Every once in a while, the Chinese government likes to reinvent the wheel. Not literally the wheel, but something already invented, which they would prefer not paying royalty fees for. China has a massive nuclear research institute largely dedicated to creating technology to replace what it buys from Areva and Westinghouse. China’s mobile phone providers delayed the roll out of 3G service so that they could launch the locally developed TD-SCDMA system. Other follies include a home-grown DVD codec, and of course AVIC, the state-run airline manufacturer.
It’s easy to scoff at these efforts whenever they pop-up. None of them have produced an internationally competitive product, and literally billions of dollars have gone to waste. We are, to a point, laughing at ourselves though, as these instances a reflection of a fundamental failure of the international patenting system, that has slowed down innovation where we need it the most. International progress developing low-cost medical care, clean energy and bringing consumer goods to the poor has often depended on not only moving goods across borders, but building innovation networks across borders. Something which conflicting and over-burdening patent laws have made progressively more difficult.
China gets a lot of the blame for this, largely because it is a country that’s good at making stuff, and bad at enforcing laws – while the government may try to reinvent the wheel, many Chinese factory owners are happy to keep on making wheels the old way, while forgetting to pay the inventor. If America has to pass one or two more patent laws to keep the Chinese from stealing our ideas, than why not?
The first half of Alex Tabarrok’s Launching the Innovation Renaissance (buy it!), provides a clear case for why the growth of patent laws is doing more harm then good domestically. Not only by creating a regulatory mess for companies trying to compile the thousands of patents used in one smartphone, but also strictly limiting access to goods needed for further development (his example is mice for medical testing), and sometimes by simply limiting access to goods with no further promise of innovation, as in the case of “business process” patents.
In the second-half he throws out a number of other policy proposals, that could turn around what is failing in America’s innovation infrastructure, running from education reform, to higher R&D spending (in exchange for lower social services spending), and most importantly, immigration reform and the expansion of markets.
The size of the book doesn’t give him enough time to do credit to all these ideas, so he only begins to draw out what could have been a very interesting discussion about the role of trade and immigration in innovation. In general how the innovation economy is becoming more Ricardian (in the comparative advantage sense). Coming back to the example I started with: China’s capacity for cost innovation is nothing short of extraordinary. The price of Chinese cell-phones have dropped so far that rural Africans can afford two of them. Chinese-made medical technology is often as much as one-tenth the price of the West, and if anyone is going to make cleantech affordable its going to be the Chinese. But Chinese ability to lower costs is often dependent on bringing high-tech components and business expertise from elsewhere. The best-selling cars which GM makes in China, for instance, are often designed in South Korea, using technology manufactured in Japan and Taiwan, and designed in a half dozen different countries. Each country is adding local experience, which is crucial to the quality of the finished product. If one looks at areas where patents are a much bigger deal though – like green technology or medical technology – cross border innovation only happens in fits and starts, despite excellent results when it does happen.
An innovation network either requires people to come to the ideas, or the ideas to come to them. With more open immigration we could bring innovation to America, and with patent reform we could better take part in international innovation networks. Currently we have neither, and it isn’t serving us well.
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