
and now you can start
pulling in resources.

898
00:46:17,490 --> 00:46:19,252
But innovation in
general, it could

899
00:46:19,252 --> 00:46:20,710
be like making a
sculpture or maybe

900
00:46:20,710 --> 00:46:21,972
that you need to make a house.

901
00:46:21,972 --> 00:46:23,680
So when it's time to
kind of make a house

902
00:46:23,680 --> 00:46:25,300
and you need a lot
of hammers, I think

903
00:46:25,300 --> 00:46:27,245
that's a good time
for government policy.

904
00:46:27,245 --> 00:46:28,870
Before when it's like
chiseling, that's

905
00:46:28,870 --> 00:46:31,570
better for individuals or firms.

906
00:46:31,570 --> 00:46:35,470
Back to the idea of
industry being incentivized

907
00:46:35,470 --> 00:46:38,400
through government funds,
in general, an industry

908
00:46:38,400 --> 00:46:41,950
they'll do their own research
when they have a monopoly.

909
00:46:41,950 --> 00:46:45,370
I guess if-- what used
to happen which was--

910
00:46:45,370 --> 00:46:49,620
I forget what company Apple
took the graphic user interface

911
00:46:49,620 --> 00:46:51,640
from, but that was all--

912
00:46:51,640 --> 00:46:53,590
AUDIENCE: Xerox?

913
00:46:53,590 --> 00:46:54,890
AUDIENCE: Yeah, Xerox PARC.

914
00:46:54,890 --> 00:46:56,890
They were famous for
having a lot of innovations

915
00:46:56,890 --> 00:46:59,140
that they could never take
to the product stage, which

916
00:46:59,140 --> 00:47:00,622
is back to the
point that you made

917
00:47:00,622 --> 00:47:02,080
on being able to
take an innovation

918
00:47:02,080 --> 00:47:03,700
and also make it
a product and put

919
00:47:03,700 --> 00:47:06,340
in some kind of
industrial cycle.

920
00:47:06,340 --> 00:47:08,080
But government grants,
like SBIR grants,

921
00:47:08,080 --> 00:47:12,610
are pretty good too for
creating that kind of industry

922
00:47:12,610 --> 00:47:16,000
innovation, and I guess
with better incentives.

923
00:47:19,400 --> 00:47:21,442
WILLIAM BONVILLIAN:
So Martine, you

924
00:47:21,442 --> 00:47:22,900
make a series of
interesting points

925
00:47:22,900 --> 00:47:25,510
there, and let me back to
the first one which you made.

926
00:47:25,510 --> 00:47:28,090
And you made this interesting
distinction between a sculpture

927
00:47:28,090 --> 00:47:29,860
and a building.

928
00:47:29,860 --> 00:47:34,030
And I think historically in
the US, the attitude has--

929
00:47:34,030 --> 00:47:37,690
even though logic would
say let's think about

930
00:47:37,690 --> 00:47:40,420
the building-- that might be the
moment for government support--

931
00:47:40,420 --> 00:47:43,690
historically, the
government support

932
00:47:43,690 --> 00:47:46,930
has been at the earlier stage,
at that sculpture moment

933
00:47:46,930 --> 00:47:49,240
before it turns into a building.

934
00:47:49,240 --> 00:47:51,260
And that's pretty
deep in our system.

935
00:47:51,260 --> 00:47:52,810
So in other words,
it's historically

936
00:47:52,810 --> 00:47:55,450
been OK for government to
support basic research,

937
00:47:55,450 --> 00:47:58,930
but when it gets within
range of commercialisation,

938
00:47:58,930 --> 00:48:01,720
that would be a
governmental interference

939
00:48:01,720 --> 00:48:03,340
into the marketplace.

940
00:48:03,340 --> 00:48:08,015
So most countries don't do
that, but that historically

941
00:48:08,015 --> 00:48:09,640
has been a limit on
the way in which we

942
00:48:09,640 --> 00:48:10,598
think about this stuff.

943
00:48:10,598 --> 00:48:15,260
So when Nelson talks about
whether there should be

944
00:48:15,260 --> 00:48:20,562
an explicit role for government,
what he calls high tech

945
00:48:20,562 --> 00:48:22,520
innovation-- in other
words, later stage work--

946
00:48:22,520 --> 00:48:25,670
that's a controversial
topic for him to take on.

947
00:48:25,670 --> 00:48:29,180
And when we talk about
Charles Schulz later,

948
00:48:29,180 --> 00:48:34,173
we'll see kind of the dimensions
of this debate come further.

949
00:48:34,173 --> 00:48:35,090
But what do you think?

950
00:48:35,090 --> 00:48:36,810
Is that--

951
00:48:36,810 --> 00:48:38,600
AUDIENCE: What I'm curious is--

952
00:48:38,600 --> 00:48:40,610
so there's two
kinds of, I guess,

953
00:48:40,610 --> 00:48:42,410
kind of sculpture innovation.

954
00:48:42,410 --> 00:48:45,133
The only one I can think of that
was successful with government

955
00:48:45,133 --> 00:48:46,550
intervention was
kind of like when

956
00:48:46,550 --> 00:48:48,967
they're making the atomic bomb,
because that was very much

957
00:48:48,967 --> 00:48:50,450
that we need a technology push.

958
00:48:50,450 --> 00:48:53,330
But in other cases, especially
for the Wright Brothers--

959
00:48:53,330 --> 00:48:54,830
I forget what the
name of the person

960
00:48:54,830 --> 00:48:56,163
that the government was funding.

961
00:48:56,163 --> 00:49:00,440
He was the expert in
aerodynamics at the time,

962
00:49:00,440 --> 00:49:04,510
but because his equations didn't
work out, he didn't do it.

963
00:49:04,510 --> 00:49:06,260
WILLIAM BONVILLIAN:
Yeah, all his aircraft

964
00:49:06,260 --> 00:49:08,120
landed in the Anacostia
River in big flames.

965
00:49:08,120 --> 00:49:08,745
AUDIENCE: Yeah.

966
00:49:08,745 --> 00:49:10,850
Well, the way I think about it--

967
00:49:10,850 --> 00:49:12,980
they say an expert is an
expert in a field that's

968
00:49:12,980 --> 00:49:14,035
already been created.

969
00:49:14,035 --> 00:49:15,410
And a lot of time,
this innovator

970
00:49:15,410 --> 00:49:17,160
is not going to look
like an expert at all

971
00:49:17,160 --> 00:49:18,680
because the field
has not been made.

972
00:49:18,680 --> 00:49:23,493
Like Edison, you really wouldn't
say use a genius in any field,

973
00:49:23,493 --> 00:49:25,160
but he did figure out
something and then

974
00:49:25,160 --> 00:49:26,908
he took it as far
as he could go.

975
00:49:26,908 --> 00:49:28,700
But another distinction
too is that there's

976
00:49:28,700 --> 00:49:30,830
going to be that are going
to team up with them.

977
00:49:30,830 --> 00:49:35,498
Example with Edison is
that GE had a lot of issues

978
00:49:35,498 --> 00:49:37,040
with their transmission
lines, and it

979
00:49:37,040 --> 00:49:40,120
wasn't until they got this one
Hungarian immigrant called--

980
00:49:40,120 --> 00:49:42,500
I forget his first name, but
his last name was Steinmetz.

981
00:49:42,500 --> 00:49:44,750
He's like this very hunchback--

982
00:49:44,750 --> 00:49:46,760
he's famous for never
being in pictures

983
00:49:46,760 --> 00:49:50,000
because he was just very
hunchback and short.

984
00:49:50,000 --> 00:49:52,250
But he came up with these
equations and he figured out

985
00:49:52,250 --> 00:49:52,780
all the--

986
00:49:52,780 --> 00:49:56,500
he solved all the main
problems with the technology.

987
00:49:56,500 --> 00:49:59,280
So I definitely think there
should probably more study,

988
00:49:59,280 --> 00:50:02,652
I guess, on that-- on when was
the government most successful

989
00:50:02,652 --> 00:50:03,610
with their investments.

990
00:50:03,610 --> 00:50:04,897
I don't know if they do that.

991
00:50:04,897 --> 00:50:06,480
I don't really know
how the government

992
00:50:06,480 --> 00:50:09,780
works with innovation
as much as you do.

993
00:50:09,780 --> 00:50:10,935
But in general, VCs--

994
00:50:10,935 --> 00:50:11,430
WILLIAM BONVILLIAN:
Don't worry, you'll

995
00:50:11,430 --> 00:50:13,597
be an expert by the time
the class has [INAUDIBLE]..

996
00:50:13,597 --> 00:50:16,200
AUDIENCE: Well, in general VCs
will look at their investments

997
00:50:16,200 --> 00:50:18,570
and then figure out why they
won with their investment.

998
00:50:18,570 --> 00:50:20,820
So that might be a good way
of looking into it-- like,

999
00:50:20,820 --> 00:50:22,680
in the history of the US,
when do we make investments

1000
00:50:22,680 --> 00:50:23,910
and how do they payoff?

1001
00:50:23,910 --> 00:50:25,965
And also, like, what do
we measure the success,

1002
00:50:25,965 --> 00:50:27,840
because it probably
won't be economic returns

1003
00:50:27,840 --> 00:50:29,520
because the nature
of the problem.

1004
00:50:29,520 --> 00:50:32,505
But if you look at in
terms of development,

1005
00:50:32,505 --> 00:50:34,380
there's going to be a
lot of hidden variables

1006
00:50:34,380 --> 00:50:36,330
that we don't account
for that probably

1007
00:50:36,330 --> 00:50:40,410
need to account for when
we measure that success.

1008
00:50:40,410 --> 00:50:42,745
AUDIENCE: I think
Martine hit on something,

1009
00:50:42,745 --> 00:50:44,370
which is how does
the government choose

1010
00:50:44,370 --> 00:50:47,290
sort of when to get involved?

1011
00:50:47,290 --> 00:50:51,030
The only example I
might have is SpaceX,

1012
00:50:51,030 --> 00:50:54,850
because they get a lot of
support because of just the way

1013
00:50:54,850 --> 00:50:56,850
they transitioned sort
of out of the space race.

1014
00:50:56,850 --> 00:50:59,240
We have a lot of
infrastructure at NASA

1015
00:50:59,240 --> 00:51:02,220
who, like, no longer wants
to focus specifically

1016
00:51:02,220 --> 00:51:05,630
sort of on space exploration
in a way that might be private

1017
00:51:05,630 --> 00:51:07,230
or commercially available.

1018
00:51:07,230 --> 00:51:09,500
But you have this sort
of technology spillover

1019
00:51:09,500 --> 00:51:11,448
and all these resources
that exist at NASA.

1020
00:51:11,448 --> 00:51:12,990
They have a whole
bunch of launchpads

1021
00:51:12,990 --> 00:51:15,840
everywhere that
they can't really

1022
00:51:15,840 --> 00:51:17,340
take advantage of
because that's not

1023
00:51:17,340 --> 00:51:18,630
what they're geared
towards, and they're

1024
00:51:18,630 --> 00:51:19,880
trying to move somewhere else.

1025
00:51:19,880 --> 00:51:22,700
But you have this
infrastructure leftover,

1026
00:51:22,700 --> 00:51:26,403
and we started sort of leasing
it out to companies like SpaceX

1027
00:51:26,403 --> 00:51:28,320
to sort of do launch
demonstrations and things

1028
00:51:28,320 --> 00:51:29,620
like that.

1029
00:51:29,620 --> 00:51:30,480
And so I think--

1030
00:51:30,480 --> 00:51:31,740
but that only comes--

1031
00:51:31,740 --> 00:51:33,960
and I don't know exactly
how that came about,

1032
00:51:33,960 --> 00:51:36,293
but I think you might be able
to facilitate those roles,

1033
00:51:36,293 --> 00:51:39,120
where the government sort
of has resources built up

1034
00:51:39,120 --> 00:51:40,350
from things previously.

1035
00:51:40,350 --> 00:51:42,767
And the industry might be
moving in a different direction,

1036
00:51:42,767 --> 00:51:45,040
and it might see
more advantaged ways

1037
00:51:45,040 --> 00:51:49,325
to pass off use of facilities
and things like that.

