The Intangible Economy is off for the holidays. See you in the new year.
December 2009 Archives
The Business Week review of The Year in Innovation has more than the normal look back. It highlights three trends in innovation that are taking root: trickle-up innovation, design thinking and open innovation.
Trickle-up innovation may best represent what some are calling today's "good enough" marketplace. Multinationals used to develop their top-of-the-line products for the developed world. These goods then "trickled down" to emerging markets as even better replacements were introduced to affluent consumers. Now the process is being flipped. Companies increasingly are designing low-priced, no-frills products for those at the bottom of the pyramid and trickling them up to the developed world.These are three ideas that could be game changers in our thinking about innovation. Now all we need to do is figure out the public policy to support these activities.
. . .
Design thinking has been around for some years now, but it became a mantra among consultants in 2009. The notion boils down to this: Executives at all levels would be more innovative and therefore successful if they approached problems the way designers do. That means understanding a problem or need from the consumer's point of view and then coming up with the best good or service for the job. P&G, again, is often held up as a corporate role model here thanks, to such products as its dust cloth Swiffer, which opened up a whole new market for the consumer goods giant.
. . .
Open innovation spread far and wide as companies sought to offset cuts in their own R&D budgets by soliciting help from outsiders, including customers, suppliers, and freelance experts. While companies such as Johnson & Johnson (JNJ) have used the Internet to vacuum up worthwhile ideas and practical assistance since the previous downturn almost a decade ago, the Great Recession is converting more to open innovation today. Clorox (CLX), for example, says 80% of its new products included input from at least one partner.
Last year, Athena Alliance helped organize a conference on Intangible Assets: Measuring and Enhancing Their Contribution to Corporate Value and Economic Growth. This one day conference was hosted by the National Academies' Board on Science, Technology and Economic Policy (STEP), in cooperation with the Committee on National Statistic and sponsored by the Commerce Department's Bureau of Economic Analysis. It focused on discussions of what are intangibles and how they work, how intangible investments compare and contribute to growth, how intangibles are created and used by firms, and what the government's role should be in supporting markets and promoting investment in intangibles. The conference included remarks from Senator Jeff Bingaman (D-NM) and then Under Secretary of Commerce for Economic Affairs Cynthia Glassman. Presentations came from a number of experts in the field, included Charles Hulten, Carol Corrado, Baruch Lev, James Malackowski, Jonathan Haskel, Steven Landefeld, Ahmed Bounfour, Douglas Lippoldt, Nir Kossovsky, and myself.
The report of the conference is now available -- Intangible Assets: Measuring and Enhancing Their Contribution to Corporate Value and Economic Growth: Summary of a Workshop. The report does a good job of capturing this interesting and stimulating discussion. The presentations are also available the STEP Board's website.
The report of the conference is now available -- Intangible Assets: Measuring and Enhancing Their Contribution to Corporate Value and Economic Growth: Summary of a Workshop. The report does a good job of capturing this interesting and stimulating discussion. The presentations are also available the STEP Board's website.
Last week, the White House released its manufacturing framework and held a meeting of the Middle Class Task Force focused on manufacturing (watch video). The document makes the cases for government policy in manufacturing and describes the actions that the Administration is taking, grouped into seven baskets:
The framework outlines a number of challenges facing manufacturing. The discussion of the opportunities, however, envisions toward moving manufacturing into specific new products: biotechnology, wind power, nanotechnology, aerospace, next generation automobiles. Only in the one paragraph on the steel industry is there a discussion of the changes to the manufacturing process. As I have argued earlier, we need a strategy that transforms manufacturing, not preserves the status quo. First, we need to adopt a "high road" strategy that puts its emphasis on all upgrading of the inputs to the production process: technology, worker skills and cooperative/collaborative organizational structures. The framework implicitly accepts the "high road" strategy--especially in its discussion of worker skills. I would like to see the Obama Administration adopt it explicitly and use it as a guidepost for its actions. Second, we need to understand that the line between manufacturing and services has blurred. That means a shift from turning out a large volume of a commoditized product to customization and innovation. But the entire system (and supply chain) is still designed for the industrial age.
The framework does recognize that the nature of the economy has changed. As the document clearly states, "Intellectual capital, such as patents from research and development as well as managerial know-how, is a vital component in determining costs, growth rates and the creation of new industries." This recognition of the importance of intellectual capital is a very welcome addition. Unfortunately, discussion in the framework limits itself to R&D and intellectual property--although the section on worker skills is part of a larger intellectual capital structure. A successful manufacturing framework must embrace the full range of intellectual assets and intangible, including organizational structure, worker skills and tacit knowledge, and relationships with customers and suppliers (also all part of a "high road" strategy).
While I don't (yet) have a lengthy set of additional recommendation that could be included in a manufacturing strategy, let me just refer the reader to earlier postings on innovation strategy, including our paper from a year ago, Crafting an Obama Innovation Strategy. But look for more to come (I hope) in the new year.
Provide workers with the opportunity to obtain the skills necessary to be highly productive.There is much I agree with in the framework. The specific recommendations of the framework are all things I support. For example, the plan to double the Manufacturing Extension Partnership budget is something I have advocated (see previous postings). But, as I have also advocated in those previous postings, there is more that can be done.
