# Lecture Notes

## Lecture 1: Economic Growth Theory and the Direct Elements in Innovation

Lecture 1 will review two classic readings (by Solow and Romer) in economic growth theory, turn to a discussion of the innovation-related basis for growth in the 90’s, and note through NSF data the effect of the economics of globalization and the comparative efforts of other competitor nations. Two elements of direct innovation policy will be introduced: R&D funding (including the physical science R&D funding challenge) and science and technology education levels, with international comparisons. An investment firm paper will suggest how businesses look at these innovation issues. (Note: when reading Solow and Romer, focus on the underlying economic concepts not the econometrics).

Lecture 1 Slides (PDF - 2.4MB)

## Lecture 2: Innovation Systems and Direct/Indirect Elements in the Innovation Ecosystem

Lecture 2 will discuss how innovation is organized into a system and the elements and actors in this system. It will also include a summary of indirect or implicit elements in this system. These include, on the governmental side, fiscal policy, tax policy, standards, technology transfer policies, trade policy, procurement, intellectual property, the legal system, regulation, antitrust, export controls, etc. On the private sector side, these include markets, management approaches including support for incremental versus radical innovation, accounting systems and information transparency, business models, and venture and angel capital, etc.

The class will also review innovation wave theory (“Kondratiev Waves”). The World Economic Forum’s latest national competitiveness rankings will be used to look at a range of competitiveness factors. Particular “indirect elements” will receive focus, including the ongoing debate over how the accounting system values innovation, the ramifications of current fiscal policy, and the role of venture and angel capital. The lack of innovation metrics will be reviewed. The class will also discuss policy justifications for governmental versus private sector roles, including the long-standing debate over industrial policy, and the “market failure” and the “public value” (as pursued by science and technology mission agencies) justifications for a public role.

Lecture 2 Slides (PDF - 1.7MB)

## Lecture 3: The Competitive Challenge to U.S. Manufacturing

Lecture 3 will first review the nature of the competitiveness debate of the 80’s and early 90’s, which focused on the manufacturing sector, particularly on process efficiency and quality. The role of manufacturing in the U.S. economy will be discussed, including its declining share of the economy. The nature of the international competition in manufacturing and the strategies of other international competitors, both in the 80’s and now, including in advanced manufacturing sectors, will be reviewed in detail. Approaches in Japan and Korea will be explored. The hierarchical, layered, and networked models for industrial organization will be noted along with the “disruptive technologies” approach to innovation, as well as corresponding possible approaches for manufacturing process technology productivity breakthroughs.

Lecture 3 Slides (PDF - 3.6MB)

## Lecture 4: The Challenge from Globalization for Advanced Manufacturing and New Services

Lecture 4 will first explore a noted Samuelson article on free trade theory and comparative advantage in innovation. It will review advanced US manufacturing capability concerns in detail, and also look at services, noting the dominant role of services in the U.S. economy. The debate on whether the economy is facing a major competitive challenge to advanced technology-based manufacturing and services that are tied to it, and to innovation capacity, will be examined, including a discussion of emerging manufacturing innovation models in China. The class will close on the importance of the growing international competition in software development which will also be reviewed.

Lecture 4 Slides (PDF - 3.9MB)

## Lecture 5: The Innovation System at the Institutional Level & The Organization of Federal Science Support

Lecture 5 will review key organizational developments in science, technology, and health federal support, focusing on the organizational models for the missions of those science-support organizations. Potential strengths of government-supported R&D (selection neutrality and long-range focus) as well as concerns (peer review tending toward incremental progress not breakthroughs and disconnect from application) will be discussed. The focus will be first on the post-WWI organization and the ideologies of federal science support that evolved in that period, then the transformation of science during WWII under Vannevar Bush and Alfred Loomis, and the creation of the postwar science agencies, with a particular focus on the National Science Foundation.

