Economics of Technology – Page 91

Congress Blocked Navy’s Grab of Radio Airwaves

Source of book image: online version of the WSJ review quoted and cited below.

(p. A15) “Hello Everybody!” is at its most valuable when it chronicles the early regulatory fights over the new medium. In the days after World War I, the Navy pushed hard for control of all “wireless” facilities, which were then used primarily used for point-to-point messaging. If the admirals had succeeded in that grab, which was blocked by Congress, the advent of broadcast radio would no doubt have been delayed and the industry might have developed more along the lines of European radio, with a great deal of government control.

For the full review, see:
RANDALL BLOOMQUIST. “”Bookshelf; A Journey Across the Dial.” The Wall Street Journal (Thurs., OCTOBER 9, 2008): A15.

The reference to the book under review, is:
Rudel, Anthony. Hello, Everybody! Orlando, FL: Houghton Mifflin Harcourt Publishing Company, 2008.

“Venturesome” Consumers May Help Save the Day

Bhidé makes thought-provoking comments about the role of the entrepreneurial or “venturesome” consumer in the process of innovation. The point is the mirror image on one made by Schumpeter in Capitalism, Socialism and Democracy when he emphasized that consumer resistance to innovation is one of the obstacles that entrepreneurs in earlier periods had to overcome. (The decline of such consumer resistance was one of the reasons that Schumpeter speculated that the entrepreneur might become obsolete.)
I would like to see Bhidé’s evidence on his claim that technology rapidly advanced during the Great Depression. The claim seems at odds with Amity Shlaes’ claim that New Deal policies often discouraged entrepreneurship.

(p. A15) Consumers get no respect — we value thrift and deplore the spending that supposedly undermines the investment necessary for our long-run prosperity. In fact, the venturesomeness of consumers has nourished unimaginable advances in our standard of living and created invaluable human capital that is often ignored.
Economists regard the innovations that sustain long-run prosperity as a gift to consumers. Stanford University and Hoover Institution economist Paul Romer wrote in the “Concise Encyclopedia of Economics” in 2007: “In 1985, I paid a thousand dollars per million transistors for memory in my computer. In 2005, I paid less than ten dollars per million, and yet I did nothing to deserve or help pay for this windfall.”
In fact, Mr. Romer and innumerable consumers of transistor-based products such as personal computers have played a critical, “venturesome” role in generating their windfalls.
. . .
History suggests that Americans don’t shirk from venturesome consumption in hard times. The personal computer took off in the dark days of the early 1980s. I paid more than a fourth of my annual income to buy an IBM XT then — as did millions of others. Similarly, in spite of the Great Depression, the rapid increase in the use of new technologies made the 1930s a period of exceptional productivity growth. Today, sales of Apple’s iPhone continue to expand at double-digit rates. Low-income groups (in the $25,000 to $49,999 income segment) are showing the most rapid growth, with resourceful buyers using the latest models as their primary device for accessing the Internet.
Recessions will come and go, but unless we completely mess things up, we can count on our venturesome consumers to keep prosperity on its long, upward arc.

For the full commentary, see:
Amar Bhidé. “Consumers Can Still Spot Value in a Crisis.” Wall Street Journal (Thurs., MARCH 11, 2009): A15.
(Note: ellipsis added.)

Entrepreneurs Are Key to Ending Economic Crisis

(p. A15) The passage of the $787 billion stimulus bill has so far failed to stimulate anything but greater market pessimism. This suggests to us that the strategy behind the American Reinvestment and Recovery Act is wrong — and worse, that the weapons it is using to fight the recession are obsolete.

Just as generals are notorious for fighting the last war, Congress and the White House seem intent on fixing an economy of hidebound and obsolete companies and industries, while ignoring the innovative ones rising before us and those waiting to be born.

Missing from this legislation is anything more than token support for the long-proven source of most new jobs and new growth in America: entrepreneurs. These are the people who gave us everything — from Wal-Mart to iPhones, from microprocessors to Twitter — that is still strong in our economy. Without entrepreneurs, we will never get out of our current predicament.

For the full commentary, see:
TOM HAYES and MICHAEL S. MALONE. “Entrepreneurs Can Lead Us Out of the Crisis What Are the Odds of a Depression?” Wall Street Journal (Tues., FEBRUARY 24, 2009): A15.
(Note: ellipses added.)