Invest in the creation of new technologies and business practices.
Develop stable and efficient capital markets for business investment.
Help communities and workers transition to a better future.
Invest in an advanced transportation infrastructure.
Ensure market access and a level playing field.
Improve the general business climate, especially for manufacturing.
The framework outlines a number of challenges facing manufacturing. The discussion of the opportunities, however, envisions toward moving manufacturing into specific new products: biotechnology, wind power, nanotechnology, aerospace, next generation automobiles. Only in the one paragraph on the steel industry is there a discussion of the changes to the manufacturing process. As I have argued earlier, we need a strategy that transforms manufacturing, not preserves the status quo. First, we need to adopt a "high road" strategy that puts its emphasis on all upgrading of the inputs to the production process: technology, worker skills and cooperative/collaborative organizational structures. The framework implicitly accepts the "high road" strategy--especially in its discussion of worker skills. I would like to see the Obama Administration adopt it explicitly and use it as a guidepost for its actions. Second, we need to understand that the line between manufacturing and services has blurred. That means a shift from turning out a large volume of a commoditized product to customization and innovation. But the entire system (and supply chain) is still designed for the industrial age.
The framework does recognize that the nature of the economy has changed. As the document clearly states, "Intellectual capital, such as patents from research and development as well as managerial know-how, is a vital component in determining costs, growth rates and the creation of new industries." This recognition of the importance of intellectual capital is a very welcome addition. Unfortunately, discussion in the framework limits itself to R&D and intellectual property--although the section on worker skills is part of a larger intellectual capital structure. A successful manufacturing framework must embrace the full range of intellectual assets and intangible, including organizational structure, worker skills and tacit knowledge, and relationships with customers and suppliers (also all part of a "high road" strategy).
While I don't (yet) have a lengthy set of additional recommendation that could be included in a manufacturing strategy, let me just refer the reader to earlier postings on innovation strategy, including our paper from a year ago, Crafting an Obama Innovation Strategy. But look for more to come (I hope) in the new year.
In his New York Times column today, David Brooks reviews a new book where he calls this the Protocol Society:
This is a good description -- but I thought we already called this the knowledge economy.
In the 19th and 20th centuries we made stuff: corn and steel and trucks. Now, we make protocols: sets of instructions. A software program is a protocol for organizing information. A new drug is a protocol for organizing chemicals. Wal-Mart produces protocols for moving and marketing consumer goods. Even when you are buying a car, you are mostly paying for the knowledge embedded in its design, not the metal and glass.As he notes, "Protocols are intangible, so the traits needed to invent and absorb them are intangible, too."
This is a good description -- but I thought we already called this the knowledge economy.
This is the time of the "Year in Review" articles. This year it is the "Decade in Review" as we move into the "teens". This one, at the Wall Street Journal, caught my eye -- Creativity, Meet Destruction:
Too often, however, "creative destruction" it has been used to justify non-creative processes. The argument here is that we have to allow economic forces to crush certain activities in order for new activity to flourish. Thus, under this view, high unemployment and high bankruptcy rates are good because it frees up resources.
This view has the process backwards. Destruction does not necessarily cause creation. Creative activities - innovation - draw resources from the old to the new. Yes, you may have to tear down the old house to build the new. But tearing down the old house doesn't necessarily mean the bricks will magically reform themselves into a new building. Nor will economic forces immediately flow into the vacuum: the vacant lot may side empty for decades.
And remember that not all destruction is part of "creative destruction" process. Take for example the companies listed in the beginning of the Journal article. Anheuser-Busch was part of a corporate take-over. No "creation" there - and the "destruction" will probably be "corporate rationalization." Lehman Brothers and Merrill Lynch didn't fall to a new business model or economic change. Nor was Enron's fall due to some one taking their business away because of a better way of doing things. And last I checked, Gillette razor's were still available - even if the company is not an independent entity.
So, let's not confuse corporate restructuring with innovation. When someone explains why the closing of a company or a takeover of one firm by another that simply reduces competition is all part of the great goal of "creative destruction", ask them where the creative part is.
And let's focus our public policy on the innovation side of the equation. We need to ensure that access to resources doesn't become a barrier to innovation and the creative part of the process. But that doesn't mean destruction for destruction's sake.
[Note: in fairness to the author of the Journal article, the piece really is about the changes in the decade. It is just that the opening examples don't fit the rest of the story.]
To understand the challenges that faced businesses the past 10 years, consider the household names that didn't make it through the decade: Anheuser-Busch, Compaq, Gillette, Enron, Lehman Brothers, Merrill Lynch, WorldCom.Much has been said about Schumpeter's phrase "creative destruction." The phrase is a way to capture the dynamic action of the economy where the new replaces the old. The Journal pieces cites the internet as a classic example of a new technology creating a new business model that replaces the old way of doing things. We also call this "innovation."
. . .
"This is what [Austrian economist Joseph] Schumpeter had in mind with his term 'creative destruction,'" says Paul David, an economic historian at Stanford University. Industrial collapse is a "messy, messy process," Mr. David says. "It's a great drama, and watching it play out in this decade has been very interesting."
