State of Innovation

Patents and Innovation Economics

Source of Economic Growth

What is the source of economic growth?  Trying times like these make this question even more important.  The chart on the left is particularly instructive about the sources of economic growth.  It defines what engineers call a boundary layer condition.  The chart shows per capita income from 1000 BC to 2000 AD, where income has been normalized to one for the year 1800.  The part on the left where per capita income final takes off is only true for western countries.  For instance, African countries still have incomes near or below one on this chart and incomes in Japan do not take off for almost another 100 years.

So the million dollar question is why does income take off around 1800 after millennia of going nowhere?  Let’s examine the standard answers for getting our economy growing today.  Is the reason that income takes off around 1800 because taxes suddenly get lower (or higher) around 1800?  No tax levels did not change significantly around 1800 and in fact they were lower than today until around 1900.  Tax levels averaged 10% or less of GDP during most of history.  Is it because the size of government suddenly shrunk (or grew) around 1800?  No, the size of government did not change significantly around 1800.  The size of government did not start to grow until around 1900.  Is it because we suddenly created the world’s greatest “cash for clunker program” – in other words was Keynes right we just had to stimulate demand?  Well during the period from 1000 BC until about 1800 AD is called the Malthusian period, after Thomas Malthus http://en.wikipedia.org/wiki/Malthus.  During this period humans are just like every other animal and our population expands until we are on the edge of starvation.  I am pretty sure that there was plenty of demand during this period, at least for food.  Does income suddenly take off because we figure out how to control our money supply just right?  No the tools for controlling the money supply around 1800 were pretty crude.  The only reason we are wealthier today than in 1800 or 1500 or 1000 BC is because of our technology.  If we had the same technology as our ancestors we would be no wealthier than they were.

I am not the only one to point out that increases in our level of technology are the only reason for real per capita increases in income.  Robert Solow won the Nobel Prize in economics for essentially this point.  Other economists who have study this area include Paul Romer of Stanford, Jacob Schmookler who studied the relationship between inventions and economic growth and Gregory Clark from UC Davis.  This area of economics is often called Economics 2.0 or Innovation Economics.  One of the best books on this area (other than my book The Decline and Fall of the American Entrepreneur ) is a business book, entitled The Invisible Edge.

Not coincidentally 1800 is around the time the first modern patent systems are created.  Patents are the only free market system for encouraging people to invest in inventions and technology.  Patents are legal title to your invention.  The first patent statute in the US is passed in 1790.  The US becomes the economic and technological leader of the world because of our patent system, not because of some innate Yankee ingenuity.  We are the first country in history to recognize that inventors’ have a right to their inventions.  In fact, the only place where the US Constitution uses the word “right” is with respect to patents and copyrights.[1]

Despite the overwhelming evidence for the connection between patents, technology and economic growth, some detractors are going to argue that this is just coincidence.  The chart at the right shows per capita GDP for various countries.  As already explained US per capita GDP takes off around the time we create our patent system.  Japan comes to the US and studies why we are successful around the 1860s.  Their conclusion is that the US patent system is why the US is a technological and economic powerhouse.  As a result the Japanese copy the US patent system sometime in the 1870s, which is when their per capita income takes off.  A similar situation occurs in China.  On the other hand there are numerous countries with no patent system or ineffectual patent systems that are stuck in the Malthusian trap.

Patents are the free market system for conferring legal title to inventions and encouraging investment in technology.  Increases in technology are the only way to increase real per capita income.  A strong patent system is keystone upon which economic growth is built.


[1] US Constitution, Article 1, Section 8, Clause 8.  Note the Bill of Rights are amendments to the Constitution.

May 11, 2010 Posted by | -Economics, Innovation, Patents | , , , , , , , , | 29 Comments

Da Vinci Institute: Night with a Futurist

Dale Halling will be speaking at the Night with a Futurist event at the Da Vinci institute on April 5, 2010 at the Madcap theater.   As a patent attorney, Dale Halling deals with start-up entrepreneurs on a daily basis.  He began noticing a significant difference between the types of projects his clients were involved with in the 1990s and 2000s. Clients, in the 90s, would come into his office with plans to build businesses that were disruptive or revolutionary.  The technologies underlying these companies held the potential to completely redefine a market.  Some of the ideas would increase the available bandwidth by 10x for minimal costs or allow data searches that were 10-100x faster than existing technologies.  It was very exciting talking with these entrepreneurs.  Their energy was infectious and the potential implications of their work was mesmerizing.  However, the tech downturn of 2000-2001 changed all that.