Bailouts Reduce Resources Left for Entrepreneurs

Columbia University Professor Amar Bhidé has authored two important books on entrepreneurship. Some of his thoughts on the current economic crisis follow:

(p. A15) Our ignorance of what causes economic ailments — and how to treat them — is profound. Downturns and financial crises are not regular occurrences, and because economies are always evolving, they tend to be idiosyncratic, singular events.

After decades of diligent research, scholars still argue about what caused the Great Depression — excessive consumption, investment, stock-market speculation and borrowing in the Roaring ’20s, Smoot-Hawley protectionism, or excessively tight monetary policy? Nor do we know how we got out of it: Some credit the New Deal while others say that that FDR’s policies prolonged the Depression.
. . .
Large increases in public spending usurp precious resources from supporting the innovations necessary for our long-term prosperity. Everyone isn’t a pessimist in hard times: The optimism of many entrepreneurs and consumers fueled the takeoff of personal computers during the deep recession of the early 1980s. Amazon has just launched the Kindle 2; its (equally pricey) predecessor sold out last November amid the Wall Street meltdown. But competing with expanded public spending makes it harder for innovations like the personal computer and the Kindle to secure the resources they need.

Hastily enacted programs jeopardize crucial beliefs in the value of productive enterprise. Americans are unusually idealistic and optimistic. We believe that we can all get ahead through innovations because the game isn’t stacked in favor of the powerful. This belief encourages the pursuit of initiatives that contribute to the common good rather than the pursuit of favors and rents. It also discourages the politics of envy. We are less prone to begrudge our neighbors’ fortune if we think it was fairly earned and that it has not come at our expense — indeed, that we too have derived some benefit.

To sustain these beliefs, Americans must see their government play the role of an even-handed referee rather than be a dispenser of rewards or even a judge of economic merit or contribution. The panicky response to the financial crisis, where openness and due process have been sacrificed to speed, has unfortunately undermined our faith. Bailing out AIG while letting Lehman fail — behind closed doors — has raised suspicions of cronyism. The Fed has refused to reveal to whom it has lent trillions. Outrage at the perceived use of TARP funds to pay bonuses is widespread.

For the full commentary, see:

Amar Bhidé. “Don’t Believe the Stimulus Scaremongers.” Wall Street Journal (Tues., FEBRUARY 17, 2009): A15.
(Note: ellipsis added.)

Bhidé’s two books on entrepreneurship are:
Bhidé, Amar. The Origin and Evolution of New Business. Oxford and New York: Oxford University Press, 2000.
Bhidé, Amar. The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World. Princeton, NJ: Princeton University Press, 2008.

Google and Lessig Finally See that So-Called “Network Neutrality” Delays Progress

Source of graphic: online version of the WSJ article quoted and cited below.

(p. A1) The celebrated openness of the Internet — network providers are not supposed to give preferential treatment to any traffic — is quietly losing powerful defenders.

Google Inc. has approached major cable and phone companies that carry Internet traffic with a proposal to create a fast lane for its own content, according to documents reviewed by The Wall Street Journal. Google has traditionally been one of the loudest advocates of equal network access for all content providers.
At risk is a principle known as network neutrality: Cable and phone companies that operate the data pipelines are supposed to treat all traffic the same — nobody is supposed to jump the line.
But phone and cable companies argue that Internet content providers should share in their network costs, particularly with Internet traffic growing by more than 50% annually, according to estimates. Carriers say that to keep up with surging traffic, driven mainly by the proliferation of online video, they need to boost revenue to upgrade their networks. Charging companies for fast lanes is one option.
One major cable operator in talks with Google says it has been reluctant so far to strike a deal because of concern it might violate Federal Communications Commission guidelines on network neutrality.
“If we did this, Washington would be on fire,” says one execu-(p. A6)tive at the cable company who is familiar with the talks, referring to the likely reaction of regulators and lawmakers.
(p. A6) Separately, Microsoft Corp. and Yahoo Inc. have withdrawn quietly from a coalition formed two years ago to protect network neutrality. Each company has forged partnerships with the phone and cable companies. In addition, prominent Internet scholars, some of whom have advised President-elect Barack Obama on technology issues, have softened their views on the subject.
. . .
. . . Lawrence Lessig, an Internet law professor at Stanford University and an influential proponent of network neutrality, recently shifted gears by saying at a conference that content providers should be able to pay for faster service. Mr. Lessig, who has known President-elect Barack Obama since their days teaching law at the University of Chicago, has been mentioned as a candidate to head the Federal Communications Commission, which regulates the telecommunications industry.