Too often, however, "creative destruction" it has been used to justify non-creative processes. The argument here is that we have to allow economic forces to crush certain activities in order for new activity to flourish. Thus, under this view, high unemployment and high bankruptcy rates are good because it frees up resources.
This view has the process backwards. Destruction does not necessarily cause creation. Creative activities - innovation - draw resources from the old to the new. Yes, you may have to tear down the old house to build the new. But tearing down the old house doesn't necessarily mean the bricks will magically reform themselves into a new building. Nor will economic forces immediately flow into the vacuum: the vacant lot may side empty for decades.
And remember that not all destruction is part of "creative destruction" process. Take for example the companies listed in the beginning of the Journal article. Anheuser-Busch was part of a corporate take-over. No "creation" there - and the "destruction" will probably be "corporate rationalization." Lehman Brothers and Merrill Lynch didn't fall to a new business model or economic change. Nor was Enron's fall due to some one taking their business away because of a better way of doing things. And last I checked, Gillette razor's were still available - even if the company is not an independent entity.
So, let's not confuse corporate restructuring with innovation. When someone explains why the closing of a company or a takeover of one firm by another that simply reduces competition is all part of the great goal of "creative destruction", ask them where the creative part is.
And let's focus our public policy on the innovation side of the equation. We need to ensure that access to resources doesn't become a barrier to innovation and the creative part of the process. But that doesn't mean destruction for destruction's sake.
[Note: in fairness to the author of the Journal article, the piece really is about the changes in the decade. It is just that the opening examples don't fit the rest of the story.]
And speaking of patents, check out this humorous graphic of patents from the New York Times Sunday magazine. This Year in Patents a fun counterpoint to the magazine's the Year in Ideas.
Here is an interesting story on OceanTomo's Intellectual Property Exchange International from the DowJones Newswire -- First Patent Exchange To Launch Early Next Year. The purpose of the exchange is to give patent owners a mechanism to sell their royalty rights - thereby creating more liquidity and more price transparency in the IP market. But, as the story points out, there is some concern that the exchange will lead to greater litigation via as "patent trolls" buy up licensing right:
In some ways this is a derivative market -- in that it is buying and selling licensing rights rather than trading the patent (which is what ICP OceanTomo's patent auctions does). While monetization of IP is a useful activity (and something which Athena Alliance has looked at extensively), it is the actual right to use the patent which most companies care about -- not just the renting out their licensing rights. So I am not sure there is enough trading to create the liquidity needed to adequately set prices. Derivative markets, such as this patent exchange, can help set the market price - but can also be way out of line if they are illiquid and/or captured by speculators. A friend of mine tells the funny story of when he, as a journalist covering a certain market, ended up being the "market price setter" when the exchange prices were considered wacky - so much so that apparently companies were concerned when he took a trip for fear of losing him in a plane crash.
So, the exchange is a good step forward. But we should treat it as a pilot - and look carefully as to what else may be needed to both help it operate effectively and to provide the price setting and liquidity the market needs. Most importantly, we need to view this through the lens of our ultimate goal: innovation. For my part, I'm not interested in spurring monetization of intangibles for the sake of creating more trading. I am looking at this as a mechanism of funding - and fostering -innovation. If it doesn't do that, then it is not worth it.
"Whenever anybody aggregates patents, there's always that suspicion," said Patrick Thomas, principal at 1790 Capital, a hedge fund that invests in companies based on their intellectual property. But Thomas said Ocean Tomo's current business based on valuing companies' patent assets lends credence to the new venture.I am less worried about the troll aspect of this -- trolls will do what trolls do. I am interested to see how it works for providing price setting. As the story notes, "Traditionally, companies hoping to license out patents do so in secret, labor- intensive and expensive deals that can be hard to value properly."
In some ways this is a derivative market -- in that it is buying and selling licensing rights rather than trading the patent (which is what ICP OceanTomo's patent auctions does). While monetization of IP is a useful activity (and something which Athena Alliance has looked at extensively), it is the actual right to use the patent which most companies care about -- not just the renting out their licensing rights. So I am not sure there is enough trading to create the liquidity needed to adequately set prices. Derivative markets, such as this patent exchange, can help set the market price - but can also be way out of line if they are illiquid and/or captured by speculators. A friend of mine tells the funny story of when he, as a journalist covering a certain market, ended up being the "market price setter" when the exchange prices were considered wacky - so much so that apparently companies were concerned when he took a trip for fear of losing him in a plane crash.
So, the exchange is a good step forward. But we should treat it as a pilot - and look carefully as to what else may be needed to both help it operate effectively and to provide the price setting and liquidity the market needs. Most importantly, we need to view this through the lens of our ultimate goal: innovation. For my part, I'm not interested in spurring monetization of intangibles for the sake of creating more trading. I am looking at this as a mechanism of funding - and fostering -innovation. If it doesn't do that, then it is not worth it.
