State of Innovation

Patents and Innovation Economics

The ‘Great Ideas are Dime a Dozen’ Myth

There is a popular myth that great ideas are a dime a dozen (see here, here, and here).  I don’t know what a great idea is.  Is a Dick Tracey watch or a nuclear powered rocket a great idea?  No, not if you don’t know how to implement them, then it is just a fantasy and unless you have plot with it, it is not even a good fantasy story.  However, I do know what a great invention is and they are not a billion dollars a dozen.  A great invention takes incalculable intellectual skill, years of training, years of hard work, and significant resources.

Pendulum of Justice, the first Hank Rangar Thriller, discusses this exact point.

“Hey Mike—we’ve heard your ‘good ideas are a dime a dozen’ speech before. The electric light bulb, the cotton gin, the polio vaccine, the microcontroller, hell, the CAT scan, were all a dime a dozen”

It is my opinion that this sort of nonsense is usually spread by people in finance, who are looking to improve their negotiation position or are just too intellectually challenged to really know when an invention is great.  It also inflates their self-importance.

SchumpterThe reality is that most people do not create much more than they consume in their lifetimes and this includes many people in finance, even if they personally get rich.  It is only by raising our level of technology that we increase our per capita wealth and only inventors increase our level of technology.  Great inventors create incalculable wealth and even if they become wealthy, what they receive in payment is a pittance to what they provided.

I think this nonsense of “great ideas are a dime a dozen” is a spin out from the Austrian Economist Joseph Schumpeter who made a nonsensical distinction between innovation and invention, while denigrating inventions and inventors.

According to Wikipedia:

Following Schumpeter (1934), contributors to the scholarly literature on innovation typically distinguish between invention, an idea made manifest, and innovation, ideas applied successfully in practice

There is nothing inherently wrong with the distinction above, but the way it is applied blurs together a number of different skills.  Blurring skills together shows a  misunderstanding of the process of innovating.  Broadly speaking, innovation can be broken into two distinct sets of skills: creation and dissemination.  By creation I mean creating something new, not production – creating something old.

A subset of creation is invention.  An invention is a creation with an objective repeatable result.  A creation that is not an invention has a subjective result, such as the effect of a painting on a viewer, or the effect of a book on a reader.  Many activities combine both a subjective creation and an invention, such as architecture.  However, we can separate out the invention from the other creative elements and this helps our understanding of the process.

Dissemination may include a number of processes, such as education (marketing, sales), manufacturing, finance, and management.  This is not to say that marketing cannot be creative, it clearly often is very creative.  However, the creative part of marketing can be separated out from the dissemination or execution part of marketing.  The same is true of manufacturing, which can definitely include inventing.  But an invention related to manufacturing is part of the creation step not part of the dissemination step.

Finance can also have inventions.  For instance, the invention of a fractional reserve bank is clearly an invention.  It has the objective result of securitizing assets and turning them into loans and currency.  A fractional reserve bank will securitize land and turn it into a loan and currency.  Despite this, it is important to understand that the first person to develop the fractional reserve bank is inventing and the person operating the fractional reserve bank is disseminating.

All real per capita economic progress is the result of inventing.  This is not to say that it is unnecessary to disseminate inventions, but if there were no new inventions there would not be any economic progress. We would be stuck in static world once all the inventions had been completely disseminated.  Of course, if we stop all dissemination activities we will quickly starve to death.

It is my opinion that business and economic professors have focused on “innovation” instead of “invention” because they have no idea how to invent or how the process of inventing works.  They concentrate on what they know, i.e. business and economic practices.   As a result, the focus is on dissemination,  under-appreciating the importance of inventing.  In addition, it results in misleading business theories, such as:

– Management teams are more important than the quality of the invention.

– Execution is everything; patents and other IP do not matter.

– Get Big Fast.

The truth-test of these theories is directly related to the strength of the patent laws at the time the company is created.  When patent laws are weak, these theories are more true and when patent laws are strong, these theories are less true.  Unfortunately, when patent laws are weak these theories do not overcome the disincentive to invest in risky new technologies.  Management teams do not build revolutionary or disruptive technologies, they just disseminate these technologies. These sorts of teams are like large companies and generally can produce a return with less risk by NOT developing high-risk technologies.  They tend to focus on incremental technologies or on stealing someone else’s technology.  While this may be good business advice in a period of weak patents, it is bad for our country’s competitiveness and our standard of living.

Technological progress (i.e., inventing), in the long run, is the only competitive business advantage.  The best management team in the world selling buggy whips at the turn of the century could not overcome the technological advance of the automobile and stay a buggy whip company.  The best management team in the world selling vacuum tubes in the 1940s, could not overcome the advance of transistors and semiconductors and stay a vacuum tube company.  This country is littered with companies that had great management teams that were overwhelmed by changes in technology.  For instance, Digital Computers had a great management team, but they could not overcome the advance of the personal computer.  Digital Computers, Inc. failed to invent fast enough to overcome the onslaught of small inexpensive computers.  US steel was not able to overcome the onslaught of mini-mills, aluminum, and plastics.  This was not because they did not have a good management team, it was because the management team under- prioritized invention and over-prioritized execution or dissemination skills.  Ford & GM have not become walking zombies because they did not have strong management teams, but because they have not invented.  As a result, they have antiquated production systems and weak technology in their products.  86% of the companies in the Fortune 500 in 1959 are no longer there.  Some of these companies disappeared because of bad management, but most companies disappeared because they did not keep up with changing technology.  In other words, they did not invent.

Inventions(i.e., advances in technology) are the ONLY WAY to increase real per capita incomes and the only long term business advantage.

 

Schumpeter – another Austrian School of Economics Failure.

 

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June 30, 2016 Posted by | -Economics, -History, Innovation, Patents | , , , | Leave a comment