Economics of Technology – Page 95

The Role of Private Enterprise in Sequencing the Human Genome

Source of book image: http://www.genomenewsnetwork.org/articles/2004/02/20/genome_war.php

The race to decode the genome always seemed like an appealing test case of the relative efficiency of government versus private enterprise. But the results seem muddy because sometimes in the media the outcome has been described as a win for Craig Venter’s private Celera corporation, and other times, as a tie.
For years I have wanted to learn more, and now I have finally done so by reading James Shreeve’s fascinating The Genome War.
It is clear from the book that the entrance of Celera, greatly accelerated the government’s own efforts to sequence the human genome. So one important lesson is that, no matter who “won the race, the consumer benefited from the entrance of a private competitor.
Also clear, is that Venter’s group took advantage of public resources and results. Their primary zeal was for sequencing the genome, rather than for promoting private enterprise.
Regrettably, this is a common case: many entrepreneurs take the institutions of their economy as given, and make use of government when it suits their short-run objectives.
Officially the results were announced as a tie. But the main bone of contention had been over Celera’s advocacy and use of the “whole genome shotgun” technique for sequencing the gene. The government group had attacked the method as impractical and unreliable.
The proof of who “won” in a deeper sense, was that after the contest was over, everyone, including the government, was using the “whole genome shotgun” technique.
Another lesson is that the usual scientific goal of immediately releasing findings, may actually reduce the information available to the public. If, as with the genome, the information is costly to obtain, allowing a period of proprietary ownership of the information, provides private entrepreneurs with the incentive to discover the information in the first place. Another case of unintended consequences: if we fully follow the alleged idealism of academic scientists, we will end up with less scientific knowledge, not more.

Reference to book:
Shreeve, James. The Genome War: How Craig Venter Tried to Capture the Code of Life and Save the World. 1st ed. New York: Alfred A. Knopf, 2004.
(Note: My comments are based on the whole book. A paragraph on pp. 366-367 is especially important.)

Innovation More Likely When Society Open to Forming New Enterprises

(p. 258) It is entirely safe to generalize: innovation is more likely to occur in a society that is open to the formation of new enterprises than in a society that relies on its existing organizations for innovation.

Source:
Rosenberg, Nathan, and L.E. Birdzell, Jr. How the West Grew Rich: The Economic Transformation of the Industrial World. New York: Basic Books, 1986.

Innovation More Likely When There Are Many Decision Centers

The dry wit of Rosenberg and Birdzell is illustrated in this justified jab at the idea that technology can be centrally planned:

(p. 258) The advantage of having proposals for innovations considered by many decision centers is illustrated by the microcomputer, which was not undertaken by any of the leading American computer manufacturers, nor by the Soviet Union, nor by the French Commissariat du Plan, nor by MITI in Japan, but which has nevertheless proved widely useful.

Source:
Rosenberg, Nathan, and L.E. Birdzell, Jr. How the West Grew Rich: The Economic Transformation of the Industrial World. New York: Basic Books, 1986.
(Note: italics in original.)

How Chemists Improved the Rails

The following passage provides some evidence of the importance of information from science (viz., chemistry) in process improvement. Speaking of chemists:

(p. 247) . . ., with their aid, the life of a rail increased from two years to ten, and the car weight it could bear from eight tons to seventy in the forty years between the Civil War and 1905. Only a very few new technologies have had equal significance.

Source:
Rosenberg, Nathan, and L.E. Birdzell, Jr. How the West Grew Rich: The Economic Transformation of the Industrial World. New York: Basic Books, 1986.
(Note: ellipsis added.)

Andrew Carnegie on the Value of a Chemist in Making Steel

(p. 246) We found . . . a learned German, Dr. Fricke, and great secrets did the doctor open up to us. [Ore] from mines that had a high reputation was now found to contain ten, fifteen, and even twenty per cent less iron than it had been credited with. Mines that hitherto had a poor reputation we found to be now yielding superior ore. The good was bad and the bad was good, and everything was topsy-turvy. Nine-tenths of all the uncertainties of pig iron making were dispelled under the burning sun of chemical knowledge.
What fools we had been! But there was this consolation: we were not as great fools as our competitors . . . Years after we had taken chemistry to guide (p. 247) us [they] said they could not afford to employ a chemist. Had they known the truth then, they would have known they could not afford to be without one.

Andrew Carnegie as quoted in:
Rosenberg, Nathan, and L.E. Birdzell, Jr. How the West Grew Rich: The Economic Transformation of the Industrial World. New York: Basic Books, 1986.
(Note: brackets and ellipses were in the original.)