1038
00:51:49,325 --> 00:51:50,857
And sort of we have--

1039
00:51:50,857 --> 00:51:53,190
these launchpads at NASA we're
trying to get away from--

1040
00:51:53,190 --> 00:51:54,840
I guess we have
national labs now

1041
00:51:54,840 --> 00:51:57,000
which are traditionally
more basic research,

1042
00:51:57,000 --> 00:52:01,770
but could be used to sort of
bring in companies as sort

1043
00:52:01,770 --> 00:52:04,320
of testing grounds for a lot
of different technologies.

1044
00:52:04,320 --> 00:52:06,180
So I think energy might
be a little bit more

1045
00:52:06,180 --> 00:52:09,900
useful, and even biotech
because we have supercomputers

1046
00:52:09,900 --> 00:52:11,590
that are shown.

1047
00:52:11,590 --> 00:52:14,790
But it's important
to kind of identify

1048
00:52:14,790 --> 00:52:16,860
that point which
technologies might

1049
00:52:16,860 --> 00:52:20,860
be a little bit more receptive
to sort of that branching out.

1050
00:52:20,860 --> 00:52:23,700
And I think it comes from maybe
one of the latter readings,

1051
00:52:23,700 --> 00:52:27,960
where it's, like you have to
identify who's in the market

1052
00:52:27,960 --> 00:52:29,820
and what are their needs.

1053
00:52:29,820 --> 00:52:31,620
And that conversation
doesn't really

1054
00:52:31,620 --> 00:52:35,250
happen because the government
doesn't get to choose winners.

1055
00:52:35,250 --> 00:52:36,810
But I think at some
point, it's going

1056
00:52:36,810 --> 00:52:41,605
to be necessary to kind
of consult the necessary--

1057
00:52:41,605 --> 00:52:43,230
I'm going to use the
word experts here.

1058
00:52:43,230 --> 00:52:44,647
And then you don't
really know who

1059
00:52:44,647 --> 00:52:47,255
the experts are until you kind
of bring the Wright Brothers in

1060
00:52:47,255 --> 00:52:49,380
if they make a jump or a leap.

1061
00:52:49,380 --> 00:52:51,450
But I think it could
have been facilitated

1062
00:52:51,450 --> 00:52:55,020
if they had brought
this guy in and found

1063
00:52:55,020 --> 00:52:56,395
that maybe all of
his experiments

1064
00:52:56,395 --> 00:52:57,937
were crashing in
the Anacostia river.

1065
00:52:57,937 --> 00:53:00,180
So the government would
have initially-- like, OK,

1066
00:53:00,180 --> 00:53:01,950
his experiments are crashing--
we need to look somewhere else

1067
00:53:01,950 --> 00:53:03,610
and we found the
Wright Brothers.

1068
00:53:03,610 --> 00:53:06,770
And so I think it's this--

1069
00:53:06,770 --> 00:53:10,340
the emphasis has to be on these
public-private partnerships

1070
00:53:10,340 --> 00:53:12,720
and facilitate those maybe
a little bit earlier.

1071
00:53:12,720 --> 00:53:15,150
And bringing in sort of
these industry experts who

1072
00:53:15,150 --> 00:53:17,600
are shifting gears to new
directions to kind of figure

1073
00:53:17,600 --> 00:53:20,000
out what is the best
role, because it's

1074
00:53:20,000 --> 00:53:22,000
going to vary sector by sector.

1075
00:53:22,000 --> 00:53:25,770
Because obviously, it wouldn't
do maybe the Wright Brothers

1076
00:53:25,770 --> 00:53:28,550
as much good if they had
access to a supercomputer,

1077
00:53:28,550 --> 00:53:29,240
for example.

1078
00:53:29,240 --> 00:53:31,850
But it might do them
good if they had access

1079
00:53:31,850 --> 00:53:35,040
to sort of these landing
zones or large areas of space

1080
00:53:35,040 --> 00:53:38,140
[INAUDIBLE] to test
flight developments

1081
00:53:38,140 --> 00:53:39,773
and things like that.

1082
00:53:39,773 --> 00:53:41,940
AUDIENCE: Yeah, but kind
of going back to your point

1083
00:53:41,940 --> 00:53:45,530
and playing devil's
advocate there,

1084
00:53:45,530 --> 00:53:48,470
if we're not funding the
sculptors originally,

1085
00:53:48,470 --> 00:53:52,040
do we have concerns that there
won't be enough that are taking

1086
00:53:52,040 --> 00:53:54,470
the risk on their own
to make the first steps

1087
00:53:54,470 --> 00:53:56,410
before commercialization?

1088
00:53:56,410 --> 00:53:58,845
Like, do we need to consider
that balance a little bit?

1089
00:53:58,845 --> 00:54:01,220
AUDIENCE: I think that's an
interesting question in terms

1090
00:54:01,220 --> 00:54:03,920
of if the Wright Brothers
were alive today,

1091
00:54:03,920 --> 00:54:06,370
would they be able to get any
kind of government support.

1092
00:54:06,370 --> 00:54:08,970
And then you can think about,
well, what kind of support,

1093
00:54:08,970 --> 00:54:11,178
or how should the government
be structured to support

1094
00:54:11,178 --> 00:54:12,912
that kind of innovator?

1095
00:54:12,912 --> 00:54:14,870
AUDIENCE: I don't think
it's necessarily fair--

1096
00:54:14,870 --> 00:54:15,880
I think you make very--

1097
00:54:15,880 --> 00:54:16,760
WILLIAM BONVILLIAN: So
I'm going to ask everybody

1098
00:54:16,760 --> 00:54:18,935
to identify themselves
because we're all in film.

1099
00:54:18,935 --> 00:54:20,800
We're all part of a movie.

1100
00:54:20,800 --> 00:54:22,253
So just throw out
your first name

1101
00:54:22,253 --> 00:54:24,545
before you start so we all
get to know each other well.

1102
00:54:24,545 --> 00:54:26,110
AUDIENCE: Chloe.

1103
00:54:26,110 --> 00:54:28,420
I think you make a great
point about the interaction

1104
00:54:28,420 --> 00:54:30,920
between-- in commercial space,
like between NASA and SpaceX,

1105
00:54:30,920 --> 00:54:34,148
and NASA optimizing
their resources

1106
00:54:34,148 --> 00:54:36,440
when it's not really in their
best interest to use them

1107
00:54:36,440 --> 00:54:38,027
all the time, but
leasing them out

1108
00:54:38,027 --> 00:54:39,410
to private companies that can.

1109
00:54:39,410 --> 00:54:44,100
But I think they do still
sort of choose winners.

1110
00:54:44,100 --> 00:54:47,450
Like the Wright Brothers in
the world of spaceflight,

1111
00:54:47,450 --> 00:54:49,220
there's a lot of--

1112
00:54:49,220 --> 00:54:52,502
NASA would put out a bid for
maybe a certain spacecraft

1113
00:54:52,502 --> 00:54:53,210
bus or something.

1114
00:54:53,210 --> 00:54:55,340
And then Lockheed and--

1115
00:54:55,340 --> 00:54:57,590
not so much SpaceX, but a
bunch of different companies

1116
00:54:57,590 --> 00:55:03,050
could submit proposals for how
they might fulfill those design

1117
00:55:03,050 --> 00:55:06,290
requirements cheapest and
the most technologically

1118
00:55:06,290 --> 00:55:06,790
successful.

1119
00:55:06,790 --> 00:55:08,870
So I think that might
not be choosing winners,

1120
00:55:08,870 --> 00:55:11,090
but that is sort of one
way that the government can

1121
00:55:11,090 --> 00:55:13,880
support some innovation
in the early stage

1122
00:55:13,880 --> 00:55:19,578
and maybe encourage
newcomers to take some risks.

1123
00:55:19,578 --> 00:55:20,745
AUDIENCE: Chris, by the way.

1124
00:55:20,745 --> 00:55:24,790
I think where government
has a really important role

1125
00:55:24,790 --> 00:55:28,990
is probably galvanizing support,
and especially initial funding,

1126
00:55:28,990 --> 00:55:33,370
for potentially riskier kind
of ventures at earlier stages.

1127
00:55:33,370 --> 00:55:36,280
For example, I know
in like biotech--

1128
00:55:36,280 --> 00:55:38,020
for example cystic
fibrosis, that

1129
00:55:38,020 --> 00:55:40,660
was a huge push by the
government and some pretty

1130
00:55:40,660 --> 00:55:45,220
national groups to get research
on the ground and really focus.

1131
00:55:45,220 --> 00:55:47,830
And it took like 10 or
12 years and hundreds

1132
00:55:47,830 --> 00:55:49,900
of millions of dollars,
but they finally

1133
00:55:49,900 --> 00:55:53,860
came up with a drug, Kalydeco
which was produced by Vertex.

1134
00:55:53,860 --> 00:55:57,050
So that kind of initiative
I think is really useful.

1135
00:55:57,050 --> 00:56:01,060
And national policies, like
for example cancer [INAUDIBLE]

1136
00:56:01,060 --> 00:56:04,480
or something like that, that
set a precedence and places

1137
00:56:04,480 --> 00:56:07,930
importance on development
of these kind of drugs

1138
00:56:07,930 --> 00:56:12,070
and creates some sort of
importance and path for them

1139
00:56:12,070 --> 00:56:17,290
to incentivize development
throughout expedited patent

1140
00:56:17,290 --> 00:56:20,590
approval and kind
of maybe tax breaks

1141
00:56:20,590 --> 00:56:22,970
or support for that R&D process.

1142
00:56:22,970 --> 00:56:27,190
I think those can really help
guide technology development as

1143
00:56:27,190 --> 00:56:30,460
well as innovation,
especially as firms

1144
00:56:30,460 --> 00:56:33,100
are looking what
to do next-- what

1145
00:56:33,100 --> 00:56:34,450
to kind of put their money in.

1146
00:56:37,370 --> 00:56:38,865
AUDIENCE: [INAUDIBLE].

1147
00:56:38,865 --> 00:56:41,237
I think a really interesting
undercurrent and something

1148
00:56:41,237 --> 00:56:43,570
that I haven't really seen
any of the economics readings

1149
00:56:43,570 --> 00:56:45,500
talk about is game
theory and the importance

1150
00:56:45,500 --> 00:56:46,580
of potential cooperation.

1151
00:56:46,580 --> 00:56:48,360
And I really see that
as a potential role

1152
00:56:48,360 --> 00:56:49,902
for the government
as we move forward

1153
00:56:49,902 --> 00:56:52,735
in technological development,
because I think cooperation

1154
00:56:52,735 --> 00:56:54,860
and particularly from a
design-research standpoint,

1155
00:56:54,860 --> 00:56:57,260
is incredibly important
in identifying

1156
00:56:57,260 --> 00:57:01,740
the competitive and dynamic and
static advantages of the firm.

1157
00:57:01,740 --> 00:57:05,200
And I see it as particularly
being an issue in manufacturing

1158
00:57:05,200 --> 00:57:06,690
with robotics.

1159
00:57:06,690 --> 00:57:09,110
The United States is
not invested as much

1160
00:57:09,110 --> 00:57:11,120
in our robotics infrastructure
and now China is,

1161
00:57:11,120 --> 00:57:12,953
and they're poised to
become a global leader

1162
00:57:12,953 --> 00:57:15,650
in the next decade or so.

1163
00:57:15,650 --> 00:57:17,720
And it's really
fascinating to think

1164
00:57:17,720 --> 00:57:20,510
about the ways in which the
United States is not really

1165
00:57:20,510 --> 00:57:21,875
cooperating--

1166
00:57:21,875 --> 00:57:23,750
firms within the United
States are not really

1167
00:57:23,750 --> 00:57:25,970
cooperating with one another
to align their interests

1168
00:57:25,970 --> 00:57:28,850
to sort of dominate
international markets as well

1169
00:57:28,850 --> 00:57:30,270
as domestic markets.

1170
00:57:30,270 --> 00:57:32,770
So that cooperation can be
really important and it's not

1171
00:57:32,770 --> 00:57:35,020
really something that I saw
in either the Solow, Romer

1172
00:57:35,020 --> 00:57:37,525
or Nelson reading, is that
game theory component.

1173
00:57:37,525 --> 00:57:41,900
And so game theory could be
quite valuable when applied.

1174
00:57:41,900 --> 00:57:44,300
WILLIAM BONVILLIAN: So
great discussion so far.