For the full story, see:
VISHESH KUMAR and CHRISTOPHER RHOADS. “Google Wants Its Own Fast Track on the Web.” Wall Street Journal (Mon., DECEMBER 15, 2008): A1 & A6.
(Note: ellipses added.)

Inventors Move from Declining Industries to New, Expanding Industries

Petra Moser’s comments (see below) about inventors applying similar ideas to different industries seem complementary to Burke’s emphasis on the importance of serendipitous “connections.” An inventor exposing herself to many industries’ problems and products, would be more likely to see additional applications for inventions originally developed for another industry.

(p. 3) By some logic, there is no earthly reason why bicycles should still exist.

They are a quaint, 19th-century invention, originally designed to get someone from point A to point B. Today there are much faster, far less labor-intensive modes of transportation. And yet hopeful children still beg for them for Christmas, healthful adults still ride them to work, and daring teenagers still vault them down courthouse steps. The bicycle industry has faced its share of disruptive technologies, and it has repeatedly risen from the ashes.
. . .
“Much of the history of the ‘American system of manufacturing’ is the story of inventors moving from a declining industry to a new expanding industry,” says Petra Moser, an economic historian at Stanford who studies innovation. “Inventors take their skills with them.”
Gun makers learned to make revolvers with interchangeable parts in the mid-19th century, Ms. Moser says. Then those companies (and some former employees, striking out on their own) applied those techniques to sewing machines when demand for guns slackened. Later, sewing machine manufacturers began making woodworking machinery, bicycles, cars and finally trucks.
. . .
Meanwhile, we’ve already seen some of the “destruction” half of Joseph Schumpeter’s famous “creative destruction” paradigm, with many newspapers cutting staff and other production costs. Unfortunately for newspapers, historians say, the survivors in previous industries facing major technological challenges were usually individual companies that adapted, rather than an entire industry. So a bigger shakeout may yet come.
But perhaps the destruction will lead to more creativity. Perhaps the people we now know as journalists — or, for that matter, autoworkers — will find ways to innovate elsewhere, just as, over a century ago, gun makers laid down their weapons and broke out the needle and thread. That is, after all, the American creative legacy: making innovation seem as easy as, well, riding a bike.

For the full commentary, see:
CATHERINE RAMPELL. “Ideas & Trends; How Industries Survive Change. If They Do.” The New York Times, Week in Review Section (Sun., November 15, 2008): 3.
(Note: ellipses added.)

“In Spite of the Economic Crisis and Unemployment . . . Civilization’s Progress is Going Faster and Faster”

The Palace of Discovery mentioned in the passage below was a part of the 1937 Paris Exposition.

(p. 206) The mastermind behind the Palace of Discovery, French Nobel Prize laureate Jean Perrin, wrote, “In spite of the wars and the revolutions, in spite of the economic crisis and unemployment, through our worries and anxieties, but also through our hopes, civilization’s progress is going faster and faster, thanks to ever-more flexible and efficient techniques, to farther- and farther-reaching lengths. . . . Almost all of them have appeared in less than a century, and have developed or applied inventions now known by all, which seem to have fulfilled or even passed the desires expressed in our old fairy tales.”

Source:
Hager, Thomas. The Demon under the Microscope: From Battlefield Hospitals to Nazi Labs, One Doctor’s Heroic Search for the World’s First Miracle Drug. New York: Three Rivers Press, 2007.
(Note: ellipsis in the title is added; ellipsis in the quoted passage is in the original.)

Since Wire Rope Had Not Been Tried, Entrepreneur Roebling Had to Self-Finance His Innovation

(p. 178) It was a bridge across the Niagara that would change life for the nail and wire makers. In 1831 a German engineer had emigrated from Mühlhausen in Saxony to America, where he founded the city (p. 179) of Saxonburg, Pennsylvania (having refused to settle in the American South because of his views on slavery). He then worked as a farmer, as a surveyor on the Pennsylvania Canal and finally as a railway engineer. His name was John Roebling, and he had a strange obsession with wire ropes. Since nobody in America had ever tried to make that kind of rope, the idea was not easy to promote. After failing to interest the firm of Washburn & Company, in Worcester, Massachusetts (we will return to this firm in our story), in 1848 Roebling moved to Trenton, New Jersey, and set up on his own.

