Creative Class

The past couple of days, I’ve looked at the trends in overall patents and nationality of inventor. Today I turn to the regional distribution of innovation across U.S. regions.

It’s well-known that high-tech industries are concentrated and clustered in areas like Silicon Valley, Greater Boston, Seattle, Austin, and North Carolina’s Research Triangle. Paul Krugman won a Nobel Prize for his pioneering work on the relationships between urbanization, trade, and economies of scale. And Michael Porter has shown how and why innovative firms cluster.

The graph below, compiled by Scott Pennington of the Martin Prosperity Institute, shows patent trends from 1976 to 2007 for the top 10 U.S. regions. The graph identifies a clear shift in the geography of patenting. The level of innovation has fallen off considerably in older industrial regions like Pittsburgh and Detroit. It has also fallen off in Sunbelt regions like Dallas with a large presence in computers and communications and Houston with its strong concentration of resource and energy industries. On the other hand, innovation has increased substantially in high-tech regions like Silicon Valley, San Francisco, and Seattle and also in Los Angeles. Two other large regions – New York and Chicago – more or less conform to Mandel’s thesis: Both saw dramatic growth in the late 1990s followed by precipitous drops in the 2000s which erased those gains. Overall, American innovation has become more geographically concentrated and spikier.

The decline of industrial regions as centers of invention reinforces the point made by Henry Ergas two decades ago: The U.S. innovation system is skewed heavily toward “shifting” (the creation of new breakthrough technologies and products) and away from “deepening” (the application of new inventions and technologies to the continuous, incremental upgrading of older industries). The decline of GM and Chrysler – and in particular the latter’s acquisition by Fiat to gain access to new technology – stand as testimony to that. The decline of innovation and commercialization in older industrial regions means that in certain key areas of technology, the U.S. has essentially ceded the potential to develop new industrial goods and consumer products to other countries – from established competitors Germany and Japan to emerging ones like India and China – which possess the industrial infrastructures to embed them in commercial products.

Yesterday, we looked at overall trends in U.S. innovation measured by patents. Today, we break out U.S. patents between U.S.-resident and non-resident or foreign inventors patenting in the U.S.

Numerous studies have shown that, over the past two or three decades, the role of foreign scientists, technologists, and entrepreneurs in U.S. innovation has increased. Recent studies by AnnaLee Saxenian and Vivek Wadhwa and others find that anywhere between a third and half of all Silicon Valley start-ups during the 1990s had a foreign entrepreneur or scientist on their core founding team. As I have previously argued, foreign-born scientists currently make up 17 percent of all bachelor’s degree holders, 29 percent of master’s degree holders, 38 percent of PhDs, and nearly 25 percent of American scientists and engineers. My earlier research shows that Japanese companies – and some European companies as well – chose to locate research labs in the U.S. to access a diverse mix of scientific talent they cannot attract in their home countries.

The graph below shows the overall trend in patenting for U.S.-resident and non-resident foreign inventors between 1980 and 2005. Non-resident inventors have just about pulled even with U.S. inventors in patenting, and their rate of inventive activity more or less tracks that of U.S.-based inventors. But here again, even with two dips since 2000, the rate and level of innovation over the past decade remains up.

Clearly, foreign inventors have become a key feature of the U.S. innovation system. Without them the level of innovation would be much lower. Another way of saying this is that the American system of innovation has become increasingly dependent upon non-resident inventors. Foreign inventors patent in the U.S. to secure intellectual property protection in the large U.S. market. Clusters of sophisticated and demanding consumers and end-users help make the U.S. the place to be for high-end innovation, as Amir Bhidé points out in The Venturesome Economy.

While foreign patenting boosts the overall rate of innovation in the U.S., there is a considerable chance that these patented innovations are commercialized and produced off-shore, and thus that the U.S. economy will accrue less overall economic benefit from those technologies. While this is not direct evidence for Mandel’s innovation interrupted thesis, it provides a possible mechanism that might limit the commercialization and overall economic impact of innovation in the U.S.

As a kid born in the early 80s, a young black man, and DJ, when I heard that Michael Jackson died I was floored. It’s really hard to put into words what his run in 80s meant to me and other kids like me. As a DJ, Michael was the ultimate back door, a key that would fit every locked dance floor, to be reached for only in emergencies and handled with great care. As a dancer, when Fred Astaire calls you his heir, there’s not much left to say. What he did with his feet seemed impossible. Sometimes it was.

Never more mystifying was his impossible lean from the Smooth Criminal video (@ approx. 7:15). At first I thought that it was camera tricks, but then I heard that he did it live at shows – no wires, no cables. Just lean. How does a man defy gravity like that live on stage? In the posthumous craze, one of the more interesting bits of information that shook loose was the innovation that made that possible:

Michael invented and patented a special shoe and rig. Google Patent Search provides the details.