1175
00:57:44,300 --> 00:57:47,620
You're really driving, I think,
to get at Beth's underlying

1176
00:57:47,620 --> 00:57:52,110
point which is what is the
governmental role going

1177
00:57:52,110 --> 00:57:53,330
to be in this mix.

1178
00:57:53,330 --> 00:57:55,010
Where do you draw
the lines, how far

1179
00:57:55,010 --> 00:57:58,003
should it extend down the
innovation pipeline, what are

1180
00:57:58,003 --> 00:57:59,170
the different controversies?

1181
00:57:59,170 --> 00:58:01,160
So you all have laid
out, I think, really

1182
00:58:01,160 --> 00:58:06,750
nicely a whole set of examples
about how we start that debate.

1183
00:58:06,750 --> 00:58:10,550
But that'll be a central
kind of issue in the class

1184
00:58:10,550 --> 00:58:12,270
as we go along.

1185
00:58:12,270 --> 00:58:15,000
So Beth, do you want to give
us some closing thoughts here?

1186
00:58:17,432 --> 00:58:19,140
AUDIENCE: So I guess
we have been viewing

1187
00:58:19,140 --> 00:58:22,410
this in a very much US
context, and that's obviously

1188
00:58:22,410 --> 00:58:25,020
what we're most familiar with.

1189
00:58:25,020 --> 00:58:26,460
But it is very
important to think

1190
00:58:26,460 --> 00:58:28,650
about what actions
other countries

1191
00:58:28,650 --> 00:58:30,600
are taking compared
to what we're doing,

1192
00:58:30,600 --> 00:58:34,870
and how we can learn from them
and best compete with them.

1193
00:58:34,870 --> 00:58:38,220
I guess the American system
tends to lean a little bit more

1194
00:58:38,220 --> 00:58:41,460
towards the kind of
capitalist free market.

1195
00:58:41,460 --> 00:58:45,690
Once these companies emerge,
it is seen as kind of unfair

1196
00:58:45,690 --> 00:58:48,090
to support certain industries
and certain companies,

1197
00:58:48,090 --> 00:58:50,670
while in other countries
that's more acceptable.

1198
00:58:50,670 --> 00:58:52,170
And it is worthwhile
to think about,

1199
00:58:52,170 --> 00:58:54,210
is that something
that we would want

1200
00:58:54,210 --> 00:58:57,300
to move towards or is it better
to kind of let these firms

1201
00:58:57,300 --> 00:58:58,470
fight it out on their own?

1202
00:59:02,060 --> 00:59:05,480
And as far as the relationship
between national interests

1203
00:59:05,480 --> 00:59:10,130
and international partnerships,
kind of one closing question

1204
00:59:10,130 --> 00:59:12,380
to consider is, how much
should the governments

1205
00:59:12,380 --> 00:59:17,780
be intervening and protecting
their companies versus if that

1206
00:59:17,780 --> 00:59:21,260
limits them from being
able to kind of function

1207
00:59:21,260 --> 00:59:25,100
on the international
market, such as tariffs

1208
00:59:25,100 --> 00:59:27,382
and other things that are
protecting industries.

1209
00:59:27,382 --> 00:59:29,090
Is that something that
governments should

1210
00:59:29,090 --> 00:59:32,180
be able to do, is that fair
if other countries don't have

1211
00:59:32,180 --> 00:59:33,890
those policies in
place, and are we

1212
00:59:33,890 --> 00:59:36,410
limiting which technologies
are successful on the market

1213
00:59:36,410 --> 00:59:40,910
by protecting ones that
might not be as productive?

1214
00:59:40,910 --> 00:59:44,150
WILLIAM BONVILLIAN:
Great closing thoughts,

1215
00:59:44,150 --> 00:59:48,830
and the discussion
leader system is working.

1216
00:59:48,830 --> 00:59:52,220
Thank you for getting
us off to a good start.

1217
00:59:52,220 --> 00:59:55,820
Let me do some quick
summaries and then lead

1218
00:59:55,820 --> 00:59:57,725
into the Atkinson material.

1219
00:59:57,725 --> 00:59:59,600
And Beth, we'll come
back to you in a minute.

1220
01:00:02,370 --> 01:00:04,550
So in last week's
class, we talked

1221
01:00:04,550 --> 01:00:06,350
about these direct
innovation factors.

1222
01:00:06,350 --> 01:00:09,590
In other words, these factors
that you really can't do

1223
01:00:09,590 --> 01:00:12,440
without if you want to have
a strong innovation system.

1224
01:00:12,440 --> 01:00:14,930
And the purpose of that would
be to drive economic growth,

1225
01:00:14,930 --> 01:00:19,310
to grow economic well-being in
your society in your economy.

1226
01:00:19,310 --> 01:00:27,620
So government plays a role in
some of these direct factors.

1227
01:00:27,620 --> 01:00:32,230
It supports almost
all of university R&D,

1228
01:00:32,230 --> 01:00:34,310
it supports governmental
laboratories,

1229
01:00:34,310 --> 01:00:38,270
it provides lots of support
for the education system.

1230
01:00:38,270 --> 01:00:43,950
And then it provides support
for industry R&D in some areas--

1231
01:00:43,950 --> 01:00:47,310
particularly defense, but to
some extent in agriculture.

1232
01:00:47,310 --> 01:00:48,770
So those are kind of--

1233
01:00:48,770 --> 01:00:58,170
if the Solow factor of
doing R&D is a core factor,

1234
01:00:58,170 --> 01:01:00,080
then you can see the
governmental role here.

1235
01:01:00,080 --> 01:01:02,180
But there's also a private
sector and industry

1236
01:01:02,180 --> 01:01:05,990
role on that initial factor.

1237
01:01:05,990 --> 01:01:08,600
Of course, there's industry
R&D which, as we discussed,

1238
01:01:08,600 --> 01:01:12,530
is predominantly D, but
that's what takes you

1239
01:01:12,530 --> 01:01:15,590
through the prototyping, and
engineering, and production

1240
01:01:15,590 --> 01:01:16,670
stages.

1241
01:01:16,670 --> 01:01:19,160
And then industry provides
the dominant role in training.

1242
01:01:22,320 --> 01:01:28,280
So those are direct
Solow-Romer factors

1243
01:01:28,280 --> 01:01:32,000
that are tied to industry and
tied to the private sector.

1244
01:01:32,000 --> 01:01:37,520
But then there is
a raft of indirect,

1245
01:01:37,520 --> 01:01:42,180
or we could call them
implicit, innovation factors.

1246
01:01:42,180 --> 01:01:47,030
So if Nelson is right that there
is an innovation ecosystem,

1247
01:01:47,030 --> 01:01:51,440
then there's a lot of pieces
in that complex system.

1248
01:01:51,440 --> 01:01:55,220
And government is supplying
some of those pieces that

1249
01:01:55,220 --> 01:01:57,980
have a role in the
innovation process,

1250
01:01:57,980 --> 01:02:01,430
but are not as direct as the
first thing we talked about.

1251
01:02:01,430 --> 01:02:06,735
So government is providing
fiscal tax monetary policy,

1252
01:02:06,735 --> 01:02:09,530
it's providing trade policy,
technology standards,

1253
01:02:09,530 --> 01:02:12,307
technology transfer policies.

1254
01:02:12,307 --> 01:02:13,890
It's providing
government procurement,

1255
01:02:13,890 --> 01:02:17,030
which buys a lot of technology,
particularly in defense.

1256
01:02:17,030 --> 01:02:19,220
It sets up the intellectual
property system,

1257
01:02:19,220 --> 01:02:23,570
the whole legal contracting
liability system,

1258
01:02:23,570 --> 01:02:27,110
the regulatory system
in many, many areas,

1259
01:02:27,110 --> 01:02:30,420
accounting standards,
export controls.

1260
01:02:30,420 --> 01:02:34,430
These all will have an effect
on the innovation system

1261
01:02:34,430 --> 01:02:38,240
and your ability to innovate.

1262
01:02:38,240 --> 01:02:41,150
But then there are
these indirect factors

1263
01:02:41,150 --> 01:02:45,020
that are is less critical than
the two we've talked about,

1264
01:02:45,020 --> 01:02:47,420
but nonetheless
part of that system.

1265
01:02:47,420 --> 01:02:50,090
So the private sector sets
some really important ones.

1266
01:02:50,090 --> 01:02:52,790
That includes investment
capital which can be angel,

1267
01:02:52,790 --> 01:02:58,240
or venture, or IPO, or
equity, or lending markets--

1268
01:02:58,240 --> 01:03:00,560
is a private sector
function obviously.

1269
01:03:00,560 --> 01:03:02,390
Management and
management organization

1270
01:03:02,390 --> 01:03:05,030
is really a private sector
function in our system.

1271
01:03:05,030 --> 01:03:06,640
The whole reward system--

1272
01:03:06,640 --> 01:03:09,590
the compensation
system for talent

1273
01:03:09,590 --> 01:03:11,630
is largely private sector set.

1274
01:03:11,630 --> 01:03:14,440
So the private sector
plays a huge role too

1275
01:03:14,440 --> 01:03:17,120
in this complex ecosystem mix.

1276
01:03:17,120 --> 01:03:23,250
So the picture I want you to
have is of a complex innovation

1277
01:03:23,250 --> 01:03:24,690
system.

1278
01:03:24,690 --> 01:03:28,090
There's direct factors,
and if we include Nelson,

1279
01:03:28,090 --> 01:03:30,990
we've talked about three.

1280
01:03:30,990 --> 01:03:33,060
But there's a whole mix
of other stuff there,

1281
01:03:33,060 --> 01:03:35,820
and you want to get as many of
those right in your innovation

1282
01:03:35,820 --> 01:03:39,030
system as you can to have a
strong functioning innovation

1283
01:03:39,030 --> 01:03:40,210
system.

1284
01:03:40,210 --> 01:03:42,810
So it's not only the actors.

1285
01:03:42,810 --> 01:03:46,290
You've also got to take into
account this larger system

1286
01:03:46,290 --> 01:03:47,580
as well.

1287
01:03:47,580 --> 01:03:52,560
And we'll get, in a
few minutes, into some

1288
01:03:52,560 --> 01:03:55,355
of the indirect factors
and how to look at those.

1289
01:03:55,355 --> 01:03:57,480
But first we're going to
do innovation wave theory.

1290
01:03:57,480 --> 01:04:00,490
That's Rob Atkinson
who's head of ITIF,

1291
01:04:00,490 --> 01:04:04,290
a thinktank in Washington.

1292
01:04:04,290 --> 01:04:07,530
We talked about-- and I
drew a scribble last week

1293
01:04:07,530 --> 01:04:11,550
on the blackboard, but this
is a better rendition--

1294
01:04:11,550 --> 01:04:13,420
what does an innovation
wave look like?

1295
01:04:13,420 --> 01:04:17,110
And just to recap from
our discussion last week,

1296
01:04:17,110 --> 01:04:20,580
there's a long build up
and that can be 15, 20

1297
01:04:20,580 --> 01:04:22,973
years-- it can be longer.

1298
01:04:22,973 --> 01:04:24,640
And then at some
point, it hits a moment

1299
01:04:24,640 --> 01:04:26,790
where it can start to
scale up pretty quickly

1300
01:04:26,790 --> 01:04:29,620
and spread into the
society and economy.

1301
01:04:29,620 --> 01:04:32,430
So there is a fast
growth period here--

1302
01:04:32,430 --> 01:04:35,177
maybe that's a decade.

1303
01:04:35,177 --> 01:04:36,760
Then there's a period
of more stable--

1304
01:04:36,760 --> 01:04:39,990
there's always a
bubble and then there's

1305
01:04:39,990 --> 01:04:42,930
a period of more stable growth.

1306
01:04:42,930 --> 01:04:45,420
And maybe that's 20
years, maybe that's more.

1307
01:04:45,420 --> 01:04:50,070
And then eventually, you reach
kind of technological maturity.

1308
01:04:50,070 --> 01:04:55,050
So the IT wave, the one you all
are most familiar with that's

1309
01:04:55,050 --> 01:04:58,680
still ongoing, long build up.

1310
01:04:58,680 --> 01:05:00,160
When do we start it from?

1311
01:05:00,160 --> 01:05:03,330
Do we start it from
Babbage, do we start it

1312
01:05:03,330 --> 01:05:04,890
from Vannevar
Bush's differential

1313
01:05:04,890 --> 01:05:09,210
analyzer in the 1930s, do
we start it from ENIAC--

1314
01:05:09,210 --> 01:05:14,790
1946, the first functioning
mainframe computer.