After practicing his technique on a number of small bridges in Pennsylvania and Delaware, Roebling finally got a contract for the 3,640 wires into a compact, uniformly tensioned wire cable. Then, using a kite to get the cable to the other side of the river, he went on to finish the first-ever wire suspension bridge, 821 feet in length and strong enough to take the full weight of a train. The bridge opened to rail traffic on March 16, 1855.

Because of his success at Niagara, Roebling’s cable-spinning technique soon became standard on all suspension bridges. He put his name in the history books with his next job: the Brooklyn Bridge.

Source:
Burke, James. The Pinball Effect: How Renaissance Water Gardens Made the Carburetor Possible – and Other Journeys. Boston: Back Bay Books, 1997.
(Note: ellipsis added.)

Inability to Patent Sulfa, Delayed Its Marketing

When new uses of old, unpatentable drugs are discovered, there seems to be inadequate incentive to publicize them, and bring them to market. (For example, I think I have seen research suggesting that aspirin and fish oil capsules, are as effective in fighting heart disease as some newer drugs, but are nonoptimally utilized because of perverse incentives.) Maybe a revision of the patent law should be considered that permits some patenting of new uses of old drugs and substances?

(p. 172) It was wonderful that this powerful, inexpensive medicine was now available, but for a year after the Pasteur Institute announcement, no one marketed it seriously in its pure form as a medicine. Because it was not patentable, it was difficult for major chemical or drug firms to see a way to make much of a profit from it. It was not until months after the Pasteur group’s first publication on sulfa that the president of Rhône-Poulenc, an industrial supporter of Fourneau’s laboratory, visited the Pasteur Institute to hear about it. After talking with the researchers he decided to launch Septazine, a variation on pure sulfa that he felt was different enough to allow patenting—and hence profits. Septazine reached the marketplace in May 1936.

French Entrepreneur Fourneau Was Against Law, But Used It

The existence and details of patent laws can matter for creating incentives for invention and innovation. The patent laws in Germany and France in the 1930s reduced the incentives for inventing new drugs.

(p. 141) German chemical patents were often small masterpieces of mumbo jumbo. It was a market necessity. Patents in Germany were issued to protect processes used to make a new chemical, not, as in America, the new chemical itself; German law protected the means, not the end. . . .
. . .
(p. 166) Fourneau decided that if the French were going to compete, the nation’s scientists would either have to discover their own new drugs and get them into production before the Germans could or find ways to make French versions of German compounds before the Germans had earned back their research and production costs—in other words, get French versions of new German drugs into the market before the Germans could lower their prices. French patent laws, like those in Germany, did not protect the final product. “I was always against the French law and I thought it was shocking that one could not patent one’s invention,” Fourneau said, “but the law was what it was, and there was no reasons not to use it.”

In Geology, Economic Growth Caused Scientific Progress

(p. 130) . . . , the major problem inhibiting England’s industrial development was the state of the roads. So the introduction of waterborne transportation on the new canals triggered massive economic expansion because these waterways transported coal (and other raw materials) much faster and cheaper than by packhorse or wagon. In 1793 a surveyor called William Smith was taking the first measurements in preparation for a canal that was to be built in the English county of Somerset, when he noticed something odd. (p. 131) Certain types of rock seemed to lie in levels that reappeared, from time to time, as the rock layer dipped below the surface and then re-emerged across a stretch of countryside. During a journey to the north of England (to collect more information about canal-construction techniques), Smith saw this phenomenon happening everywhere. There were obviously regular layers of rock beneath the surface which were revealed as strata where a cliff face of a valley cut into them. In 1796 Smith discovered that the same strata always had the same fossils embedded in them. In 1815, after ten years of work, he compiled all that he had learned about stratification in the first proper colored geological map, showing twenty-one sedimentary layers. Smith’s map galvanized the world of fossil-hunting.

Source:
Burke, James. The Pinball Effect: How Renaissance Water Gardens Made the Carburetor Possible – and Other Journeys. Boston: Back Bay Books, 1997.
(Note: ellipsis added.)