Richard has often talked about his interest in music as a “fruit-fly” industry. That is to say that the the study of the music industry is analogous to the scientific study of fruit flies to better understand more complex biological systems. Through studying music we can understand how innovations flow through other creative industries. Musical creatives don’t just innovate musically, but they’re often linked to technological innovation. This is true about individual innovations, from Jimi Hendrix to Grand Master Flash, as well as system wide innovations, as was evidenced by the MP3 revolution. This is just another example of the same from arguably the greatest of all time.

R.I.P. Mike.

As we saw yesterday, Michael Mandel argues that commercial innovation in the U.S. has slowed in recent years. To shed light on this, my team and I tracked U.S. patent data for the past decade – and for the entire 20^th century.

The first graph above tracks patent applications and patents granted from 1980 to 2005. Overall, the trend-lines are up. The line is steeper for patent applications, but it also tracks consistently upward for actual patents granted. There are significant dips after the tech-crunch of 2001 and in the wake of the financial bubble, even before the economic crisis of 2008. But those dips do little to throw off the basic upward trajectory of American innovation. In 2007, the overall level of patents granted was significantly higher than a decade earlier.

The second graph below controls for population, tracking the trend in patents per 10,000 residents. The trend-lines tell much the same story. Despite two recent dips, the overall trend in patenting is up considerably over the past decade.

The evidence here does not support the notion of an innovation shortfall. The overall level of innovation is up over the past decade. The most we can say is that the rate of innovation has leveled off in recent years when we control for population. Nonetheless, the trajectory of American innovation remains consistently up.

As we will see tomorrow, the picture gets a bit more complicated when we parse patents by U.S.-born (resident) and foreign (non-resident) inventors.

In a widely read cover story published earlier this month, Business Week’s chief economist Michael Mandel asks, “To what degree has American innovation been ‘interrupted’?” Mandel argues that the economic crisis is partly the result of America’s failure to generate high-impact commercial innovations.

What if, outside of a few high-profile areas, the past decade has seen far too few commercial innovations that can transform lives and move the economy forward? What if, rather than being an era of rapid innovation, this has been an era of innovation interrupted?

The crux of his argument is that many, if not most, of the big breakthrough innovations that were supposed to occur over the past decade or so have failed to materialize. His article provides a raft of compelling examples of once-heralded innovations – in areas from biotech to micro-machines – that have simply not panned out. This failure to commercialize and diffuse these new breakthrough innovations – America’s inability to set in motion the great gales of “creative destruction” identified long ago by Joseph Schumpeter as key to capitalist growth – he argues, is a key contributor to both the financial bubble and the economic crisis.

But since there is compelling evidence that the figures are overstated by the credit bubble and statistical problems, we can construct a plausible narrative for the financial bust that gives a starring role to innovation-or rather, to the lack of it. It goes something like this: In the late 1990s most economists and CEOs agreed that the U.S. was embarking on a once-in-a-century innovation wave-not just in info tech but also in biotech and many other technologies. Forecasters upped their long-run growth estimates for the U.S. economy. Consumers borrowed against their home equity, assuming their future incomes would rise. And foreign investors lent America money by buying up U.S. securities, assuming the country would come up with enough new products to pay off the accumulated trade deficit.

Mandel lists four areas in which America’s recent performance has been lackluster: stock market performance in the pharmaceutical, biotech, and life-science sectors; declining real wages for highly educated workers; a mounting trade deficit in high-tech sectors (which grew from $30 billion U.S. surplus in 1998, turning into a $53 billion deficit by 2008); and little improvement in the death rate (which he sees as a measure of the failure of breakthrough medical technologies to materialize) as evidence for the failure of American innovation.

It’s no secret that I’m a big fan of Mandel and I find his general thesis about lagging U.S. productivity and job growth over the past decade or so to be both intriguing and plausible. And since so much of my own work focused on the relationship between innovation and American competitiveness was flagging, I find myself particularly drawn to his most recent “innovation-interrupted” thesis.

My first book, The Breakthrough Illusion, written with Martin Kenney in 1990, argued that the U.S. system of venture capital-backed breakthrough innovation was skewed to encourage short-term super-returns from new breakthrough innovations, and was structurally ill-suited to capturing the longer-term wealth derived from developing these innovations into successful products and industries. That work drew upon the intriguing thesis of innovation theorist Henry Ergas, who argued that the U.S. had developed a shifting system of innovation geared to near-constant development of new products through new firms, as opposed to a deepening system (think of German cars) which continuously adds technology to upgrade existing industries. According to Ergas, the key to long-run prosperity lies in synthesizing both strategies – cultivating an economy which could deploy new technologies in new sectors while at the same time deploying them to upgrade and revolutionize old ones.