According to a story in today's Wall Street Journal, the Obama Administration is greatly increasing funds for the green manufacturing:
It is also a program that can be made even more powerful. As I've argued before, the program should be modified from a current tax credit for clean energy technology manufacturing facilities to be an up front payment in lieu so that companies who are trying to build facilities like wind turbine manufacturing facilities can get the start-up cash they need. Such a payment in lieu of tax credits was already created for alternative energy production facilities in Section 1603 of the America Recovery and Reinvestment Act -- and can serve as a model for the change.
This will need legislation -- I do not believe it can be done through regulations. But there is a tax extenders bill working its way through Congress and there is likely to be a "jobs bill" next year. So, Congress will have an opportunity to take this successful program and make it even more successful. And put us on the path to truly using green technology to spur a renaissance in American manufacturing.
The expansion would increase three-fold the $2.3 billion available in the Section 48C Advanced Energy Manufacturing Tax Credit program, part of the $787 billion stimulus package enacted in February. That program has been over-subscribed. The additional money could go to applicants turned down when the money ran out.This is good news -- the "48C" program is one I have strongly supported (and have been told by Administration officials that it were far more good applications than funds).
It is also a program that can be made even more powerful. As I've argued before, the program should be modified from a current tax credit for clean energy technology manufacturing facilities to be an up front payment in lieu so that companies who are trying to build facilities like wind turbine manufacturing facilities can get the start-up cash they need. Such a payment in lieu of tax credits was already created for alternative energy production facilities in Section 1603 of the America Recovery and Reinvestment Act -- and can serve as a model for the change.
This will need legislation -- I do not believe it can be done through regulations. But there is a tax extenders bill working its way through Congress and there is likely to be a "jobs bill" next year. So, Congress will have an opportunity to take this successful program and make it even more successful. And put us on the path to truly using green technology to spur a renaissance in American manufacturing.
David Leonhardt has an interesting column in the New York Times -- If Health Care Reform Fails, America's Innovation Gap Will Grow -- where he makes that case that our current system is bad for the future of the I-Cubed Economy:
Our existing health care system is already a drag on our economic competitiveness by imposing costs on US businesses that their competitors don't have to face. Leonhardt's point about the negative impact of the health care system's "job lock-in" affect is even more telling.
Economic research suggests that more than 1.5 million workers who would otherwise have switched jobs fail to do so every year because of fears about health insurance. Some of them would have moved to companies where they could have contributed more, and others would have started their own businesses.As he points out, as part of an innovation policy, "you would want to make people feel confident that they could take risks -- start a new company or join a young one -- without worrying about whether they would still receive adequate medical care."
Our existing health care system is already a drag on our economic competitiveness by imposing costs on US businesses that their competitors don't have to face. Leonhardt's point about the negative impact of the health care system's "job lock-in" affect is even more telling.
Apropos of innovation metrics (see previous posting), the US is now beginning to collect innovation data as part of the NSF's Business R&D and Innovation Survey -- formerly known as the Survey of Industrial Research and Development. The survey (which started this year) asks questions similar to the European Community Innovation Survey and the OECD Oslo Manual -- something that I have been advocating for years.
The new questions include whether the company introduced any of the following during the three-year period of 2006 to 2008:
Unfortunately, the 2009 data will not be available until spring since it is a new series of questions. In the following years, the data will be available in January with the publication of NSF's Science and Engineering Indicators.
Next step, in my mind, is to tackle the question of "hidden innovation" - as mentioned in the previous posting. It will be interesting to see if we can use the new data to conduct a similar type of analysis.
The new questions include whether the company introduced any of the following during the three-year period of 2006 to 2008:
New or significantly improved goods (excluding the simple resale of new goods purchased from others and changes of a solely aesthetic nature)It also asks new questions on patent licensing revenue.
New or significantly improved services
New or significantly improved methods of manufacturing or producing goods or services
New or significantly improved logistics, delivery, or distribution methods for your inputs, goods, or services
New or significantly improved support activities for your processes, such as maintenance systems or operations for purchasing, accounting, or computing
Unfortunately, the 2009 data will not be available until spring since it is a new series of questions. In the following years, the data will be available in January with the publication of NSF's Science and Engineering Indicators.
Next step, in my mind, is to tackle the question of "hidden innovation" - as mentioned in the previous posting. It will be interesting to see if we can use the new data to conduct a similar type of analysis.
The previous posting mentioned NESTA's reports on Hidden Innovation. I was at an event this morning with Digby, Lord Jones, the former UK Minister for Trade & Investment. When I mentioned the study, he remarked that even with the report it is difficult to ferret out these non-traditional innovations. He gave the example of the supplier of aggregate (sand, gravel) to the construction of London Olympic facilities. There is a motorway that runs from the quarry to the construction site. So, the standard way to haul the stone would be by truck (in part right through London). But since the construction site is on the Thames, the contractor decided to ship the stone by rail from the quarry to the river and then take in by barge to the site. This was better from both an environmental point of view and for traffic safety and congestion. Apparently the contractor won the bid based on this innovative idea. Yet, Lord Jones noted that when the company filled out the innovation survey, they checked the box on "no innovations."
Of course the company didn't think it was being innovative - since our mindset still equates "innovation" with "technology." They are still blasting and crushing rock the same way. The innovation was much more subtle. But for all the people who won't be trapped behind a large number of stone carriers on the motorway, it has a profound impact on their lives.