Economist of Science Babbage Invented a Computer

“Modern construction, Difference Engine No. 2, 2005” Source of caption and photo: http://www.computerhistory.org/babbage/overview/

Charles Babbage is best known as the inventor of an early computer, but he also made some early, stimulating contributions to the economics of science.

(p. C6) The oldest computer has landed in Silicon Valley, where they design the newest computers.
The Science Museum in London has built two replicas from Charles Babbage’s original design for the Difference Engine No. 2. Planned from 1847 to 1849, the five-ton, 8,000-part system for calculating the mathematical expressions known as polynomials was finally built in 2002 by a team of engineers that took 17 years to complete the entire project. The machine includes a remarkable printing component that almost certainly would have been the world’s first automated typesetter had Babbage built one from his original design during his lifetime.
The all-mechanical Difference Engine can handle numbers to 31 digits of accuracy. The printer produces an ink printout but also has the capability of making a mold for a printing plate. It automatically typesets results in columns and employs two separate font sizes.

For the full story, see:
JOHN MARKOFF. “BITS; 1800s-Style Computer Comes to U.S.” The New York Times (Mon., May 5, 2008): C6.

Factory Work Was Better than the “Abysmal” Alternatives

Levy and Murnane show that the computer has, on average, benefitted the situation of labor. After I presented a similar example at the Summer Institute in 2007, Dave Mitch asked me if this was in general true of advances in technology, or if it might be an exceptional case.
If computers represent one example of creative destruction, another example, in the process variety, would be the advent of factory production. In the following passage, Rosenberg and Birdzell suggest that factories also benefitted the situation of labor:

The low wages, long hours, and oppressive discipline of the early factories are shocking in that the willingness of the inarticulate poor to work on such terms bespeaks, more forcefully than the most eloquent words, the even more abysmal character of the alternatives they had endured in the past. But this was not the way the romantics of the nineteenth century read the message of the factories. (R & B 1986, p. 173)

In the above passage, Rosenberg and Birdzell suggest that the abysmal alternatives to factory work, that the poor faced, may partly have been the result of the enclosure movement having worsened the situation of the lowest agricultural workers, by denying them access to the fallow lands for animal grazing. But, in the passage below, they also imply that to some extent it may just have been due to the secularly persistent suffering that had long characterized much rural life.

Neither the entrepreneurs who built the factories nor anyone else supposed that they were engaged in a work of charity or an exercise of social conscience. But whatever the moral quality of their intentions, their actions advanced the interests of a down-trodden subproletariat—a subproletariat in part, perhaps, characteristic of pre-industrial societies and, in part, drawn from an agricultural work force hard pressed by the enclosure movement and a high rate of growth in agricultural productivity. (R & B 1986, p. 174)

They further point out that, although everyone was supposed to be compensated for losses from enclosure, the interests of the poorest were not well-represented in the decision-making bodies:

In theory, the acts compensated the cottagers for the loss of their common rights by giving them some of the enclosed land. But the cottagers were not effectively represented in Parliament, and there is much reason to believe that the compensation was in practice inadequate. (R & B 1986, p. 171)

DeLong and Summers note enclosure as one of the major institutional/policy actions that enabled a past episode of creative destruction to create a past ‘new economy.’ But the fact (if it is a fact) that a majority of farm labor was hurt by the enclosure, does not imply that this had to have been the case. It may in fact illustrate one of the major pints of DeLong and Summers, namely that it is extremely important to try to get institutions and policies right.
Sources mentioned above:
DeLong, J. Bradford, and Lawrence H. Summers. “The “New Economy”: Background, Questions and Speculations.” Federal Reserve Bank of Kansas City Economic Review (2001): 29-59.
Levy, Frank, and Richard J. Murnane. The New Division of Labor: How Computers Are Creating the Next Job Market. Princeton, NJ: Princeton University Press, 2004.
Rosenberg, Nathan, and L.E. Birdzell, Jr. How the West Grew Rich: The Economic Transformation of the Industrial World. New York: Basic Books, 1986.

“Economics of Science” Published Today in The New Palgrave Dictionary of Economics (2nd ed.)

Source of image of the books: http://www.buy.com/prod/the-new-palgrave-dictionary-of-economics-second-edition/q/loc/106/204470936.html

Today (May 30, 2008) is the publication date of the second edition of The New Palgrave Dictionary of Economics, which includes my “Economics of Science” article. The article surveys the history and current status of research on the economics of science, and the relationship of the economics of science to the economics of technology.
For a much earlier, and much longer, take on some of the same issues, see “The Economics of Science.”

References to both articles:
Diamond, Arthur M., Jr. “Economics of Science.” In The New Palgrave Dictionary of Economics, 2nd Edition, edited by Steven N. Durlauf and Lawrence E.Blume. Basingstoke and New York: Palgrave Macmillan, 2008.
Diamond, Arthur M., Jr. “The Economics of Science.” Knowledge and Policy 9, no. 2 & 3 (1996): 6-49.