1315
01:05:14,790 --> 01:05:16,290
We can start it
at various points,

1316
01:05:16,290 --> 01:05:18,660
but you get a sense for
how long that buildup is.

1317
01:05:18,660 --> 01:05:21,540
And then finally,
we hit the 1990s

1318
01:05:21,540 --> 01:05:24,140
and that incredible decade
of growth in the 1990s.

1319
01:05:24,140 --> 01:05:26,560
This very rapid scale up.

1320
01:05:26,560 --> 01:05:27,060
Max?

1321
01:05:27,060 --> 01:05:28,440
AUDIENCE: Why is it in this
diagram the buildup is not

1322
01:05:28,440 --> 01:05:30,605
as long as what you
pointed out last week?

1323
01:05:30,605 --> 01:05:33,447
Like, last week, you had said it
was 40 or 50 years [INAUDIBLE]..

1324
01:05:33,447 --> 01:05:34,530
WILLIAM BONVILLIAN: Right.

1325
01:05:34,530 --> 01:05:37,380
It depends on when
you date it from,

1326
01:05:37,380 --> 01:05:40,320
because everybody stands on
everybody else's shoulders

1327
01:05:40,320 --> 01:05:41,490
in the innovation process.

1328
01:05:41,490 --> 01:05:43,740
Maybe we ought to date it
Newtonian physics, right?

1329
01:05:43,740 --> 01:05:46,170
[LAUGHS]

1330
01:05:46,170 --> 01:05:48,990
I think ENIAC is a pretty
reasonable start date,

1331
01:05:48,990 --> 01:05:52,320
but there's a long time
between 1946 and 1990--

1332
01:05:52,320 --> 01:05:53,980
it's a very long period of time.

1333
01:05:53,980 --> 01:05:56,740
So it's a longer
period, frankly,

1334
01:05:56,740 --> 01:06:00,480
than this in many, many cases.

1335
01:06:00,480 --> 01:06:03,750
But then after the bubble--
and in the IT world,

1336
01:06:03,750 --> 01:06:06,870
that's the Dot-com bust of 2001.

1337
01:06:06,870 --> 01:06:09,720
Then all kinds of dot-coms fail.

1338
01:06:09,720 --> 01:06:12,360
And then the surviving
firms are stronger

1339
01:06:12,360 --> 01:06:15,120
and they go on a period of
stable continued growth.

1340
01:06:15,120 --> 01:06:17,290
I would argue that
that's where we're on now

1341
01:06:17,290 --> 01:06:20,070
in the IT innovation wave.

1342
01:06:20,070 --> 01:06:23,100
Eventually, we'll reach
technology maturity.

1343
01:06:23,100 --> 01:06:27,330
The IT wave is complicated
because information

1344
01:06:27,330 --> 01:06:31,770
is a core organizing
principle of the universe.

1345
01:06:31,770 --> 01:06:33,340
It's like mass and energy--

1346
01:06:33,340 --> 01:06:35,020
it's one of those big things.

1347
01:06:35,020 --> 01:06:37,590
And if you're tying your
innovation wave to something

1348
01:06:37,590 --> 01:06:41,190
as fundamental and powerful as
that, maybe it's more enduring.

1349
01:06:41,190 --> 01:06:43,920
And we haven't begun to touch
artificial intelligence yet.

1350
01:06:43,920 --> 01:06:48,270
So maybe we'll get a
lot longer run, Max,

1351
01:06:48,270 --> 01:06:50,230
in our stable growth period--

1352
01:06:50,230 --> 01:06:52,080
maybe we have a lot more to go.

1353
01:06:52,080 --> 01:06:53,670
But think about railroads.

1354
01:06:53,670 --> 01:06:56,760
You can think about
somewhere in the first half

1355
01:06:56,760 --> 01:06:58,680
of the 20th century, we
reached a fair amount

1356
01:06:58,680 --> 01:07:00,972
of technological maturity,
particularly with the advent

1357
01:07:00,972 --> 01:07:03,480
of the diesel-electric engine.

1358
01:07:03,480 --> 01:07:05,750
So there are incremental
advances in railroads,

1359
01:07:05,750 --> 01:07:08,880
but the real challenging
period is probably

1360
01:07:08,880 --> 01:07:11,412
over for the time being.

1361
01:07:11,412 --> 01:07:12,340
Beth?

1362
01:07:12,340 --> 01:07:15,180
AUDIENCE: So when we're looking
at the stable growth here,

1363
01:07:15,180 --> 01:07:17,300
it doesn't seem to account
for, like, other things

1364
01:07:17,300 --> 01:07:18,300
going on in the economy.

1365
01:07:18,300 --> 01:07:22,110
So if we're using recent
years for an example,

1366
01:07:22,110 --> 01:07:24,510
you don't think about
the financial crisis

1367
01:07:24,510 --> 01:07:26,860
and how that's affected
the economy as a whole.

1368
01:07:26,860 --> 01:07:29,790
So is this just kind of a
general upward trend where

1369
01:07:29,790 --> 01:07:32,820
we expect to see some ups
and downs from other causes,

1370
01:07:32,820 --> 01:07:35,168
or have you captured
those effects?

1371
01:07:35,168 --> 01:07:36,210
WILLIAM BONVILLIAN: Yeah.

1372
01:07:36,210 --> 01:07:39,450
I mean, there's-- we could call
them black swan elements that

1373
01:07:39,450 --> 01:07:42,105
pop up periodically that
disrupt everything like crazy.

1374
01:07:44,610 --> 01:07:46,650
I'd argue that
you could actually

1375
01:07:46,650 --> 01:07:54,140
treat the growth in financial
services as an innovation wave.

1376
01:07:54,140 --> 01:07:57,480
That there were a whole
series of technological areas

1377
01:07:57,480 --> 01:07:58,620
of advance--

1378
01:07:58,620 --> 01:08:02,370
in areas like mathematics
in particular.

1379
01:08:02,370 --> 01:08:04,470
But IT revolution
accompanies that.

1380
01:08:04,470 --> 01:08:06,540
You could actually add
the technology foundation

1381
01:08:06,540 --> 01:08:09,390
and the processes
to really create

1382
01:08:09,390 --> 01:08:13,050
global financial
services system.

1383
01:08:13,050 --> 01:08:17,010
And you can plot that
growth, and sure enough, they

1384
01:08:17,010 --> 01:08:18,710
have a bubble.

1385
01:08:18,710 --> 01:08:22,290
The problem with the bubble
in the financial services bust

1386
01:08:22,290 --> 01:08:25,290
is that it just doesn't bring
down a bunch of dot-coms,

1387
01:08:25,290 --> 01:08:26,819
it brings down the
entire economy.

1388
01:08:26,819 --> 01:08:30,660
So be careful about innovation
waves in the financial services

1389
01:08:30,660 --> 01:08:33,960
sector-- be very careful
because it messes everything up.

1390
01:08:33,960 --> 01:08:35,540
But I think you can actually--

1391
01:08:35,540 --> 01:08:37,290
I think that one
actually works as a wave.

1392
01:08:37,290 --> 01:08:39,109
Biotech for sure
works as a wave.

1393
01:08:39,109 --> 01:08:42,010
It's not nearly as big as IT,
but nonetheless is significant.

1394
01:08:42,010 --> 01:08:42,510
Matt?

1395
01:08:42,510 --> 01:08:46,540
AUDIENCE: I think my impression
of that, reading Atkinson,

1396
01:08:46,540 --> 01:08:49,350
was that because the
timescale of the innovation

1397
01:08:49,350 --> 01:08:53,140
is so much longer than
the business cycle,

1398
01:08:53,140 --> 01:08:55,680
the business cycles are, like,
flips that are superimposed

1399
01:08:55,680 --> 01:08:56,180
[INAUDIBLE].

1400
01:08:56,180 --> 01:08:57,788
WILLIAM BONVILLIAN:
Very good point.

1401
01:08:57,788 --> 01:08:59,205
They modulate
through the process.

1402
01:09:01,710 --> 01:09:03,990
Atkinson argues
that in US history,

1403
01:09:03,990 --> 01:09:06,270
there were essentially
four phases--

1404
01:09:06,270 --> 01:09:10,740
for long waves in
the US economy.

1405
01:09:10,740 --> 01:09:12,257
So he argues that--

1406
01:09:12,257 --> 01:09:14,340
and different people can
look at this differently.

1407
01:09:14,340 --> 01:09:16,548
And look, there's big waves,
and there's small waves,

1408
01:09:16,548 --> 01:09:18,540
and there's wavelets
within a wave,

1409
01:09:18,540 --> 01:09:21,000
so it's not absolutely
straightforward.

1410
01:09:21,000 --> 01:09:23,640
But he argues that in the
1840s, the development

1411
01:09:23,640 --> 01:09:26,910
of small local manufacturing
industries in New

1412
01:09:26,910 --> 01:09:31,319
England around textiles
and early machines,

1413
01:09:31,319 --> 01:09:33,359
that's one wave.

1414
01:09:33,359 --> 01:09:37,859
By the 1880s and '90s, that's
regional factory based systems.

1415
01:09:37,859 --> 01:09:40,830
And you know what those
19th century cities look

1416
01:09:40,830 --> 01:09:44,310
like-- think about Pittsburgh.

1417
01:09:44,310 --> 01:09:46,500
By the 1940s, we're
moving towards

1418
01:09:46,500 --> 01:09:49,140
corporate mass
production in areas

1419
01:09:49,140 --> 01:09:51,660
like automobiles and aircraft.

1420
01:09:51,660 --> 01:09:55,530
Then in the 1990s, he
argues the new economy

1421
01:09:55,530 --> 01:10:01,570
which is an IT based
innovation wave emerges--

1422
01:10:01,570 --> 01:10:04,410
that's global, that's
entrepreneurial,

1423
01:10:04,410 --> 01:10:05,380
that's knowledge based.

1424
01:10:05,380 --> 01:10:11,680
But that's his way of looking
at innovation waves in the US

1425
01:10:11,680 --> 01:10:12,624
economy.

1426
01:10:15,220 --> 01:10:18,940
We're familiar with the 1990s--
we just discussed that one,

1427
01:10:18,940 --> 01:10:21,610
so I won't dwell on it here.

1428
01:10:21,610 --> 01:10:23,290
The political
system typically is

1429
01:10:23,290 --> 01:10:25,630
slow to react to these
innovation waves.

1430
01:10:25,630 --> 01:10:28,630
It does not see them.

1431
01:10:28,630 --> 01:10:31,420
John Maynard Keynes,
the great economist

1432
01:10:31,420 --> 01:10:35,190
who created Keynesian
theory, once

1433
01:10:35,190 --> 01:10:37,260
said, "practical men
who believe themselves

1434
01:10:37,260 --> 01:10:40,530
to be quite exempt from
any intellectual influences

1435
01:10:40,530 --> 01:10:44,310
are usually slaves of
some defunct economist."

1436
01:10:44,310 --> 01:10:46,830
In other words, they're
operating off old economics

1437
01:10:46,830 --> 01:10:50,310
and tend to perpetrate them.

1438
01:10:50,310 --> 01:10:54,330
Atkinson argues that
the American old left

1439
01:10:54,330 --> 01:10:56,370
was focused essentially
on a mass production

1440
01:10:56,370 --> 01:11:00,300
economy, which had been
eclipsed by the time the IT

1441
01:11:00,300 --> 01:11:02,020
wave emerges.

1442
01:11:02,020 --> 01:11:05,430
The conservative
political elements--

1443
01:11:05,430 --> 01:11:08,640
the Republican Party at the
time and he's writing in--

1444
01:11:08,640 --> 01:11:13,090
was very supply side,
classical economics based.

1445
01:11:13,090 --> 01:11:14,790
They were worried
about capital supply,

1446
01:11:14,790 --> 01:11:16,207
and they were
worried particularly

1447
01:11:16,207 --> 01:11:19,740
about marginal tax rates
affecting that capital supply.

1448
01:11:19,740 --> 01:11:22,680
So that wasn't organized
around an innovation wave.

1449
01:11:22,680 --> 01:11:26,370
That was organized around
old classical economics.

