It often takes a number of intermediate steps to move from a scientific discovery to a consumer product. A few decades ago, many larger and even mid-sized corporations spent a lot of money on research and development laboratories, which focused on all of these steps. Some of these corporate laboratories like those at AT&T, Du Pont, IBM, and Xerox were nationally and globally famous. But the R&D ecosystem has shifted, and firms are now much more likely to rely on outside research done by universities or small start-up firms. These issues are discussed in \”The changing structure of American innovation: Cautionary remarks for economic growth,\” by Ashish Arora, Sharon Belenzon, Andrea Patacconi, and Jungkyu Suh, presented at conference on \”Innovation Policy and the Economy 2019,\” held on on on April 16, 2019, hosted by the National Bureau of Economic Research, and sponsored by the Ewing Marion Kauffman Foundation.
On the importance of corporate laboratories much better decades of US productivity growth, they authors note:
From the early years of the twentieth century up to the early 1980s, large corporate labs such as AT&T\’s Bell Labs, Xerox\’s Palo Alto Research Center, IBM\’s Watson Labs, and DuPont\’s Purity Hall were responsible for some of the most consequential inventions of the century such as the transistor, cellular communication, graphical user interface, optical bers, and a host of synthetic materials such as nylon, neoprene, and cellophane.
A more recent example is DuPont\’s closing of its Central Research & Development lab in 2016. Established in 1903, DuPont Central R&D served as a premiere lab on par with the top academic chemistry departments. In the 1960s, the central R&D unit published more articles in the Journal of the American Chemical Society than MIT and Caltech combined. However, in the 1990s, DuPont\’s attitude toward research changed as the company started emphasizing business potential of research projects. After a gradual decline in scientifi c publications, the company\’s management closed the Experimental Station as a central research facility for the firm after pressure from activist investors in 2016.
Perhaps the most widely commented on reform of this era is the Bayh-Dole Patent and Trademark Amendments Act of 1980, which allowed the results of federally funded university research to be owned and exclusively licensed by universities. Since the postwar period, the federal government had been funding more than half of all research conducted in universities and owned the rights to the fruits of such research, totaling in 28,000 patents. However, only a few of these inventions would actually make it into the market. Bayh-Dole was meant to induce industry to develop these underutilized resources by transferring property rights to the universities, which were now able to independently license at the going market rate.
As universities took on more research, corporations backed off. Here are a couple of examples:
In 1979, GE\’s corporate research laboratory employed 1,649 doctorates and 15,555 supporting staff, while IBM employed 1,900 staff and 1,300 doctorate holders. The comparable figures in 1998 for GE was 475 PhDs supported by 880 professional staff, and 1,200 doctorate holders for IBM. Indeed, rms whose sales grew by 100% or higher between 1980 and 1990 published 20.6 fewer scienti c articles per year. This contrast between sales growth and publications drop persists into the next two decades: rms that doubled in sales between 1990 and 2000 published 12.0 fewer articles. Publications dropped by 13.3 for such fast growth firms between 2000 and 2010.
Overall, the new innovation ecosystem exhibits a deepening division of labor between universities that specialize in basic research, small start-ups converting promising new findings into inventions, and larger, more established firms specializing in product development and commercialization. Indeed, in a survey of over 6,000 manufacturing- and service-sector firms in the U.S. … 49% of the innovating firms between 2007 and 2009 reported that their most important new product originated from an external source.
Spinoffs, startups, and university licensing offices have not fully filled the gap left by the decline of the corporate lab. Corporate research has a number of characteristics that make it very valuable for science-based innovation and growth. Large corporations have access to signi ficant resources, can more easily integrate multiple knowledge streams, and their research is directed toward solving specifi c practical problems, which makes it more likely for them to produce commercial applications. University research has tended, more so than corporate research, to be curiosity-driven rather than mission-focused. It has favored insight rather than solutions to specifi c problems, and partly as a consequence, university research has required additional integration and transformation to become economically useful. This is not to deny the important contributions that universities and small rms make to American innovation. Rather, our point is that large corporate labs may have distinct capabilities, which have proved to be difficult to replace. Further, large corporate labs may also generate signi ficant positive spillovers, in particular by spurring high-quality scienti fic entrepreneurship.
Those interested in this argument might also want to check \”The decline of science in corporate R&D,\” written by Ashish Arora, Sharon Belenzon, and Andrea Patacconi, published in Strategic Management (2018, vol. 39, pp. 3–32).
For those with an interest in the broader subject of US innovation policy, here\’s the full list of papers presented at the April 2019 NBER conference:
- William R. Kerr on \”The Gift of Global Talent\”
- Ashish Arora, Sharon Belenzon, Andrea Patacconi, and Jungkyu Suh on \”The Changing Structure of American Innovation: Cautionary Remarks for Economic Growth\”
- Margaret Kyle on \”The Alignment of Innovation Policy and Social Welfare: Evidence from Pharmaceuticals\”
- Fiona Scott Morton, Carl Shapiro, and Giulio Federico, on \”Antitrust and Innovation: Welcoming and Protecting Disruption\”
- Edward L. Glaeser and Naomi Hausman on \”The Spatial Mismatch Between Innovation and Joblessness\”
- Albert Bravo-Biosca on \”Experimental Innovation Policy\”