How many light bulbs does it take to change the world?
29 November 2019
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14 November 2019
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- Innovation is a very important source of economic growth. It increases productivity and creates wealth by freeing up resources to be used for other activity and hence more output. Despite its economic importance, innovation is still not fully understood and is difficult to predict.
- In pre-modern societies, institutions and practices worked against innovation. Their main aim was to make life more predictable and stable and to minimise the effects of change, but they hindered or outright prevented the kind of sustained innovation that leads to escape from the Malthusian cage.
- Innovation is the natural and inevitable result of trade and exchange. When people meet, they not only trade material goods but also exchange ideas and knowledge, which can then be combined in new and unexpected ways. The meeting of minds is not just a figure of speech, but an expression of how new ideas arise and are tested collectively.
- Technological innovation is a bottom-up phenomenon that emerges by trial and error among the ideas of ordinary people, not a deus ex machina that descends upon a few brilliant minds. It relies on dispersed knowledge which is not available to central planners.
- Picking winners is a mistake. Government attempts to champion new technologies have a long record of failure. Instead of trying to find a magic way to create innovation, governments should focus on removing things that stop it.
- Big companies and state bureaucracies often attempt to stifle innovation in order to prevent competition and maintain their privileged positions. Intellectual property, occupational licensing and government favouritism are ways of keeping innovators out.
- Patents and copyrights have become ways of defending monopolies against disruption, hampering innovation that takes place through the copying and improvement of existing technology. They have created a class of rentiers who gain wealth and income not by innovation but through the monopoly they have been granted by the state. Intellectual property increasingly undermines real property rights in actual physical commodities by limiting the use their owners can make of them in all kinds of intrusive ways.
- While it is sensible to be concerned about the unintended consequences of innovation, the ‘precautionary principle’ is used by activists to prevent new technologies getting started, even when these are demonstrably safer and better than existing technologies. Both action and inaction create some risk. Standing in the way of an innovation that might do good can cause real harm.
- EU regulation has hampered innovation by introducing excessive precaution, legal uncertainty, inconsistency with other regulations, technology prescriptive rules, burdensome packaging requirements and high compliance costs. PostBrexit, the UK government could decide to adopt the ‘innovation principle’ to balance the precautionary principle. In essence, this means re-thinking policies if evidence is found that they are going to impede innovation.
- The harmonisation of regulation through ‘trade deals’ and by transnational regimes such as the EU threatens to undermine innovation by stifling policy competition. The incentives for ruling elites to check innovation are extremely powerful if they no longer need to fear competition in the way that rulers of smaller states do. The current trend to create a global regulatory order threatens to stop innovation in its tracks.Fullscreen Mode
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Actually, competition among players in the private sector is the foremost driver of innovation, productivity growth and spreading of prosperity. Even the government has bought into this narrative of wealth creation and trickle-down effect.
Consider for a moment, the market in defence equipment for which the government is the only customer.
In its Defence Industrial Policy published in December 2017, the government has been pretty frank about the role of competition in the defence equipment market. It says (on page 23):
“Competitive tension is the greatest driver for innovation, productivity and earning power in any economy. It is our policy to develop and foster competition, and to preserve strategic choice in the market, including over the longer term.”
But, in the very next sentence, it goes on to admit that all is not well with defence procurement:
“There are, nevertheless, particular challenges and constraints in doing this, causing various levels of market failure in defence procurement.”
One of the most striking features of market failure in defence procurement is the total lack of a design & development capability on the premises of defence contractors in the UK today.
This has come about because the last several decades has seen the wholesale transfer of people in the pay of the State to the private sector via the ‘revolving door’, in particular, defence equipment manufacturers’ organisations, largely due to the resounding success of the policy instituted by Defence Secretaries of all political persuasions – to encourage for-profit organisations in receipt of government defence contracts to take-on people who were previously in the pay of the State.
Indeed, this mass migration would explain why the workforce, at every level of the hierarchy within defence contractors’ organisations (right across the full spectrum of defence engineering businesses, government outsourcing contractors and foreign-owned entities, large and small) is now made-up entirely of people who were previously in the pay of the State.
The lack of a design & development capability is due to the fact those who have come across from the public sector, in their middle-age (armed with a full government pension), have no experience whatsoever of advancing the developmental status of the starting-point for a technical solution from its existing condition, to a point where it will satisfy the qualitative and quantitative requirements expressed in the technical specification requirement – not least, because they were never required to do so, during the first half of their career.
Actually, such expertise is the sole preserve of people who were inducted into the private sector at an early age, where they honed their design & development skills within the crucible of a competitive market environment and a setting driven by the profit motive. It also required, as a minimum, an adequate understanding of what it takes (in terms of skill types, funding, tools, processes, materials, scheduled work plan, inter-business contractual agreements etc.) to advance an immature technical solution from its existing condition. As a consequence, these types of people are to be found exclusively in the non-defence, engineering sector of the UK economy today.
The most important feature of any business that calls itself an engineering company is the existence of an in-house design, development, systems integration, prototyping and testing as a core capability. By employing only people who were previously in the pay of the State, indigenous defence contractors have inadvertently forsaken this capability – which has ironically, left them at risk of being usurped and displaced by real engineering companies from adjacent sectors or outside the UK, who have made it their foremost priority to invest in such a foundational capability. The complete absence of any patent applications, IP rights or new products put forward by these contractors is yet another indication of the paucity of such a capability.
But the most obvious sign of this missing design & development capability is to be found in the products being peddled by these contractors – they were largely designed in the 1960’s and 1970’s, with none seeing their origins in the new millennium that can said to have any potential for export.
@JagPatel3
@JagPatel3 I think you need to decide on the definition of “the resounding success of the policy instituted by Defence Secretaries of all political persuasions – to encourage for-profit organisations in receipt of government defence contracts to take-on people who were previously in the pay of the State.” From what you yourself say, all these thrusting,dynamic and competitive organisations have been employing precisely the wrong staff from the public sector! Could it be that they are simply recruiting people who know what the public sector procurers want to hear? The ones who know how to get their firm included on the ‘pre-approved’ lists because that saves all that ‘free competition’ nonsense?