1450
01:11:26,370 --> 01:11:30,210
So in a way, both
parties got organized

1451
01:11:30,210 --> 01:11:34,580
around the two fundamental bases
in classical economic theory.

1452
01:11:34,580 --> 01:11:36,930
The Democratic Party around
a broad definition of labor

1453
01:11:36,930 --> 01:11:39,180
supply that includes education,
and health, and things

1454
01:11:39,180 --> 01:11:41,070
like that, and the
Republican Party

1455
01:11:41,070 --> 01:11:43,240
around a theory
of capital supply,

1456
01:11:43,240 --> 01:11:45,390
which was translated
into tax policy.

1457
01:11:45,390 --> 01:11:47,430
It's largely where
those parties are today.

1458
01:11:47,430 --> 01:11:50,520
They missed innovation
based growth theory.

1459
01:11:50,520 --> 01:11:52,800
AUDIENCE: When did that start?

1460
01:11:52,800 --> 01:11:57,063
When did that
happen [INAUDIBLE]??

1461
01:11:57,063 --> 01:11:59,230
WILLIAM BONVILLIAN: I would
say that the parties had

1462
01:11:59,230 --> 01:12:03,430
locked into this by pretty
early on in the 20th century.

1463
01:12:03,430 --> 01:12:05,395
By the time of
Franklin Roosevelt

1464
01:12:05,395 --> 01:12:07,985
is when the Democratic
Party locks into--

1465
01:12:07,985 --> 01:12:10,360
look, there's nothing wrong
with capitalist [INAUDIBLE]..

1466
01:12:10,360 --> 01:12:12,683
There's nothing wrong
with labor supply.

1467
01:12:12,683 --> 01:12:15,100
They're important elements and
they need to be considered,

1468
01:12:15,100 --> 01:12:16,720
and they're contributors.

1469
01:12:16,720 --> 01:12:20,920
We just know, however, that
innovation based growth

1470
01:12:20,920 --> 01:12:25,930
is the larger factor in growth,
and the political parties

1471
01:12:25,930 --> 01:12:27,950
haven't gotten there yet.

1472
01:12:27,950 --> 01:12:32,320
So a real structural
problem in the US system.

1473
01:12:32,320 --> 01:12:37,470
Neither then embrace
growth economics

1474
01:12:37,470 --> 01:12:41,440
and spurring innovation,
and that leads us

1475
01:12:41,440 --> 01:12:46,240
to some interesting ideas
about social organization.

1476
01:12:46,240 --> 01:12:51,110
So technology and
technological organization

1477
01:12:51,110 --> 01:12:56,330
is going to drive social
and economic structures.

1478
01:12:56,330 --> 01:12:59,420
So it's a really important
point that he raises here,

1479
01:12:59,420 --> 01:13:01,760
and it's I think
one of the reasons

1480
01:13:01,760 --> 01:13:06,680
why the subject of this class
is actually really important.

1481
01:13:06,680 --> 01:13:09,800
It's bigger than standing
up cool technologies.

1482
01:13:09,800 --> 01:13:14,990
It's a lot bigger than that
because this class is not only

1483
01:13:14,990 --> 01:13:17,930
about technology
development, it is

1484
01:13:17,930 --> 01:13:20,840
about the way society
organizes itself

1485
01:13:20,840 --> 01:13:23,970
around those technologies.

1486
01:13:23,970 --> 01:13:29,030
So Hagel, great German
philosopher-- "western society

1487
01:13:29,030 --> 01:13:32,150
is driven by the
competition of ideas."

1488
01:13:32,150 --> 01:13:35,270
Thesis, antithesis--
you all know the story.

1489
01:13:35,270 --> 01:13:41,270
Marx introduces a very different
concept into that conversation.

1490
01:13:41,270 --> 01:13:45,170
He argues that in acquiring
new productive forces,

1491
01:13:45,170 --> 01:13:47,300
people change their
mode of production,

1492
01:13:47,300 --> 01:13:49,340
and in changing their
mode of production,

1493
01:13:49,340 --> 01:13:51,620
they change their way
of living and they

1494
01:13:51,620 --> 01:13:54,830
change their social relations.

1495
01:13:54,830 --> 01:13:58,010
So that's fundamental Marx
philosophical perspective.

1496
01:13:58,010 --> 01:14:01,700
That is called
determinism in philosophy.

1497
01:14:01,700 --> 01:14:05,060
In other words, the
technological order

1498
01:14:05,060 --> 01:14:08,360
of your society will be
determinative of the kind

1499
01:14:08,360 --> 01:14:10,580
of society you have.

1500
01:14:10,580 --> 01:14:12,290
And that's how Marxism evolves.

1501
01:14:12,290 --> 01:14:14,840
That's the fundamental
philosophical underpinning.

1502
01:14:14,840 --> 01:14:17,270
And he is seeing the
Industrial Revolution drive

1503
01:14:17,270 --> 01:14:23,000
systematic change in
society in the late 18th

1504
01:14:23,000 --> 01:14:24,110
through the 19th century.

1505
01:14:24,110 --> 01:14:25,550
That's what he's seeing.

1506
01:14:25,550 --> 01:14:27,470
He's seeing this
incredible class order

1507
01:14:27,470 --> 01:14:32,420
evolve to match the very
hierarchical structure

1508
01:14:32,420 --> 01:14:35,450
that industrial organization,
driven by the Industrial

1509
01:14:35,450 --> 01:14:37,625
Revolution, requires
at that time.

1510
01:14:37,625 --> 01:14:39,535
Now, Stephanie,
you had a question?

1511
01:14:39,535 --> 01:14:40,970
AUDIENCE: Yeah, [INAUDIBLE].

1512
01:14:40,970 --> 01:14:42,600
I was wondering [INAUDIBLE]--

1513
01:14:42,600 --> 01:14:44,132
WILLIAM BONVILLIAN: I'll get it.

1514
01:14:44,132 --> 01:14:46,090
AUDIENCE: --when I was
looking at the syllabus,

1515
01:14:46,090 --> 01:14:48,396
was are we going to
talk about it some more?

1516
01:14:48,396 --> 01:14:51,110
Because I guess I was
curious if you were operating

1517
01:14:51,110 --> 01:14:53,690
under the presumption, at least
in the lecture and the ways

1518
01:14:53,690 --> 01:14:55,460
in which we were supposed
to be perceiving readings

1519
01:14:55,460 --> 01:14:56,085
were giving us.

1520
01:14:56,085 --> 01:14:59,402
Like, capitalism is good, or
that capitalism is natural,

1521
01:14:59,402 --> 01:15:03,194
or that capitalism is something
that technology sort of--

1522
01:15:03,194 --> 01:15:06,350
or rather that capitalism
perpetuates technology,

1523
01:15:06,350 --> 01:15:08,485
technology works to
perpetuate capitalism.

1524
01:15:08,485 --> 01:15:10,610
When I think there's really
a lot of conversations,

1525
01:15:10,610 --> 01:15:12,420
particularly arising
in the last maybe

1526
01:15:12,420 --> 01:15:14,780
two or three years, about
the basic income guarantee

1527
01:15:14,780 --> 01:15:17,090
and the potential for
technology really eliminating

1528
01:15:17,090 --> 01:15:19,310
the necessity for labor
in [INAUDIBLE] economies.

1529
01:15:19,310 --> 01:15:22,280
So I figured I would
ask at this point

1530
01:15:22,280 --> 01:15:25,310
when it became relevant
because you had brought it up--

1531
01:15:25,310 --> 01:15:26,150
WILLIAM BONVILLIAN: [LAUGHS]
I gave you an opening.

1532
01:15:26,150 --> 01:15:27,310
AUDIENCE: --there you go, yeah--

1533
01:15:27,310 --> 01:15:28,950
whether or not we're operating
under the presumption

1534
01:15:28,950 --> 01:15:31,550
that the free markets are good
or desirable in the long run.

1535
01:15:33,337 --> 01:15:35,420
WILLIAM BONVILLIAN: That
is really a big question.

1536
01:15:35,420 --> 01:15:36,770
[LAUGHING]

1537
01:15:36,770 --> 01:15:38,450
I guess I opened
myself up to that

1538
01:15:38,450 --> 01:15:40,640
by bringing determinism in--

1539
01:15:40,640 --> 01:15:44,750
using the excuse that
Atkinson raised the subject.

1540
01:15:44,750 --> 01:15:47,150
Look, that's not a
dialogue that the US

1541
01:15:47,150 --> 01:15:48,860
has had for some decades.

1542
01:15:48,860 --> 01:15:53,180
We thought the Cold War was over
and we thought capitalism won.

1543
01:15:53,180 --> 01:15:55,580
It's only in fairly recent
years that we're actually

1544
01:15:55,580 --> 01:15:58,340
starting to think, hmm, maybe
there's some more elements here

1545
01:15:58,340 --> 01:16:00,597
that we need to consider.

1546
01:16:00,597 --> 01:16:02,180
Look, I think that's
an open question.

1547
01:16:02,180 --> 01:16:04,160
Obviously, this class
is about innovation

1548
01:16:04,160 --> 01:16:07,817
and it's about innovation in
largely capitalistic systems,

1549
01:16:07,817 --> 01:16:10,400
which obviously is the direction
that the world economies have

1550
01:16:10,400 --> 01:16:13,040
gone in worldwide.

1551
01:16:13,040 --> 01:16:14,930
So I think that's the reality.

1552
01:16:14,930 --> 01:16:18,570
That's the reality we have.

1553
01:16:18,570 --> 01:16:23,390
My personal view is that
that's essentially a positive,

1554
01:16:23,390 --> 01:16:25,490
but there are
different views here.

1555
01:16:25,490 --> 01:16:30,380
And we have to keep in mind how
powerful the technologies that

1556
01:16:30,380 --> 01:16:32,510
are coming out of these
innovation systems

1557
01:16:32,510 --> 01:16:36,830
can be for how we relate
to one another as people--

1558
01:16:36,830 --> 01:16:38,510
how we organize
our social lives.

1559
01:16:42,230 --> 01:16:44,440
So the prevailing
technology system

1560
01:16:44,440 --> 01:16:46,870
really sets parameters
on the fundamentals

1561
01:16:46,870 --> 01:16:49,642
of social organization.

1562
01:16:49,642 --> 01:16:51,640
A few other thoughts
along those lines--

1563
01:16:51,640 --> 01:16:55,240
Kondratieff who developed the
fundamentals of wave theory

1564
01:16:55,240 --> 01:16:57,010
back at the beginning
of the 20th century.

1565
01:16:59,950 --> 01:17:07,870
He viewed depression as a
trough in a 50 year wave cycle.

1566
01:17:07,870 --> 01:17:10,150
Classical economists'
view of depression

1567
01:17:10,150 --> 01:17:13,120
was that they were waiting
for wages and prices

1568
01:17:13,120 --> 01:17:17,980
to fall far enough
to enable a rebound.

1569
01:17:17,980 --> 01:17:21,640
Eventually, everything is cheap
enough-- somebody will buy it.

1570
01:17:21,640 --> 01:17:26,200
Keynes took on that attitude.

1571
01:17:26,200 --> 01:17:29,170
This is to point back to
what you raised, Matt,

1572
01:17:29,170 --> 01:17:33,310
about how does economic cycle
theory interact with innovation

1573
01:17:33,310 --> 01:17:33,990
wave theories.

1574
01:17:33,990 --> 01:17:37,720
So we're right exactly at
that point that you raised.

1575
01:17:37,720 --> 01:17:39,970
So Keynes agreed,
but in the end he

1576
01:17:39,970 --> 01:17:42,130
argued better intervene
because in the long range,

1577
01:17:42,130 --> 01:17:43,390
we're all dead.

1578
01:17:43,390 --> 01:17:45,400
So don't wait that long--

1579
01:17:45,400 --> 01:17:47,950
better get on with it.

1580
01:17:47,950 --> 01:17:52,570
Schumpeter definitely saw--
who's an advocate in economics

1581
01:17:52,570 --> 01:17:56,230
of disruptive capitalism,
destructive capitalism--

1582
01:17:56,230 --> 01:17:59,260
he saw Kondratieff's
long waves theory,

1583
01:17:59,260 --> 01:18:01,990
but he saw them as driven
by innovation, not just

1584
01:18:01,990 --> 01:18:04,568
in technology, but in
the accompanying aspects.

1585
01:18:04,568 --> 01:18:05,860
So production and distribution.