After 2002, the start-up companies he came into contact with were all looking for narrow niche markets.  Instead of trying to make dramatic changes to technology and go public, these companies were looking to develop incremental changes and be bought out by an existing company.

He started wondering if other people in the tech world were seeing similar trends.

Recent innovations like the iPod, the tremendous amount of money Intel was spending to build their next microprocessor plant, and the social media industry are certainly innovative, but they are not capable of altering the entire economy like the Internet of the 90s.  The Internet in the 90s affected almost every business in the U.S.  It drove PC sales, retail, electronics, telecommunications, professional businesses, marketing, newspapers, and much more.  It also redefined whole areas of life, with email, online shopping, and online advertising. It was impossible to escape the effects of the Internet unless you crawled under a rock.

The personal computer revolution of the 80s had a similar effect.  The iPod has been cool, but hasn’t affected the whole economy.

So what’s behind all this? The changes have seemed subtle from the outside, but the ripple effects have been huge.

Join us as we take a hard look at how the face of innovation has changed, and what we can do to turn it around.

EVENT: Night with a Futurist
DATE: April 5, 2010 – Monday
TIME: 6:30pm-9:00pm
WEBSITE: http://www.davinciinstitute.com/events/433/night-with-a-futurist-monday-april–5-2010

LOCATION: MADCAP Theater, 10679 Westminster Blvd, Westminster, CO 80020
DIRECTIONS: Driving Directions

COST: $25, Members: Free, SuperMembers: Free
REGISTER: Register here

PHONE: 303-666-4133

TOPIC: “The Decline and Fall of the American Entrepreneur: How Little Known Laws and Regulations are Killing Innovation”
SPEAKERS: Dale Halling, Allison Taylor, Catharine Merigold, Gene Branch, Mike Schmidt, Thomas Frey

March 25, 2010 Posted by | Uncategorized | , , , , , , , , | 2 Comments

National Inventors’ Day

Ronald Reagan proposed National Inventors Day at February 11 in 1983.  February 11 was chosen because it is Thomas Alva Edison’s birthday.  Reagan’s proclamation was

Almost two hundred years ago, President George Washington recognized that invention and innovation were fundamental to the welfare and strength of the United States. He successfully urged the First Congress to enact a patent statute as expressly authorized by the U.S. Constitution and wisely advised that “there is nothing which can better deserve your patronage than the promotion of science . . .” In 1790, the first patent statute initiated the transformation of the United States from an importer of technology to a world leader in technological innovation.

Today, just as in George Washington’s day, inventors are the keystone of the technological progress that is so vital to the economic, environmental, and social well-being of this country. Individual ingenuity and perseverance, spurred by the incentives of the patent system, begin the process that results in improved standards of living, increased public and private productivity, creation of new industries, improved public services, and enhanced competitiveness of American products in world markets.

In recognition of the enormous contribution inventors make to the nation and the world, the Congress, pursuant to Senate Joint Resolution 140 (Public Law 97 – 198), has designated February 11, 1983, the anniversary of the birth of Thomas Alva Edison, one of America’s most famous and prolific inventors, as National Inventors’ Day. Such recognition is especially appropriate at a time when our country is striving to maintain its global position as a leader in innovation and technology. Key to our future success will be the dedication and creativity of inventors.

Now, Therefore, I, Ronald Reagan, President of the United States of America, do hereby proclaim February 11, 1983, as National Inventors’ Day and call upon the people of the United States to observe this day with appropriate ceremonies and activities.

In Witness Whereof, I have hereunto set my hand this 12th day of Jan., in the year of our Lord nineteen hundred and eighty-three, and of the Independence of the United States of America the two hundred and seventh.