Private Space Companies Compete on Price and Quality

“A rendering of XCOR’s Lynx rocket-powered vehicle.” Source of the caption and image: online version of the WSJ article quoted and cited below.

(p. B1) A price war already is brewing among companies seeking to sign up would-be space tourists, years before the first privately financed rocketplanes are scheduled to begin flying.
XCOR Aerospace of Mojave, Calif., the latest entrant to the derby to blast thrill-seekers into the upper reaches of the atmosphere, is expected to unveil plans Wednesday for a rocket-powered vehicle that is substantially smaller, slower and less expensive to build than any of those proposed by rivals. With tickets projected at $100,000 a pop, the low-fare carrier to the heavens would hardly be cheap.
Anticipated to cost less than $10 million to build and to be more compact than many propeller planes used by recreational pilots, XCOR’s Lynx vehicle is intended to carry a pilot and a single passenger at twice the speed of sound to about 37 miles above the earth. The entire outing, which would begin and end at a conventional airport and include about two minutes of suborbital zero gravity, would take less than half an hour.
That is a significantly shorter trip — and only about half the ticket price — envisioned by British billionaire Sir Richard Branson on his Virgin Galactic spaceship. A sleek and more powerful six-passenger craft, it is designed to travel at about four times the speed of sound and zoom completely out of the atmosphere — reaching true space more than 60 miles above the earth.

For the full story, see:
ANDY PASZTOR. “Economy Fare ( $100,000) Lifts Space-Tourism Race.” The Wall Street Journal (Weds., March 26, 2008): B1-B2.

“Virgin Galactic will launch its rocket from a plane.” Source of the caption and image: online version of the WSJ article quoted and cited above.

How Corning Invests in Major Innovations

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

(p. B1) Corning Inc. has survived for 157 years by betting big on new technologies, from ruby-colored railroad signals to fiber-optic cable to flat-panel TVs. And now the glass and ceramics manufacturer is making its biggest research bet ever.
Under pressure to find its next hit, the company has spent half a billion dollars — its biggest wager yet — that tougher regulations in the U.S., Europe and Japan will boost demand for its emissions filters for diesel cars and trucks.
. . .
An investment 25 years ago has turned Corning into the world’s largest maker of liquid-crystal-display glass used in flat-panel TVs and computers. But another wager, which made it the biggest producer of optical fiber during the 1990s, almost sank the company when the tech boom turned into a bust.
In Erwin, a few miles from the company’s headquarters in Corning, the glassmaker is spending $300 million to ex-(p. B2)pand research labs. There, some 1,700 scientists work on hundreds of speculative projects, from next-generation lasers to optical sensors that could speed the discovery of drugs.
“Culturally, they’re not afraid to invest and lose money for many years,” says UBS analyst Nikos Theodosopoulos. “That style is not American any more.”
Corning also goes against the grain in manufacturing. While it has joined the pack in moving most of its production overseas, it eschews outsourcing and continues to own and operate the 50 factories that churn out thousands of its different products.
Corning argues that retaining control of research and manufacturing is both a competitive advantage and a form of risk management. Its strategy is to keep an array of products in the pipeline and, once a market develops, to build factories to quickly produce in volumes that keep rivals from gaining traction.

For the full story, see:
SARA SILVER. “Corning’s Biggest Bet Yet? Diesel-Filter Technologies.” The Wall Street Journal (Fri., March 7, 2008): B1-B2.
(Note: ellipsis added.)

“Corning DuraTrap diesel-engine filter.” Source of caption and photo: online version of the WSJ article quoted and cited above.

United States Making More Output with Less Physical Input: An Almost Lighter Economy

(p. 492) The long-standing trend away from value produced by manual labor and natural resources and toward the intangible value-added we associate with the digital econnomy can be expected to continue. Today it takes a lot less physical material to produce a unit of output than it did in generations past. Indeed, the physical amount of materials and fuels either consumed in the production of output or embodied in the output has increased very modestly over the past half century. The output of our economy is not quite literally lighter, but it is close.
Thin fiber-optic cable, for instance, has replaced huge tonnages of copper wire. New architectural, engineering, and materials technologies have enabled the construction of buildings enclosing the same space with far less physical material than was required fifty or one hundred years ago. Mobile phones have not only downsized but also morphed into multipurpose communication devices. The movement over the decades toward production of services that require little physical input has also been a major contributor to the marked rise in the ratio of constant dollars of GDP to tons of input.

Source:
Greenspan, Alan. The Age of Turbulence: Adventures in a New World Economic Flexibility. New York: Penguin Press, 2007.
(Note: italics in original.)