Therein lies the other problem with these hidden innovations: they can be invisible because of what they don't do. How do we measure innovations that prevent a negative, and how does the policy (and political) system reward these innovations? The market can reward them through acknowledging the cost savings/expense reduction. For policy makers it is much more difficult. But that is the challenge of getting the innovation system right.
Of course the company didn't think it was being innovative - since our mindset still equates "innovation" with "technology." They are still blasting and crushing rock the same way. The innovation was much more subtle. But for all the people who won't be trapped behind a large number of stone carriers on the motorway, it has a profound impact on their lives.
Therein lies the other problem with these hidden innovations: they can be invisible because of what they don't do. How do we measure innovations that prevent a negative, and how does the policy (and political) system reward these innovations? The market can reward them through acknowledging the cost savings/expense reduction. For policy makers it is much more difficult. But that is the challenge of getting the innovation system right.
The UK's National Endowment for Science Technology and the Arts (NESTA) has released its new pilot Innovation Index
. As the press release states:
The first report provides a growth accounting framework, built in part on the measurement of intangible assets as formulated by Corrado, Hulten and Sichel in the US and Marrano, Haskel and Wallis in the UK (see previous postings).
The second report is a follow on to their earlier report of "hidden innovation" - that is innovation in industries where levels of traditional R&D investment are low. These include: architectural services: accounting; business and management consultants; legal services; software and IT services; automotive industry; construction; energy; and design services. The report shows that low R&D intensive industries are not necessarily low in innovation. And even in areas were industry wide innovation may be low, successful companies are more innovative than their peers.
The third report looks at seven clusters of what it calls the "wider conditions" for innovation:
These three reports are essentially refinements and follow-on to previous NESTA work. Taken together they point to a new direction of measuring and understanding innovation. As they show, innovation based on investments in intangibles assets occurs across economic sectors. It is not simply a function of what we traditionally see as R&D These report highlight that our industrial age notions of innovation are woefully out of date. As the hidden innovation report states: "One reason for this innovation gap is that traditional metrics do not reflect the nature of innovation in today's economy." New metrics will come from the new formulations of innovation presented in these report -- and in turn the metrics will help us better the workings of the I-Cubed Economy.
The aim is to make a significant improvement on existing metrics, both by making clear the contribution of innovation to productivity and growth, and by capturing 'hidden innovation'.The index is now in its pilot form with launch of its final form due in the fall of next year. The Index is actually three reports.
The first report provides a growth accounting framework, built in part on the measurement of intangible assets as formulated by Corrado, Hulten and Sichel in the US and Marrano, Haskel and Wallis in the UK (see previous postings).
The second report is a follow on to their earlier report of "hidden innovation" - that is innovation in industries where levels of traditional R&D investment are low. These include: architectural services: accounting; business and management consultants; legal services; software and IT services; automotive industry; construction; energy; and design services. The report shows that low R&D intensive industries are not necessarily low in innovation. And even in areas were industry wide innovation may be low, successful companies are more innovative than their peers.
The third report looks at seven clusters of what it calls the "wider conditions" for innovation:
• Public research. Both the amount spent on public research, and the strengths of business-industry links.The study concludes that the UK does well in competition and entrepreneurship, needs work in the areas of public research and openness and lags in access to finance, demand and skills.
• Openness. How quickly and effectively good ideas can diffuse and be absorbed. This includes both the physical infrastructure for openness (such as broadband internet) and its social underpinnings (such as how hierarchical workplaces are).
• Entrepreneurship. How effectively new businesses spring up to take advantage of innovative opportunities, and how willing people are to take the risks necessary to innovate.
• Demand. Whether customers are willing to buy innovative products. An important part of this is government's willingness to procure innovative products.
• Competition. The overall level of competition in the economy.
• Access to finance. Whether risky, innovative businesses can attract funding, in particular venture capital, but also other forms of finance such as business credit.
• Skills. Whether skilled workers are available to work in an innovative venture, and whether workforces have the necessary skills to innovate themselves.
These three reports are essentially refinements and follow-on to previous NESTA work. Taken together they point to a new direction of measuring and understanding innovation. As they show, innovation based on investments in intangibles assets occurs across economic sectors. It is not simply a function of what we traditionally see as R&D These report highlight that our industrial age notions of innovation are woefully out of date. As the hidden innovation report states: "One reason for this innovation gap is that traditional metrics do not reflect the nature of innovation in today's economy." New metrics will come from the new formulations of innovation presented in these report -- and in turn the metrics will help us better the workings of the I-Cubed Economy.
For those of you with young girls, you may be aware of the Barbie vs. Bratz issue. For the rest of us, it may seem like just a war of the dolls. However, it centers on an important concept in innovation and intellectual property: who owns an employee's idea. In this case, Mattel (maker of Barbie) claims that Carter Bryant designed the Bratz dolls while he was an employee of Mattel. Therefore, Mattel says owns the rights to the Bratz doll (which they view as a direct competitor).