1586
01:18:05,860 --> 01:18:08,560
So it's not only the
technology, but it's

1587
01:18:08,560 --> 01:18:10,420
the production and
distribution system too

1588
01:18:10,420 --> 01:18:13,030
that he would add to that mix.

1589
01:18:13,030 --> 01:18:15,760
So destructive
capitalism, in the end,

1590
01:18:15,760 --> 01:18:19,180
is based on radical
innovation as opposed

1591
01:18:19,180 --> 01:18:23,050
to incremental innovation,
which means that if you really

1592
01:18:23,050 --> 01:18:26,410
want disruptive capitalism
and the potential gains

1593
01:18:26,410 --> 01:18:28,600
of innovation that
can derive from it,

1594
01:18:28,600 --> 01:18:31,120
you've got to think hard about
radical innovation, not just

1595
01:18:31,120 --> 01:18:33,690
incremental advance.

1596
01:18:33,690 --> 01:18:37,130
So in our system,
that means in turn,

1597
01:18:37,130 --> 01:18:39,430
you gotta think about
that early stage R&D

1598
01:18:39,430 --> 01:18:43,500
too, because that's the real
contributor to radical advance

1599
01:18:43,500 --> 01:18:45,540
as opposed to industries
development, which

1600
01:18:45,540 --> 01:18:47,316
is largely incremental.

1601
01:18:47,316 --> 01:18:48,070
You with me?

1602
01:18:51,280 --> 01:18:53,800
So Atkinson argues
that technology

1603
01:18:53,800 --> 01:18:57,040
is the skeleton on which
an economy is formed,

1604
01:18:57,040 --> 01:19:01,810
and every half century or
so, the skeleton changes

1605
01:19:01,810 --> 01:19:04,600
as these waves come about.

1606
01:19:04,600 --> 01:19:06,910
The changes are not steady.

1607
01:19:06,910 --> 01:19:09,490
They can be very clustered.

1608
01:19:09,490 --> 01:19:11,830
This is not a smooth wave.

1609
01:19:11,830 --> 01:19:14,710
There should have been
lots of erratic lines

1610
01:19:14,710 --> 01:19:16,720
in the wave theory
diagram I showed you.

1611
01:19:19,380 --> 01:19:22,450
Now Carlotta Perez is a
great growth economist

1612
01:19:22,450 --> 01:19:24,460
who taught at the
University of Sussex

1613
01:19:24,460 --> 01:19:27,850
and worked with
Chris Freeman there,

1614
01:19:27,850 --> 01:19:33,800
and she argues that it's
not just the economy

1615
01:19:33,800 --> 01:19:36,650
changes, but the politics,
social relations, and the how

1616
01:19:36,650 --> 01:19:38,930
and where we live that changes.

1617
01:19:38,930 --> 01:19:42,440
And it's also how we organize
our education system,

1618
01:19:42,440 --> 01:19:44,508
and how our culture
in turn, which

1619
01:19:44,508 --> 01:19:46,800
is driven by some of these
factors, shapes our beliefs.

1620
01:19:46,800 --> 01:19:50,780
So, quote, "the logic of
the techno-economic paradigm

1621
01:19:50,780 --> 01:19:53,810
reaches well beyond the economic
sphere to become a general

1622
01:19:53,810 --> 01:19:57,830
and shared organization
common sense of the period."

1623
01:19:57,830 --> 01:19:59,620
So here's an idea here--

1624
01:19:59,620 --> 01:20:01,100
a techno-economic paradigm.

1625
01:20:04,090 --> 01:20:06,980
A paradigm that includes
technology, but therefore

1626
01:20:06,980 --> 01:20:08,870
reaches deep into economics.

1627
01:20:08,870 --> 01:20:12,830
So there's a driving
paradigm in a society

1628
01:20:12,830 --> 01:20:14,610
that connects these two.

1629
01:20:14,610 --> 01:20:17,270
I'll argue later in
class that the paradigm

1630
01:20:17,270 --> 01:20:18,430
is even bigger than this.

1631
01:20:21,230 --> 01:20:24,270
And that becomes, in a
way, the order of things.

1632
01:20:24,270 --> 01:20:29,240
So I think we'll kind
of wrap it up here

1633
01:20:29,240 --> 01:20:32,570
in terms of talking
about Atkinson because we

1634
01:20:32,570 --> 01:20:34,010
need to move on.

1635
01:20:34,010 --> 01:20:39,960
But Beth, you've got
Atkinson as well, right?

1636
01:20:39,960 --> 01:20:41,450
And I think,
actually, if you speak

1637
01:20:41,450 --> 01:20:43,250
into the mic in the center--

1638
01:20:43,250 --> 01:20:47,660
and I'll move this
laptop slightly

1639
01:20:47,660 --> 01:20:49,430
so you've got a
direct line there.

1640
01:20:53,890 --> 01:20:55,960
Thanks, Alberto.

1641
01:20:55,960 --> 01:20:58,168
AUDIENCE: So again,
looking at the questions

1642
01:20:58,168 --> 01:20:59,710
that people submitted,
there are kind

1643
01:20:59,710 --> 01:21:03,700
of four themes that came about.

1644
01:21:03,700 --> 01:21:06,700
The first being, do we
believe this is a new economy?

1645
01:21:06,700 --> 01:21:08,797
This whole concept
of the new economy

1646
01:21:08,797 --> 01:21:10,630
that Atkinson talks
about, is that something

1647
01:21:10,630 --> 01:21:12,280
that we're on board with?

1648
01:21:12,280 --> 01:21:14,890
What is the applicability
of long wave theory?

1649
01:21:14,890 --> 01:21:16,900
Is it something that's
unique to the US

1650
01:21:16,900 --> 01:21:19,450
and to more developed
countries, or can we

1651
01:21:19,450 --> 01:21:23,140
apply it anywhere in the world?

1652
01:21:23,140 --> 01:21:24,850
Are there actions
that can be taken

1653
01:21:24,850 --> 01:21:29,490
to minimize these troughs to
shorten how long depressions

1654
01:21:29,490 --> 01:21:30,730
may be?

1655
01:21:30,730 --> 01:21:33,190
And then a lot of
just about what

1656
01:21:33,190 --> 01:21:35,110
is technology's
effect on society,

1657
01:21:35,110 --> 01:21:36,430
and what it should we--

1658
01:21:36,430 --> 01:21:38,440
should the government
be doing things

1659
01:21:38,440 --> 01:21:42,910
to counteract technology's
effect on society

1660
01:21:42,910 --> 01:21:48,164
or is it a good thing that
we're seeing these effects?

1661
01:21:48,164 --> 01:21:50,950
So just a few points
before we go into that

1662
01:21:50,950 --> 01:21:53,820
that I found interesting.

1663
01:21:53,820 --> 01:21:56,220
So Atkinson writes
with the belief

1664
01:21:56,220 --> 01:21:58,290
that this new
economy is something

1665
01:21:58,290 --> 01:22:00,780
that is permanent--
it's not just a blip.

1666
01:22:00,780 --> 01:22:02,280
And I think that's
something that we

1667
01:22:02,280 --> 01:22:04,980
can kind of work with
as an assumption when

1668
01:22:04,980 --> 01:22:06,660
we discuss this.

1669
01:22:06,660 --> 01:22:09,020
But if you have specific
things that you can point out

1670
01:22:09,020 --> 01:22:14,490
that it is just a blip, I'd be
interested to hear this too.

1671
01:22:14,490 --> 01:22:16,380
And so the concept
of this new economy

1672
01:22:16,380 --> 01:22:19,170
forms new businesses,
labor organizations,

1673
01:22:19,170 --> 01:22:22,710
educational systems,
cultural beliefs

1674
01:22:22,710 --> 01:22:24,720
I think is especially
relevant today

1675
01:22:24,720 --> 01:22:28,650
as we're kind of seeing a lot
of interesting political things

1676
01:22:28,650 --> 01:22:29,830
arise.

1677
01:22:29,830 --> 01:22:33,480
And it says with
every disruption,

1678
01:22:33,480 --> 01:22:36,200
entrenched interests will push
back and may resist the change,

1679
01:22:36,200 --> 01:22:37,950
and so I think that's
something that would

1680
01:22:37,950 --> 01:22:39,033
be interesting to discuss.

1681
01:22:41,940 --> 01:22:44,107
So before we go into the
social aspects, I want to--

1682
01:22:44,107 --> 01:22:45,732
WILLIAM BONVILLIAN:
I just want to say,

1683
01:22:45,732 --> 01:22:47,600
Beth, I really like that--

1684
01:22:47,600 --> 01:22:48,530
your last point here.

1685
01:22:48,530 --> 01:22:50,810
In other words, we are
seeing very significant

1686
01:22:50,810 --> 01:22:52,940
social disruption today.

1687
01:22:52,940 --> 01:22:58,370
And we may be able to connect it
back to the IT innovation wave

1688
01:22:58,370 --> 01:23:01,310
which, frankly, the
upper middle class has

1689
01:23:01,310 --> 01:23:05,330
ridden to unparalleled success,
but left a lot of people

1690
01:23:05,330 --> 01:23:06,500
behind--

1691
01:23:06,500 --> 01:23:07,578
maybe.

1692
01:23:07,578 --> 01:23:08,870
Is that what you're driving at?

1693
01:23:08,870 --> 01:23:11,655
AUDIENCE: That's kind of what
I was going to talk about.

1694
01:23:11,655 --> 01:23:14,450
So I guess you can jump
into that actually.

1695
01:23:14,450 --> 01:23:17,510
So we talk about how
these long waves increase

1696
01:23:17,510 --> 01:23:21,020
overall quality of life
perhaps at the national scale,

1697
01:23:21,020 --> 01:23:24,080
but they do tend to be unequal.

1698
01:23:24,080 --> 01:23:26,450
So should the government
have responsibility

1699
01:23:26,450 --> 01:23:29,300
for correcting this
inequity, should it just

1700
01:23:29,300 --> 01:23:33,070
be focusing on total efficiency
for the nation as a whole,

1701
01:23:33,070 --> 01:23:37,730
and how can it balance the idea
that some parts of the country

1702
01:23:37,730 --> 01:23:40,850
may be worse off while
others are better off?

1703
01:23:40,850 --> 01:23:42,320
So it's very broad and open.

1704
01:23:42,320 --> 01:23:44,570
AUDIENCE: Could you repeat
the question one more time?

1705
01:23:44,570 --> 01:23:46,820
AUDIENCE: Yeah.

1706
01:23:46,820 --> 01:23:49,730
So the paper claims
that these long waves

1707
01:23:49,730 --> 01:23:53,000
increase the general quality
of life, maybe at, like,

1708
01:23:53,000 --> 01:23:54,410
a national scale.

1709
01:23:54,410 --> 01:23:59,670
But the benefits are likely
to be uneven based on maybe

1710
01:23:59,670 --> 01:24:03,650
who's most prepared to take
on the technological changes.

1711
01:24:03,650 --> 01:24:05,720
So should the government
have a responsibility

1712
01:24:05,720 --> 01:24:08,480
to increase the equity?

1713
01:24:08,480 --> 01:24:11,510
Should they be more focused
on just total efficiency?

1714
01:24:11,510 --> 01:24:14,060
How do we handle this
and the societal changes

1715
01:24:14,060 --> 01:24:15,300
that arise from it?

1716
01:24:15,300 --> 01:24:18,380
I think there is some
talk that that's kind of--

1717
01:24:18,380 --> 01:24:21,500
that wave of populism
has been very

1718
01:24:21,500 --> 01:24:24,320
evident in recent elections,
so is that something

1719
01:24:24,320 --> 01:24:26,495
that the government
should be intervening with

1720
01:24:26,495 --> 01:24:28,120
or should it be up
to the free markets?

1721
01:24:33,488 --> 01:24:35,440
AUDIENCE: I guess I'll jump in.

1722
01:24:35,440 --> 01:24:37,790
I think the major implications
of innovation wave theory

1723
01:24:37,790 --> 01:24:39,507
is just that we should
always be nervous

1724
01:24:39,507 --> 01:24:41,090
because if we don't
get the next wave,

1725
01:24:41,090 --> 01:24:42,632
then our economy is
kind of screwed--

1726
01:24:42,632 --> 01:24:44,480
we won't be number one anymore.