The review will also touch on a number of the following developments:

- Alfred Loomis and the FFRDC (Federally-Funded Research and Development Corporation) model at MIT’s RadLab—the outside contracted R&D entity.
- Vannevar Bush and the “Endless Frontier”—in the wake of WWII’s focus on applied research, Bush’s opposing proposal for government science support focused on fundamental research.
- Origins of NSF based on federal support of outside university-based fundamental research, under Vannevar Bush’s model.
- The origins of most of the other federal research agencies based on the Bush fundamental research model, including the Office of Science at DOE, health research at NIH, and the Navy’s ONR.
- The contributions to major technology advance of federal basic research. The class will close with a classic critique of weaknesses in the Bush model.

Lecture 5 Slides (PDF - 2.6MB)

## Lecture 6: Crossing the "Valley of Death" Between Research and Development & The Public-Private Partnership Approach

Lecture 6, picking up on the innovation organization issues discussed in the prior class, will discuss the longstanding problem of the “valley of death”, i.e., of moving technology from the research stage through the development stage, and discuss the pipeline (linear) model versus dynamic model for research and development. The class will review the very different organizational model of defense R&D compared to other federal science and technology mission agencies. More recent models for crossing the “valley of death” will be briefly noted, including the biotech model, NIST’s Advanced Technology Program (ATP now ended), the Small Business Innovation and Research Program (SBIR), NIST’s state-based Manufacturing Extension Program (MEP), and the CIA’s In-Q-Tel. The class will close with a discussion of overall innovation models and overcoming the difficulty of innovating in complex legacy sectors.

Lecture 6 Slides (PDF - 3.3MB)

## Lecture 7: The Organization of Innovation Systems at the Face-to-Face Level

Lecture 7 will note that although innovation systems function at the institutional level in the public and private sectors, they also must function at the personal, face-to-face level. The class will review a series of breakthrough innovations and look at the R&D teams that assembled them, discussing the organizational rule sets that appear to be common to these great innovation groups. The focus groups include Edison’s “Invention Factory,” Oppenheimer and Los Alamos, Bardeen, Brattain and Shockley at Bell Labs, Boyer and Swanson founding Genetech, Venter and the genome project, and Robert Taylor at Xerox PARC.

NOTE: This class will be student-led, organized with a larger group of students (not just two discussion leaders) presenting the particular readings, and with less of a lecture format. There is a longer reading list, so students don’t need to read all the readings—but all students should read the following three readings, as follows: the William Rosen book sections, the Warren Bennis/Patricia Biederman closing chapter on pp. 196–218, and the Edgar Schein book sections, in that order. Then students should, in addition, select and read about any three of the six innovation “great groups” listed below the first three readings. Full citations are available under Readings. A number of students will be asked to present on particular innovation groups.

Lecture 7 Slides (PDF - 2.4MB)

## Lecture 8: DARPA as the Connected Model in the Innovation System & Government-Private Sector Interaction and the Example of Computing

Lecture 8 will focus on the role of DARPA as a keystone institution for connected R&D, merging basic and applied research and development in a model comparable to the Rad Lab and Los Alamos. The class will use as a case study the evolution of personal computing and its internet application, using Waldrop’s text to consider various elements of the innovation system as it came to bear on the development of this technology. The roles of the individual visionaries (such as JCR Licklider), of government supported R&D (through DARPA), of DARPA’s University researchers, (including at MIT and Stamford), and of DARPA’s industry-based research contractors (including at BB&D and Xerox PARC), will be examined in succession. The R&D organizational rule sets that have evolved in the DARPA culture will be explored based on this computing case study. The concept of innovation commons infrastructure will also be introduced.

Lecture 8 Slides (PDF - 1.4MB)

## Lecture 9: The Life Science R&D Model & National Institutes of Health (NIH)

Lecture 9 will note the organizational origins of NIH in the fundamental research model, and discuss the implications of that model for the role NIH plays in the bio-medical innovation system. Key topics, including NIH's role in training life science researchers for university and industry, the origins of the human genome project, the rise of the biotech sector around a new computational science model, the role of biotech firms in the development stage, and the power of the patent system in life sciences, will be discussed. NIH problems—in pursuing cross-disciplinary, translational, and physical science-based research, with organizational stovepipes, and in attacking niche and small disease population diseases—will also be reviewed.