Here is the twist: Bryant says he designed the dolls on his own time. Mattel says it doesn't matter since he signed an agreement that gave Mattel the right to anything he designed while employed. A judge and jury agreed with Mattel and ordered the Bratz makers, MGA Entertainment, to pay damages, turn over the Bratz product line Mattel and buy back and destroy all Bratz dolls still on toy stores' shelves.
Now the case is moving up the judicial system. According to the Wall Street Journal, on Wednesday -- just in time for Christmas -- an appeals court has stepped in:
Here is the twist: Bryant says he designed the dolls on his own time. Mattel says it doesn't matter since he signed an agreement that gave Mattel the right to anything he designed while employed. A judge and jury agreed with Mattel and ordered the Bratz makers, MGA Entertainment, to pay damages, turn over the Bratz product line Mattel and buy back and destroy all Bratz dolls still on toy stores' shelves.
Now the case is moving up the judicial system. According to the Wall Street Journal, on Wednesday -- just in time for Christmas -- an appeals court has stepped in:
In addition to staying a lower court's order, a panel of the Ninth Circuit Court of Appeals in Pasadena also ordered that the two companies enter mediation.Sounds like this one may go all the way to the Supreme Court -- and set a major precedent on who owns what ideas.
. . .
The appellate judges on Wednesday questioned whether the trial judge went too far by awarding MGA's Bratz doll franchise to Mattel and wondered why he didn't instead award Mattel a royalty or ownership stake in the company. The judges also questioned whether Mattel's "inventions agreement" at the center of the dispute gave the toy company ownership of all ideas the designer came up with, even when he was not at work.
The end of the year is always filled with retrospective lists and reviews of the past 12 months. One of the most fun look's back is the New York Times magazine's Year in Ideas (on line now - will be published in this Sunday's magazine). The review covers a number of categories, from arts to social sciences to technology - with business, politics, sport and culture thrown in as well.
One of my favorites is the rise of the "good enough" revolution, where functionality trumps technological sophistication:
One of my favorites is the rise of the "good enough" revolution, where functionality trumps technological sophistication:
High-definition televisions have turned every living room into a home cinema, yet millions of us choose to watch small, blurry videos on our computers and our mobile devices. Cameras capture images in a dozen megapixels, yet Flickr is filled with snapshots taken with phone cameras that we can neither focus nor zoom. And at war, a country that has a fleet of F-16 fighter jets that can cover 1,500 miles an hour is now using more and more remote-controlled Predator drones that are powered by snowmobile engines.Another is an art by subscription model:
Lo-fi solutions are now available for a range of problems that couldn't be solved with high-tech tools. Music played from a compact disc is of higher quality than what comes out of an iPod -- but you can't easily carry 4,000 CDs with you on the subway or to the gym. Similarly, a professional television camera will produce a higher-quality image than a phone, but when something important happens, from the landing of a jet on the Hudson River to the murder of an Iranian protester, and there are no TV cameras around, images recorded on phones are good enough.
At Kickstarter, creative types post a description of a project they want to do, how much money they need for it and a deadline. If enough people pledge money that the artists reach (or surpass) their financial goals, then everyone is billed, paying in advance as you would for a magazine subscription. For goals that aren't reached, nobody is charged. [I wonder if you could have something like that for research projects?]All in all, an interesting summary of the intellectual progress of 2009.
The US trade deficit improved slightly in October, according to this morning's trade data from BEA. The deficit shrank slightly to $32.9 billion, down from the revised September deficit of $35.7 billion. Almost all of the improvement was due to a $2.6 billion drop in petroleum imports. The non-petroleum balance improved only slightly as both exports and imports grew. The good news is that non-petroleum exports grew faster than imports and have risen over the past few months. The bad news (for the trade balance) is that non-petroleum imports have surged a bit over the past three months. That is a sign of an economic recovery - but not a path to a sustainable trade balance.
Our intangibles trade surplus also improved slightly as exports of both business services and royalties rose faster than imports. The October trade surplus in intangible was almost $11.5 billion. Contrary to previous reports, the intangible trade balance has improved steadily in the past 6 months -- based on revised data.
That revision is the big news in this release regarding intangibles. Both imports and exports of business services and royalties were significantly revised upwards. In some months the revision was over half a billion dollars and changed the data by over 8%. These revisions change the story from stagnation to upward growth. As I've state before, while I appreciate BEA's efforts to improve the data, I remain concerned about these revisions. We really need a better way of incorporating the data into the monthly figures, rather than revising the numbers a half a year later.
Our deficit in Advanced Technology Products also improved slightly in October, dropping to around $5.6 billion. Increased exports in aerospace and biotechnology were enough to offset increased imports of life sciences, information and communications technologies, and optoelectronics. The last monthly surplus in Advanced Technology Products was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.
Note: we define trade in intangibles as the sum of "royalties and license fees" and "other private services". The BEA/Census Bureau definitions of those categories are as follows:
Royalties and License Fees - Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term "royalties" generally refers to payments for the utilization of copyrights or trademarks, and the term "license fees" generally refers to payments for the use of patents or industrial processes.
Other Private Services - Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term "affiliated" refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise's voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.