1727
01:24:44,480 --> 01:24:46,580
And so, like, some key
technologies-- or also

1728
01:24:46,580 --> 01:24:48,890
some examples of what could
happen in the future is,

1729
01:24:48,890 --> 01:24:52,230
like, there's certain
asteroid belts that are

1730
01:24:52,230 --> 01:24:54,950
worth quintillion's of dollars.

1731
01:24:54,950 --> 01:24:57,270
So if we happen to
say, oh, you know

1732
01:24:57,270 --> 01:24:59,720
what, we're just going to
not really focus on having

1733
01:24:59,720 --> 01:25:01,190
rapid innovation in Japan.

1734
01:25:01,190 --> 01:25:03,380
Or China says, oh,
actually, we're not really

1735
01:25:03,380 --> 01:25:05,930
focusing on this at all--

1736
01:25:05,930 --> 01:25:09,050
let's do a Manhattan
Project for going into space

1737
01:25:09,050 --> 01:25:10,328
and being able to mine.

1738
01:25:10,328 --> 01:25:12,620
And they can go in and they
can get quintillion dollars

1739
01:25:12,620 --> 01:25:17,210
into their economy, then their
GDP is looking pretty good.

1740
01:25:17,210 --> 01:25:18,930
Other implications
are say somebody

1741
01:25:18,930 --> 01:25:21,590
focuses a lot on biotech
to the point where

1742
01:25:21,590 --> 01:25:25,700
they can engineer diseases
that only they can counter.

1743
01:25:25,700 --> 01:25:28,460
And then they start doing
biological warfare because they

1744
01:25:28,460 --> 01:25:30,650
know the US has nuclear arms.

1745
01:25:30,650 --> 01:25:33,496
So that's a different
way they can branch out.

1746
01:25:33,496 --> 01:25:37,518
So I guess it's kind
of this idea of we're

1747
01:25:37,518 --> 01:25:39,310
never really on top,
or when you're on top,

1748
01:25:39,310 --> 01:25:41,150
everyone is shooting
for you, I guess.

1749
01:25:41,150 --> 01:25:43,700
Where we could say, yeah,
we're number one, but also

1750
01:25:43,700 --> 01:25:47,450
say we really need to
keep innovating and think

1751
01:25:47,450 --> 01:25:49,160
about how we're structuring it.

1752
01:25:49,160 --> 01:25:51,290
Because the future is
always going to be-- well,

1753
01:25:51,290 --> 01:25:54,150
time is pretty much just
indicating that change

1754
01:25:54,150 --> 01:25:55,670
is happening all the time.

1755
01:25:55,670 --> 01:25:59,170
So we probably won't be where
we're at, and we probably--

1756
01:25:59,170 --> 01:26:01,320
I'm thinking we don't
want to go down,

1757
01:26:01,320 --> 01:26:04,730
but that's really up to
the US and its citizens

1758
01:26:04,730 --> 01:26:07,850
to decide every
single generation.

1759
01:26:07,850 --> 01:26:10,153
AUDIENCE: I might come
at it from a little bit

1760
01:26:10,153 --> 01:26:10,820
different angle.

1761
01:26:10,820 --> 01:26:14,480
I think we've been talking a lot
about sort of a capital based

1762
01:26:14,480 --> 01:26:16,700
innovation and how that might--

1763
01:26:16,700 --> 01:26:19,790
the IT boom and how things
might be a little different

1764
01:26:19,790 --> 01:26:22,610
structured on, like,
a capital side.

1765
01:26:22,610 --> 01:26:25,362
We might have--
just kind of look

1766
01:26:25,362 --> 01:26:27,445
at the effect of human
capital and in the universe

1767
01:26:27,445 --> 01:26:28,410
of innovation.

1768
01:26:28,410 --> 01:26:31,460
But I think there's an
important piece here

1769
01:26:31,460 --> 01:26:34,730
where we see a lot of growth
in the upper middle class

1770
01:26:34,730 --> 01:26:38,330
because they're prepared
to handle [INAUDIBLE]

1771
01:26:38,330 --> 01:26:42,480
a lot of the sort of more human
aspects of where we're going.

1772
01:26:42,480 --> 01:26:45,350
But you see sort
of this transition

1773
01:26:45,350 --> 01:26:48,782
as we look forward into
sort of management styles

1774
01:26:48,782 --> 01:26:50,990
and kind of structuring
things, which is a little bit

1775
01:26:50,990 --> 01:26:52,698
more high level, which
again lends itself

1776
01:26:52,698 --> 01:26:53,790
to the middle class.

1777
01:26:53,790 --> 01:26:55,880
Which I think if
we were looking to,

1778
01:26:55,880 --> 01:26:59,570
as a corrective
measure for government

1779
01:26:59,570 --> 01:27:01,610
widespread involvement,
there is this sort

1780
01:27:01,610 --> 01:27:04,160
of public need for the
smoothing and transition.

1781
01:27:04,160 --> 01:27:07,410
So that, like, you see the
highs for those that are high,

1782
01:27:07,410 --> 01:27:08,980
but you don't see
the aggressive lows

1783
01:27:08,980 --> 01:27:11,870
for those that are low sort
of passed over and made

1784
01:27:11,870 --> 01:27:14,170
obsolete structurally
by this innovation.

1785
01:27:14,170 --> 01:27:17,360
And I think there's
a greater need

1786
01:27:17,360 --> 01:27:22,640
for kind of renewed investment
in sort of this human capital.

1787
01:27:22,640 --> 01:27:24,710
I guess at the end
of the '60s, you

1788
01:27:24,710 --> 01:27:28,360
had the GI Bill which helped
kind of a lot of folks

1789
01:27:28,360 --> 01:27:32,750
get reintegrated in
sort of public education

1790
01:27:32,750 --> 01:27:35,330
and greater institutional
or secondary education

1791
01:27:35,330 --> 01:27:38,267
at postgraduate increased
sort of en masse.

1792
01:27:38,267 --> 01:27:40,100
For a lot of different
reasons, that sort of

1793
01:27:40,100 --> 01:27:43,270
helped ride the wave into
the 1990s because of that.

1794
01:27:43,270 --> 01:27:48,575
But these sort of things
now, it's [INAUDIBLE]..

1795
01:27:53,313 --> 01:27:54,730
There's a lot of
different changes

1796
01:27:54,730 --> 01:27:56,600
that may happen a lot of more
frequently now and a lot more

1797
01:27:56,600 --> 01:27:57,100
connected.

1798
01:27:57,100 --> 01:28:00,550
So there's less room for
error because we can't really

1799
01:28:00,550 --> 01:28:05,520
isolate ourselves in sort
of this US national system.

1800
01:28:05,520 --> 01:28:07,310
But as a general
[INAUDIBLE] summary,

1801
01:28:07,310 --> 01:28:10,310
I think you get a lot of these
interesting events happening

1802
01:28:10,310 --> 01:28:14,200
a lot more quickly, so the highs
can get higher a lot faster

1803
01:28:14,200 --> 01:28:16,003
and the lows can get
lower a lot faster.

1804
01:28:16,003 --> 01:28:18,420
And so if we were sort of to
look for a governmental role,

1805
01:28:18,420 --> 01:28:20,840
it'd be sort of probably
smoothing out these lows

1806
01:28:20,840 --> 01:28:22,340
rather than focusing--

1807
01:28:22,340 --> 01:28:23,590
AUDIENCE: Or insurance.

1808
01:28:23,590 --> 01:28:25,250
AUDIENCE: Insurance-- yeah.

1809
01:28:25,250 --> 01:28:28,910
Investment backing and
equity capital so you have--

1810
01:28:28,910 --> 01:28:30,893
you're more able to kind
of take these shots.

1811
01:28:30,893 --> 01:28:33,310
WILLIAM BONVILLIAN: So Rasheed,
that's really interesting,

1812
01:28:33,310 --> 01:28:35,420
and you're driving
us to a perspective

1813
01:28:35,420 --> 01:28:38,550
here that innovation
waves may be

1814
01:28:38,550 --> 01:28:42,050
a way, at least in the shorter
term, for the rich to get

1815
01:28:42,050 --> 01:28:47,630
richer and to create a
larger underclass, right?

1816
01:28:47,630 --> 01:28:51,360
If we look at the Industrial
Revolution, the workout

1817
01:28:51,360 --> 01:28:54,075
period of doing the
adjustments for the workforce--

1818
01:28:54,075 --> 01:28:55,700
I mean, that's a 100
year long project.

1819
01:28:59,150 --> 01:29:01,250
I think that recent
election results may tell us

1820
01:29:01,250 --> 01:29:04,790
that we don't have the kind
time to play with as we work out

1821
01:29:04,790 --> 01:29:07,220
the latest innovation waves.

1822
01:29:07,220 --> 01:29:10,940
Now is an alternative to
bring on another wave?

1823
01:29:13,580 --> 01:29:15,980
And then maybe all
waves are not the same

1824
01:29:15,980 --> 01:29:18,020
in terms of their class,
and structural effects,

1825
01:29:18,020 --> 01:29:20,240
and deterministic effects.

1826
01:29:20,240 --> 01:29:23,900
So if Martha's innovation wave
around new energy technology

1827
01:29:23,900 --> 01:29:27,560
that she spends her
life on comes about,

1828
01:29:27,560 --> 01:29:30,590
that may be a big net
generator of employment

1829
01:29:30,590 --> 01:29:34,410
overall as opposed to an
IT software wave which

1830
01:29:34,410 --> 01:29:36,410
appears to be less so.

1831
01:29:36,410 --> 01:29:38,480
So different waves may
have different kind

1832
01:29:38,480 --> 01:29:41,900
of underlying structural
features for the society.

1833
01:29:41,900 --> 01:29:44,741
AUDIENCE: [INAUDIBLE]

1834
01:29:44,741 --> 01:29:48,460
WILLIAM BONVILLIAN: [LAUGHS]
Right, unless we get on it.

1835
01:29:48,460 --> 01:29:49,940
Martha, you better hurry up.

1836
01:29:49,940 --> 01:29:50,900
That's all I can say.

1837
01:29:50,900 --> 01:29:52,900
AUDIENCE: [INAUDIBLE]

1838
01:29:52,900 --> 01:29:55,192
WILLIAM BONVILLIAN: What are
you saying this class was?

1839
01:29:55,192 --> 01:29:57,466
AUDIENCE: I wanted to
come back to a point

1840
01:29:57,466 --> 01:29:59,247
that Beth made right
at the beginning

1841
01:29:59,247 --> 01:30:01,580
when she said that we're going
to work on the assumption

1842
01:30:01,580 --> 01:30:06,045
that our economy is an
innovation driven economy.

1843
01:30:06,045 --> 01:30:07,670
And I think that all
of us in this room

1844
01:30:07,670 --> 01:30:09,620
are probably on board with that.

1845
01:30:09,620 --> 01:30:12,630
A lot of economists
are on board with that,

1846
01:30:12,630 --> 01:30:15,890
but then Bill made the point
that our two-party system

1847
01:30:15,890 --> 01:30:21,200
is arranged mostly around
these older views of economics.

1848
01:30:21,200 --> 01:30:25,930
So why haven't one or
both of the parties sort

1849
01:30:25,930 --> 01:30:28,160
of switched over into the
more innovation driven

1850
01:30:28,160 --> 01:30:29,990
economic theory?

1851
01:30:29,990 --> 01:30:31,740
And if they did,
couldn't we solve a lot

1852
01:30:31,740 --> 01:30:33,083
of these problems a lot better?

1853
01:30:33,083 --> 01:30:34,010
[LAUGHS] [INAUDIBLE].

1854
01:30:34,010 --> 01:30:34,940
WILLIAM BONVILLIAN:
Well, Lilly, I'm

1855
01:30:34,940 --> 01:30:37,250
happy to tell you I worked
in the Senate for 15 years.

1856
01:30:37,250 --> 01:30:38,710
I wasn't able to persuade them--

1857
01:30:38,710 --> 01:30:41,248
I just wasn't able
to bring it about.

1858
01:30:41,248 --> 01:30:43,040
AUDIENCE: So just to
play devil's advocate,

1859
01:30:43,040 --> 01:30:44,617
what would that look like?

1860
01:30:44,617 --> 01:30:46,700
How would it be different
than what we have today?