The genomics initiative will be reviewed as a particular case study on organizational issues. Proposals from the Institute of Medicine and others for NIH reorganization will be discussed. Problems in developing therapies for infectious disease and with developing new approaches to drug validation and approval will be discussed through reports from the Infectious Diseases Society and FDA. The class will also review recommendations for system reform from PCAST and a “white paper” on integrating life sciences with engineering and physical science as a promising new R&D and innovation model.

Lecture 9 Slides (PDF - 2.3MB)

## Lecture 10: The Challenge of Energy Technology Transformation

Lecture 10 will review the challenges to the energy innovation system, including both institutional organizational challenges and underlying economic challenges affecting energy technology advance, and will apply lessons from prior classes as well as additional approaches relevant to advances in complex established economic systems like energy.

Given the central role of energy in the economy and the variety of new technologies needed for an energy transformation, an expanded federal program to stimulate innovation in energy technology may be needed. It must arguably go beyond research and development to include all aspects of the innovation process, and should be technology neutral as far as possible, consistent with the need for measures to overcome obstacles specific to particular technologies. Ideally, such a technology supply-side program should be accompanied by policies that ensure demand pricing for carbon-based energy, to foster technology demand. However, those programs will not be forthcoming soon, given the interests concerned with such measures, and political support for such demand-side policies in Congress and the executive branch appears indefinitely postponed.

The political barriers to a technology supply-side strategy, on the other hand, may not be as high. Numerous authoritative publications have called for an expansion of energy research and development as a complement to demand-side measures. However, the specific mechanisms by which the development, deployment and diffusion of these technologies might be facilitated by government action have been left largely unstudied. A hard look at these specific mechanisms will be the subject of the class.

This class will provide students with a close look at the systemic challenges now faced by the energy innovation system and draw on lessons from prior classes for possible organizational solutions. It will review the “wedges” theory for introduction of new technologies and efficiencies, a framework for introducing energy technologies, the potential supporting energy technology role of the Defense Department, the new ARPA-E energy research model, and alternative options for meeting energy goals.

Lecture 10 Slides (PDF - 3.9MB)

## Lecture 11: Improving the Talent Base & New Education and Training Models

Lecture 11 will consider overall science education trend data, and the reasons for the decline in college level science graduates, as well as graduate students, particularly in the physical sciences. A recent summary by Norman Augustine for the National Academies summarizes US talent gap problems. The class will then examine studies by economists Paul Romer and Richard Freeman in fixing the basis for these trends. It will also review an economic study suggesting a link between education attainment and growing income differentiation. The class will review an appeal by economist William Bamol for a new kind of “innovation education.” The class will also discuss reforms to teaching science education and new approaches to IT-based education models. At the close of the session there will be a wrap-up summary of key concepts that the course was based on.

Lecture 11 Slides (PDF - 3.4MB)

## Lecture 12: The Future of Work & The Employment-Productivity Debate

This class will discuss the ongoing debate over the “future of work.” Has the IT revolution advanced to the point that its productivity gains will be creating large scale unemployment? The class will examine arguments advancing this position, including that the nature of work has fundamentally shifted with the entry of IT at scale into both services and production sectors. It will then look at the response by a prominent economist that the linkage between productivity gains and rising net employment over time, in place since the industrial revolution, has indeed not significantly shifted.

It will also look at the linkage between education and higher-skill employment, and the argument that this is a key explanation for rising income inequality. The class will also look at the issue of "jobless innovation" and its linkage to fundamental problems in the production sector, and at a new book arguing that fully autonomous robotics is unlikely, and that robotics will continue for a long time on the path of deep integration with people, where robotics is an extension of human capabilities not a displacer of them.

Lecture 12 Slides (PDF - 5.0MB)