Our intangibles trade surplus also improved slightly as exports of both business services and royalties rose faster than imports. The October trade surplus in intangible was almost $11.5 billion. Contrary to previous reports, the intangible trade balance has improved steadily in the past 6 months -- based on revised data.
That revision is the big news in this release regarding intangibles. Both imports and exports of business services and royalties were significantly revised upwards. In some months the revision was over half a billion dollars and changed the data by over 8%. These revisions change the story from stagnation to upward growth. As I've state before, while I appreciate BEA's efforts to improve the data, I remain concerned about these revisions. We really need a better way of incorporating the data into the monthly figures, rather than revising the numbers a half a year later.
Our deficit in Advanced Technology Products also improved slightly in October, dropping to around $5.6 billion. Increased exports in aerospace and biotechnology were enough to offset increased imports of life sciences, information and communications technologies, and optoelectronics. The last monthly surplus in Advanced Technology Products was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.
Note: we define trade in intangibles as the sum of "royalties and license fees" and "other private services". The BEA/Census Bureau definitions of those categories are as follows:
Royalties and License Fees - Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term "royalties" generally refers to payments for the utilization of copyrights or trademarks, and the term "license fees" generally refers to payments for the use of patents or industrial processes.
Other Private Services - Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term "affiliated" refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise's voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.
Today's New York Times has a good article entitled In India, Anxiety Over the Slow Pace of Innovation. While the piece talks about the barriers India faces in becoming an "innovation powerhouse," it also ends with a positive note:
Until early this decade, the Indian market was too small and isolated to make it very lucrative for businesses to develop products here, so most technology companies focused on selling services to the West, said Girish S. Paranjpe, joint chief executive of Wipro's information technology business. "That will change dramatically because the Indian market has become bigger," he said.So American companies need to run even that much faster -- because everyone else is following the same strategy of innovation.
It looks like the innovation issue may really be gaining some attention in Washington. David Brooks, the in-house conservative political columnist for the New York Times devoted today's column to the subject. He even mentioned in passing the Obama white paper (see earlier posting). While supposedly looking at the recommendations from the paper, interestingly enough he ignored that paper's central conclusion: that we need an activist innovation policy - complete with ways of addressing grand challenges. Brooks instead took the tack of advocating a set of high level government interventions. The included reforming education, increasing R&D spending, a National Infrastructure Bank, support for regional innovation clusters and rebalancing exchange rates. He also through in a few of the standard conservative positions: cut the deficit, lower the corporate tax rate and "Don't make labor markets rigid. Don't pick trade fights with China." (Although I'm not sure that "rebalancing the exchange rate isn't picking a huge trade fight with China.)
So, this ends up being less of an innovation policy and more of restatement of some generally held views. But the mere fact that he has address these issue raises some hope that we can keep innovation on the national agenda - and at least get some of these items accomplished. As he concludes:
So, this ends up being less of an innovation policy and more of restatement of some generally held views. But the mere fact that he has address these issue raises some hope that we can keep innovation on the national agenda - and at least get some of these items accomplished. As he concludes:
This sort of agenda doesn't rely on politicians who think they can predict the next new thing. Nor does it mean merely letting the market go its own way. (The market seems to have a preference for useless financial instruments and insane compensation packages.)While I disagree with his implied return to the unhelpful rhetoric of "picking winners and losers", I agree that we need a return to an activist government policy in this area. And by the way, Hamilton's idea was a very explicit industrial policy.
Instead, it's an agenda that would steer and spark innovation without controlling it, which is what government has done since the days of Alexander Hamilton. It's the sort of thing the country does periodically, each time we need to recover from one of our binges of national stupidity.
By now you have probably read all about DARPA's 10 red balloon challenge (see also the Washington Post, the New York Times, and many others). For the 40th anniversary of the Internet, DARPA posted 10 red balloons in public places in the continental US and put up a $40,000 reward for the team that could locate the balloons the quickest. The winning team took a little under 9 hours. The whole exercise was a big experiment in social networking -- what are the best ways to mobilize social networks. As the Post story explains:
"It's a huge game-theory simulation," says Norman Whitaker of DARPA's Transformational Convergence Technology Office. The only way to win the hunt was to find the location of every balloon, but a savvy participant would withhold his sighting until he'd amassed the other nine locations, or disseminated false information to throw others off the trail.Now, I expect most commentators will focus on the enormous information power of social networks that the experiment illustrates. That is true -- IT-enhanced social networks are an integral part of the I-Cubed Economy. But I would to focus on the "experiment" part of the experiment. When I studied game theory many years ago, experiments were confined to small groups. This activity shows the power of using social networks for massive social sciences research. That too is an integral part of the I-Cubed Economy.
Over the weekend, Twitter and Facebook were all abuzz with offers to sell coordinates for alleged sightings. There was much excitement over the red balloon in Providence, R.I. There was no red balloon in Providence -- just a Photoshopped decoy circulated by a conniving player.