1861
01:30:50,690 --> 01:30:54,500
AUDIENCE: I would say
probably the supply side

1862
01:30:54,500 --> 01:30:59,640
economic theory would take more
of a hit than maybe the labor

1863
01:30:59,640 --> 01:31:01,190
supply economic theory.

1864
01:31:01,190 --> 01:31:03,380
AUDIENCE: Well, if
I make a comment--

1865
01:31:03,380 --> 01:31:07,053
Alberto, for those
watching at home--

1866
01:31:07,053 --> 01:31:08,720
the thing that's been
really jumping out

1867
01:31:08,720 --> 01:31:10,345
at me when we talked
about it earlier--

1868
01:31:10,345 --> 01:31:14,030
sort of like the big old beast
of the military industrial

1869
01:31:14,030 --> 01:31:16,400
complex, which from
my understanding

1870
01:31:16,400 --> 01:31:18,470
thrives not on
radical innovation.

1871
01:31:18,470 --> 01:31:20,540
They really love the
incremental thing

1872
01:31:20,540 --> 01:31:22,580
because it can suck
out as much money

1873
01:31:22,580 --> 01:31:24,420
as they can from the government.

1874
01:31:24,420 --> 01:31:26,762
And if they can
just stay like that,

1875
01:31:26,762 --> 01:31:28,970
if they can convince all
the politicians to give them

1876
01:31:28,970 --> 01:31:31,420
money in funding of
that whole business,

1877
01:31:31,420 --> 01:31:33,320
that's why we're
stuck in the 1950s

1878
01:31:33,320 --> 01:31:36,015
because that's the system
that works best for them.

1879
01:31:36,015 --> 01:31:38,000
But to go back to what
Rasheed said, I think--

1880
01:31:38,000 --> 01:31:38,720
WILLIAM BONVILLIAN:
So Alberto, I'd

1881
01:31:38,720 --> 01:31:40,532
contest with you
because I think it's

1882
01:31:40,532 --> 01:31:42,740
fair to say that the military
has brought on actually

1883
01:31:42,740 --> 01:31:44,600
most of the big
radical innovation

1884
01:31:44,600 --> 01:31:47,385
waves of the second
half of the 19th.

1885
01:31:47,385 --> 01:31:48,260
AUDIENCE: [INAUDIBLE]

1886
01:31:48,260 --> 01:31:50,010
WILLIAM BONVILLIAN:
Well, radar turned out

1887
01:31:50,010 --> 01:31:51,920
to be consumer electronics.

1888
01:31:51,920 --> 01:31:52,855
And so--

1889
01:31:52,855 --> 01:31:54,980
AUDIENCE: What's coming
out the F-35, I don't know.

1890
01:31:54,980 --> 01:31:55,600
WILLIAM BONVILLIAN:
Yeah, what's coming--

1891
01:31:55,600 --> 01:31:57,225
I don't know what's
coming out of that.

1892
01:31:57,225 --> 01:31:58,740
AUDIENCE: [INAUDIBLE]

1893
01:31:58,740 --> 01:32:02,210
AUDIENCE: [INAUDIBLE] Also
Intel is funded originally

1894
01:32:02,210 --> 01:32:03,440
by government.

1895
01:32:03,440 --> 01:32:05,020
AUDIENCE: Yeah.

1896
01:32:05,020 --> 01:32:06,260
AUDIENCE: Maybe I'm wrong.

1897
01:32:06,260 --> 01:32:08,385
WILLIAM BONVILLIAN: No,
but it's a very good point.

1898
01:32:08,385 --> 01:32:09,980
And I think the
answer is that there's

1899
01:32:09,980 --> 01:32:12,140
different forces in the
military and there's

1900
01:32:12,140 --> 01:32:13,700
huge conservative
forces that want

1901
01:32:13,700 --> 01:32:18,590
to perpetuate their
existing operating systems.

1902
01:32:18,590 --> 01:32:22,460
And it's actually hard to
do disruptive innovation

1903
01:32:22,460 --> 01:32:25,440
in the military because it
really is a legacy sector.

1904
01:32:25,440 --> 01:32:29,060
So I think this play out
between how you bring innovation

1905
01:32:29,060 --> 01:32:32,540
into a legacy sector-- which
the military has actually solved

1906
01:32:32,540 --> 01:32:34,550
a few times--

1907
01:32:34,550 --> 01:32:37,693
is kind of an interesting
idea, and we'll

1908
01:32:37,693 --> 01:32:39,360
keep playing with
this idea as we go on.

1909
01:32:39,360 --> 01:32:43,990
So yes, the military has been
able to launch disruptive

1910
01:32:43,990 --> 01:32:48,010
innovation, but overall it's a
legacy sector and a lot of it

1911
01:32:48,010 --> 01:32:51,130
is resistant to innovation
just as you suggest.

1912
01:32:51,130 --> 01:32:54,225
So it's a very
interesting balance.

1913
01:32:54,225 --> 01:32:56,100
AUDIENCE: Well, I wanted
to go back something

1914
01:32:56,100 --> 01:32:57,225
she'd said about education.

1915
01:32:57,225 --> 01:32:59,860
That innovation waves
don't have to, like,

1916
01:32:59,860 --> 01:33:02,510
cause the destruction
of classes of people

1917
01:33:02,510 --> 01:33:05,925
as long as people are educated
with the new skills that

1918
01:33:05,925 --> 01:33:07,550
are associated with
an innovation wave.

1919
01:33:07,550 --> 01:33:11,840
Like you brought the story up
about someone teaching someone

1920
01:33:11,840 --> 01:33:14,930
else Morse code and how people
would not be left behind

1921
01:33:14,930 --> 01:33:16,970
by railroads if
many of them learned

1922
01:33:16,970 --> 01:33:19,940
to Morse code operators.

1923
01:33:19,940 --> 01:33:22,220
And then in the future, I've
just read a lot of things

1924
01:33:22,220 --> 01:33:27,200
about what if coding and
computational IT things become

1925
01:33:27,200 --> 01:33:30,230
the new blue collar
jobs [INAUDIBLE]..

1926
01:33:30,230 --> 01:33:34,400
All you need to do is
change the education system.

1927
01:33:34,400 --> 01:33:37,280
AUDIENCE: And then going
to your point, [INAUDIBLE],,

1928
01:33:37,280 --> 01:33:39,230
I think that it's
a little bit harder

1929
01:33:39,230 --> 01:33:43,820
to sell growth theory to
voters because it is long-term

1930
01:33:43,820 --> 01:33:44,480
oriented.

1931
01:33:44,480 --> 01:33:45,980
So if you give them
the option, I'll

1932
01:33:45,980 --> 01:33:50,010
protect your job today
versus in 10 years,

1933
01:33:50,010 --> 01:33:51,840
you might be a
little bit better off

1934
01:33:51,840 --> 01:33:54,803
because you have an agent
that's just not going to sell.

1935
01:33:54,803 --> 01:33:56,220
AUDIENCE: It's
also kind of hard--

1936
01:33:56,220 --> 01:33:56,770
I don't know.

1937
01:33:56,770 --> 01:34:03,200
No, actually, to your
point, [INAUDIBLE]

1938
01:34:03,200 --> 01:34:06,920
about connecting the legacy
sector innovation or the lack

1939
01:34:06,920 --> 01:34:08,472
thereof to two-party interests.

1940
01:34:08,472 --> 01:34:10,430
Because I think in
particular, you don't really

1941
01:34:10,430 --> 01:34:13,070
see modern companies
that drive innovation

1942
01:34:13,070 --> 01:34:16,220
sponsoring political activities
and particulary lobbying,

1943
01:34:16,220 --> 01:34:16,720
right?

1944
01:34:16,720 --> 01:34:19,012
You don't see them sponsoring
congressional candidates.

1945
01:34:19,012 --> 01:34:21,215
You don't see them developing
political candidate.

1946
01:34:21,215 --> 01:34:23,590
And you don't see them launching
political candidates out

1947
01:34:23,590 --> 01:34:24,950
of their own [INAUDIBLE], right?

1948
01:34:24,950 --> 01:34:26,783
So I think it would be
really curious to see

1949
01:34:26,783 --> 01:34:30,310
the ways in which this election
is now encouraging legions

1950
01:34:30,310 --> 01:34:33,145
of scientists, innovators,
technologists to run for office

1951
01:34:33,145 --> 01:34:34,770
and to see the ways
in which they align

1952
01:34:34,770 --> 01:34:37,400
or don't align themselves
to our two-party system.

1953
01:34:37,400 --> 01:34:41,727
Because if they're-- the most
important thing I think of more

1954
01:34:41,727 --> 01:34:44,060
in political science is that
if you're not at the table,

1955
01:34:44,060 --> 01:34:45,710
you're on the menu.

1956
01:34:45,710 --> 01:34:47,220
And so we're at
the table right now

1957
01:34:47,220 --> 01:34:49,160
and we all have this sort of
vested interest in the ways

1958
01:34:49,160 --> 01:34:50,610
in which the waves
of technology are

1959
01:34:50,610 --> 01:34:52,070
going to impact
not only ourselves,

1960
01:34:52,070 --> 01:34:54,160
individual stakeholders,
but the communities

1961
01:34:54,160 --> 01:34:55,910
that we're a part of
and also the nations.

1962
01:34:55,910 --> 01:34:58,202
Because spheres of influence
matter a lot [INAUDIBLE]..

1963
01:35:03,473 --> 01:35:05,390
So I think it would be
really curious to think

1964
01:35:05,390 --> 01:35:08,510
about the ways in which
precisely legacy sector

1965
01:35:08,510 --> 01:35:14,720
innovation is pushing--

1966
01:35:14,720 --> 01:35:17,990
almost preventing
the development

1967
01:35:17,990 --> 01:35:20,300
of political involvement
between innovative firms

1968
01:35:20,300 --> 01:35:23,460
and the two-party system.

1969
01:35:23,460 --> 01:35:25,940
AUDIENCE: I actually wanted
to mention one of your points.

1970
01:35:25,940 --> 01:35:29,963
You had said that it would
be difficult to have people

1971
01:35:29,963 --> 01:35:31,880
decide, OK, do you want
to save your job today

1972
01:35:31,880 --> 01:35:32,990
versus in the future.

1973
01:35:32,990 --> 01:35:36,110
Well, maybe that's-- isn't
that the purpose of government

1974
01:35:36,110 --> 01:35:38,240
in the first place is to
sometimes make unpopular

1975
01:35:38,240 --> 01:35:43,547
decisions that will in the long
run actually benefit a greater

1976
01:35:43,547 --> 01:35:44,255
number of people?

1977
01:35:48,930 --> 01:35:51,740
I mean, yeah, it's
definitely a tricky subject.

1978
01:35:51,740 --> 01:35:54,180
And it's not-- there's
no easy answer,

1979
01:35:54,180 --> 01:35:57,420
but I at least think that--

1980
01:36:00,360 --> 01:36:02,610
that's why we're a
representative democracy rather

1981
01:36:02,610 --> 01:36:04,027
than just a straight
up democracy.

1982
01:36:04,027 --> 01:36:07,975
It's because then we want these
people to actually represent us

1983
01:36:07,975 --> 01:36:09,350
and to act in our
best interests,

1984
01:36:09,350 --> 01:36:11,940
even if it's not
in the short-term.

1985
01:36:11,940 --> 01:36:14,760
Ideally, we would say
that, OK, we actually

1986
01:36:14,760 --> 01:36:19,881
trust these people to see
what our best interests are.

1987
01:36:19,881 --> 01:36:22,960
AUDIENCE: Yeah, I agree that's
what I would want to happen.

1988
01:36:22,960 --> 01:36:25,598
[INAUDIBLE]

1989
01:36:25,598 --> 01:36:28,140
WILLIAM BONVILLIAN: So I'm going
to curtail this conversation

1990
01:36:28,140 --> 01:36:30,900
because we have five readings to
go and we're more than halfway

1991
01:36:30,900 --> 01:36:32,882
through the class.

1992
01:36:32,882 --> 01:36:34,590
So this is going to
be a standard problem

1993
01:36:34,590 --> 01:36:36,930
we're going to have all year,
so we can get used to it.

1994
01:36:36,930 --> 01:36:40,110
But why don't we take
a quick five minute

1995
01:36:40,110 --> 01:36:45,360
break now and come
back, and then we'll

1996
01:36:45,360 --> 01:36:48,950
tackle the next round.