I opened my 2002 book, Rise of the Creative Class, with a time-traveler experiment. Someone traveling from 1900 to 1950 would be blown away by the varied technical marvels that surrounded them from televisions to airplanes. But while someone who time-traveled from 1950 to the 2000 would see a few new technologies, like the personal computer and the cell phone, he or she would likely be much more amazed by sweeping social changes. And in my 2004 book, Flight of the Creative Class, I argued that America’s innovative edge in the late 20^th century was inextricably tied to its ability to attract foreign scientists, technologists, and engineers. The combination of mounting U.S. immigration restrictions and growing efforts by foreign countries to retain their own best and brightest (and attract others from around the world), I suggested, was an under-appreciated threat to U.S. competitiveness and prosperity.

In fact, I found Mandel’s essay so compelling that I decided to take a look at the actual data. Mandel rightly says that we currently lack a comprehensive “innovation index” that tracks commercial innovation: “There’s no government-constructed “innovation index” that would allow us to conclude unambiguously that we’ve been experiencing an innovation shortfall. Still, plenty of clues point in that direction.”

True enough. But research into the economics of innovation has discovered at least one reasonable measure of innovation – patents. There are problems and biases with using patents as a measure of innovation, as economists who specialize in the subject have pointed out. Patents measure certain areas of technology more than others. In some areas of commercially important R&D, patents are rarely used. Other areas, including less commercially relevant ones, are awash in patents for minutiae. And patents are not synonymous with commercially relevant innovations. That said, patents do provide a consistent, broad-gauge indicator of the level and rate of innovation – one that can be tracked over long periods of time and be broken out by nation, city, and region, and by U.S. resident versus non-resident or foreign inventors.

With my Prosperity Institute team – Charlotte Mellander, Scott Pennington, Dieter Kogler, and Patrick Adler – I’ve taken a look at the trends in U.S.-patented innovations. In a series of posts this week, I will report our findings. Tomorrow we’ll look at the trends in U.S. patents over time. Wednesday we’ll explore patenting by U.S. resident versus non-resident (foreign) inventors. Thursday we’ll examine the geographic distribution of innovation – tracking the rise of some innovative regions and the fall of others. And Friday we’ll discuss the longer-run historical relationship between innovation and economic crises.

The creative, knowledge economy is based – at least in part – upon the abilities of individuals and teams to leverage their collective information and ideas into new innovations.

But, how do ideas and information get shared? Does information flow along traditional corporate hierarchical and team division lines? Apparently not, according to research reviewed and summarized by Harvey Schachter in the Globe and Mail last week:

From his summary:

Organizational network analysis charts resemble a spider’s web, with endless crisscrossing strands that show who collaborates with whom….Often, the most important individuals are lower down in the organization, known to colleagues for their knowledge or the speed with which they respond to queries, while formal bosses prove to be bottlenecks, unreachable or not considered of much use in everyday work…

The most valuable knowledge workers, therefore, need to know who has information that they need – and, they themselves need to be a source of key information for others (which could simply be, who knows what).

The most successful senior managers would also know how to leverage this internal network of problem-solving and innovation-creating ability. This might mean knowing how to divide staff into teams such that there is not too much duplication of internal knowledge networks among team members.

Many workplace design firms now also try to design space to encourage organizational networking and internal idea sharing. This is one reason private, assigned offices are becoming less common in some industries as four walls and a door can discourage interaction.

How does information and knowledge flow where you work?

Paul Graham speculates that startups may herald a new era of political economy:

Startups may represent a new economic phase, on the scale of the Industrial Revolution. I’m not sure of this, but there seems a decent chance it’s true. People are dramatically more productive as founders or early employees of startups–imagine how much less Larry and Sergey would have achieved if they’d gone to work for a big company–and that scale of improvement can change social customs.

He notes that startups are highly clustered in certain cities:

Startups are a type of business that flourishes in certain places that specialize in it–that Silicon Valley specializes in startups in the same way Los Angeles specializes in movies, or New York in finance.

And he’s concerned about what this means for society:

If so, this revolution is going to be particularly revolutionary. All previous revolutions have spread. Agriculture, cities, and industrialization all spread widely. If startups end up being like the movie business, with just a handful of centers and one dominant one, that’s going to have novel consequences.

The spiky nature of our era – evident in everything from startup clustering to rising economic and geographic inequality – is among the most critical issues of our time. The crisis creates the opportunity to address it. But for some reason, U.S. and global policy-makers are unable or unwilling to take it on. The consequences will surely come back to haunt them sooner or later.

The Iranian Presidential Election will be held this Friday. Against seemingly insurmountable odds, Hossein Mousavi, a moderate and progressive candidate (by Iranian standards) has emerged as a serious contender to the incumbent Mahmoud Ahmadinejad.