The winning team was spearheaded by Riley Crane, a postdoctoral research fellow at MIT's Media Lab. MIT's team set up an elaborate information-gathering pyramid. Each balloon was allotted $4,000. The first person to spot one would be awarded $2,000, while the people who referred them to the team would get smaller amounts based on where they fell on the info chain. Any leftover money, after payment to spotters and their friends, will be donated to charity
Earlier I commented on the expectations game in economic data. Well, this morning's news from BLS on the November employment data should be a big shock to the system -- especially the political system. BLS reports that the unemployment rate went down to 10%, and the number of jobs lost was "essentially unchanged" at only 11,000. Part of the story is that the size of the civilian labor force fell slightly and the number of people not in the labor force grew slightly. But the total number of employed persons rose and the number of unemployed actually dropped.
The number of involuntary underemployed (part time for economic reasons) and those part time because of slack work also both declined. I would not put too much emphasis on a single month's numbers -- positive or negative. But the trend (as the chart below shows) is in the right direction. Involuntary underemployment essentially peaked in March.
The BLS release had one other shocker, however. As the New York Times also notes, "the government also significantly revised September and October numbers. September was adjusted to show a loss of 139,000 jobs instead of 219,000, and October 111,000 instead of 190,000." The release gave no reason for the revision. That is a very large change in the data and one that needs at least some explanation.
I spent Monday evening and much of Tuesday at the Innovation Economy Conference, sponsored by the Aspen Institute and Intel (see earlier posting on the pre-conference poll on innovation issues). Videos of the session are now available online. I would specifically recommend the Monday night discussion with John Kao and Sir Harold Evans. That discussion illuminated the broad definition of innovation - as more than just gadgets.
Unfortunately, there is no video of what I thought was the best session: the breakout with Dan Pink, Gerhard Schmidt of Ford, and the legendary Sidney Harman. Pink's analysis of 21st Century skills and Harman's understanding of the innovation and innovative organizations was one of the best I have heard. If you have read Pink's A Whole New Mind, do so.
American Innovators from Innovation Economy on Vimeo.
Unfortunately, there is no video of what I thought was the best session: the breakout with Dan Pink, Gerhard Schmidt of Ford, and the legendary Sidney Harman. Pink's analysis of 21st Century skills and Harman's understanding of the innovation and innovative organizations was one of the best I have heard. If you have read Pink's A Whole New Mind, do so.
Following up on my earlier posting on the need for more labor market (and statistical) research, would like to point out some other issues. Over the last month or so, there have been a number of interesting piece on the problems with economic statistics. Floyd Norris asked the question Did Unemployment Really Rise?:
Then there was Louis Uchitelle's column - "Economists Seek to Fix a Defect in Data That Overstates the Nation's Vigor". This piece highlights the problem with how we count imports
Finally, Michael Mandel wrote this piece in Business Week The GDP Mirage:
In reality, the government report says unemployment rates remained steady at 9.5 percent. And the number of jobs actually rose, by 80,000. And the number of jobs for college-educated Americans rose more than in any month in the last six years.That is true -- for the non-seasonally adjusted numbers. But the seasonally adjusted data showed just the opposite. Economic data, especially employment, has long been adjusted for what are seen as purely seasonal fluctuations -- more retail help during the holidays, more construction in the summer, etc. But, as Norris points out, these seasonal adjustments may be less relevant in today's economy. Good question.
Then there was Louis Uchitelle's column - "Economists Seek to Fix a Defect in Data That Overstates the Nation's Vigor". This piece highlights the problem with how we count imports
But the statistical system is not yet up to the task of sorting out which components are made here, which are made overseas and the resulting impact on employment.As a result, productivity and GDP may be mismeasured.
Finally, Michael Mandel wrote this piece in Business Week The GDP Mirage:
The trouble is that those GDP and productivity growth figures could be significantly overestimated--perhaps by one percentage point or even more.Now, don't get me wrong. The US economic statistical system is one of the best in the world. And there are dedicated professionals working hoard to make the system even better -- including tackling the problem of intangibles. But every statistic should always be looked at carefully. So the above is just some things to think about the next time you are reading economic data.
That's because the official statistics are not designed to pick up cutbacks in "intangible investments" such as business spending on research and development, product design, and worker training. There's ample evidence to suggest that companies, to reduce costs and boost short-term profits, are slashing this kind of spending, which is essential for innovation. Without investment in intangibles, the U.S. can't compete in a knowledge-based global economy. Yet you won't see that plunge reflected in the GDP and productivity statistics, which are still too focused on more traditional sectors, such as motor vehicles and construction.
As regular readers of this blog know, every month when the employment data is released I highlight the involuntary underemployed as a key indicator. Now, the Wall Street Journal has discovered the underemployment issue in a piece tells the story of a number of underemployed -- Working Two Jobs and Still Underemployed. The story doesn't get into any policy discussions. But it does raise, in passing, a related and hidden problem - underutilized. As the story notes:
State labor officials and economists generally label the underemployed as those who are working part-time when they would prefer full-time work, as well as people who are working beneath their skill level.Getting a handle on the underutilized (overqualified) will take a lot more research -- including a better conceptualization of "overqualified" and appropriate skills and skill levels. That is a set of labor policy questions which will bedevil the I-Cubed Economy.
Federal figures on the underemployed, however, don't count that second group -- those who are overqualified for their jobs.
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