Ronald Reagan

While Reagan’s economic plan is generally thought of as just reducing taxes, he was a strong supporter of policies that encourage invention.  He strengthened the patent system by creating the Court of Appeals for the Federal Circuit.  All patent appeals were consolidated into the (CAFC) created in 1982. A number of the initial Judges on the CAFC were former patent attorneys and the court brought consistency to patent appeals.  The court also took seriously the idea that issued patents are presumed to be valid.  These changes signaled a more favorable atmosphere for patents in the 1980’s.  Before the CAFC patents were treated differently in each of the federal court circuits.  Some circuits had not upheld the validity of a patent in decades.  The new court brought a sense of stability to patent law.  The 1980’s saw a restoration of America’s economic and technological dominance in the world.

As Reagan’s quote above shows, he understood the connection between a strong patent system and a strong economy and more generally a strong U.S.  Today 96% of Americans believe innovation is critical to the success of the US as a world economic leader.  Zogby Poll, January 2010.  If America wants to be great again, then we have to protect the rights of our inventors.

February 11, 2010 Posted by | Innovation, Patents | , , , , , , , , , | 5 Comments

National Inventors' Day

Ronald Reagan proposed National Inventors Day at February 11 in 1983.  February 11 was chosen because it is Thomas Alva Edison’s birthday.  Reagan’s proclamation was

Almost two hundred years ago, President George Washington recognized that invention and innovation were fundamental to the welfare and strength of the United States. He successfully urged the First Congress to enact a patent statute as expressly authorized by the U.S. Constitution and wisely advised that “there is nothing which can better deserve your patronage than the promotion of science . . .” In 1790, the first patent statute initiated the transformation of the United States from an importer of technology to a world leader in technological innovation.

Today, just as in George Washington’s day, inventors are the keystone of the technological progress that is so vital to the economic, environmental, and social well-being of this country. Individual ingenuity and perseverance, spurred by the incentives of the patent system, begin the process that results in improved standards of living, increased public and private productivity, creation of new industries, improved public services, and enhanced competitiveness of American products in world markets.

In recognition of the enormous contribution inventors make to the nation and the world, the Congress, pursuant to Senate Joint Resolution 140 (Public Law 97 – 198), has designated February 11, 1983, the anniversary of the birth of Thomas Alva Edison, one of America’s most famous and prolific inventors, as National Inventors’ Day. Such recognition is especially appropriate at a time when our country is striving to maintain its global position as a leader in innovation and technology. Key to our future success will be the dedication and creativity of inventors.

Now, Therefore, I, Ronald Reagan, President of the United States of America, do hereby proclaim February 11, 1983, as National Inventors’ Day and call upon the people of the United States to observe this day with appropriate ceremonies and activities.

In Witness Whereof, I have hereunto set my hand this 12th day of Jan., in the year of our Lord nineteen hundred and eighty-three, and of the Independence of the United States of America the two hundred and seventh.

Ronald Reagan

While Reagan’s economic plan is generally thought of as just reducing taxes, he was a strong supporter of policies that encourage invention.  He strengthened the patent system by creating the Court of Appeals for the Federal Circuit.  All patent appeals were consolidated into the (CAFC) created in 1982. A number of the initial Judges on the CAFC were former patent attorneys and the court brought consistency to patent appeals.  The court also took seriously the idea that issued patents are presumed to be valid.  These changes signaled a more favorable atmosphere for patents in the 1980’s.  Before the CAFC patents were treated differently in each of the federal court circuits.  Some circuits had not upheld the validity of a patent in decades.  The new court brought a sense of stability to patent law.  The 1980’s saw a restoration of America’s economic and technological dominance in the world.

As Reagan’s quote above shows, he understood the connection between a strong patent system and a strong economy and more generally a strong U.S.  Today 96% of Americans believe innovation is critical to the success of the US as a world economic leader.  Zogby Poll, January 2010.  If America wants to be great again, then we have to protect the rights of our inventors.

February 11, 2010 Posted by | Innovation, Patents | , , , , , , , , , | 5 Comments

   

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