While his “Green Revolution,” at first seemed nothing more than a Sisyphean struggle by a group of young moderate Iranians against a totalitarian and despotic government – destined for failure despite their greatest efforts – the winds of change have dramatically and suddenly tipped in Mousavi’s favor and, at this point, it’s anyone’s race.

Iran’s state-controlled media has given Mr. Mousavi no air-time, the government has banned his party from hosting peaceful rallies in sports stadiums and other public venues, and those rallies which have occurred spontaneously in the street have been met with hostilities from government officials. Still, his candidacy built momentum.

So how did Mr. Mousavi, whose supporters promise “a new greeting to the world,” emerge as a serious contender to Mr Ahmadinejad despite a state-wide government campaign to quell his movement? The answer: FACEBOOK. Mousavi’s supporters – mostly young people and educated urban dwellers – have taken to the Web, garnering support and enthusiasm on Facebook and on blogs, posting videos of their candidate on YouTube, and organizing impromptu street rallies by mass-texting fellow supporters literally on the fly. The result: a highly organized, energetic, and sophisticated force for change.

Mousavi supporter Emad Mortazavi, a 24-year-old sociology student, said, “Last week, there was suddenly this feeling that it was possible, that Mousavi could get enough votes. Social-networking sites and text-messaging have played a big role in spreading the message.”

In typical form, Ahmadinejad blocked Facebook in May in an attempt to silence his opposition, but to no avail (it was opened back up three days later). In the end, Iran’s youth proved more tech-savvy than anyone in Ahmadinejad’s government.

In an uncanny mirror image of the U.S. election last year, it appears the Net-Generation – people born between 1980 and 1996 – may once again anchor the winning candidate by embracing progressive attitudes and exploiting the power of the internet to collaborate and organize for their candidate. Evidence of a seismic demographic shift, the precipitous rise of Mousavi proves that young Iranians are a force to be reckoned with.

The AFP reports:

“With more than 60 percent of Iranians born after their nation’s Islamic revolution in 1979, the under-30 vote will be crucial in next week’s election in which hardline President Mahmoud Ahmadinejad is being challenged by three fiercely critical rivals.

Several analysts predict a high urban youth turnout in favour of former premier Mir Hossein Mousavi…Tehran has been gripped by a new fashion frenzy ahead of the June 12 vote, with scores of teenagers and 20-somethings sporting green wristbands, scarves and T-shirts.”

Iranian youth ultimately face many of the same problems as young people in Canada, the U.S., and Europe. In a time of economic turmoil they want a candidate who can answer their questions and who can appeal to their better instincts; not some religious zealot who spends most of his time demonizing the Western World and threatening the extinction of its neighbors. The DailyKos writes,

“The economy is a key issue, and many young people with college degrees cannot find jobs or acceptable living arrangements in Tehran and other major cities…the ruling elites cannot ignore the desires of such an enormous percentage of the nation for long. Iran is in for some major shifts due to demographics alone.”

Tomorrow, the Iranian people will take to the polls. The sun may rise Saturday morning on a very different looking Middle East.

What causes workplace stress today? The economy and the financial status of one’s employer are quite high on the list for many people. But, in 1998, it was new communications technologies – like the Internet.

From an article published in 1998:

The Kensington Stress & Technology in the Workplace Survey, which queried 501 adult U.S. full-time, traditional and home-office workers, uncovered new statistics on technology’s relationship to stress …

Nearly half of the workers surveyed, however, said technology increases stress, and 51 percent of them reported that the possibility of losing documents due to computer crashes causes them “a lot” or “some” stress. The demands of email and voice mail have also contributed to an overall increase in stress in the last year, according to the survey.

“Adjusting to new technologies-like the Web, networks, personal communications-that have saturated today’s workplace is creating new demands on workers, and that’s causing more stress;” said Odette Pollar, president of Oakland-based Time Management Systems and authority on stress in the workplace. “The question is how to make technology work in our favor without compromising our health and well-being.”

So, have we won? Do you think technologies today -  web 2.0, the internet, smart-phones, and our multiple computers – still increase stress? Or is this no longer an appropriate question?

Yesterday, we looked at the effects of class on economic growth. Today, we turn to the relationship between class and innovation.

It’s a well-established truism that innovation drives economic growth and development. Nations and regions around the world go to great measures to stimulate innovation in their attempts to create the “next Silicon Valley” which will generate new technologies, improve economic growth, and lift their living standards.

To examine the relationship between class and innovation, Charlotta Mellander used data on patents by country available from the World Intellectual Property Organization. Despite some limitations, patents are the best-available measure of innovation.

The relationships between class and innovation are, if anything, even stronger than between class and economic activity.

The working class and innovation – not so much. Countries with a large working class have much lower levels of innovation.

Source of all graphics: Martin Prosperity Institute