Lecture 8 - Science & industrial Policy Flashcards
1
Q
Disucss Vannevar Bush and the Endless Fontier as a blueprint for future efforts at govt funding of science and technology.
A
- Govt should fund basic research in Uni’s to improve applied, industrial research.
a. Industry labs unfavourable for basic science
b. Eg - this lead to the ‘National Science Foundation’, 1950
c. Counter - Small nations (value of these advancements unlikely to be captured by small nations, need to be assessed for spillovers) - Govt should nurture scientific talent at all levels in order to maintain the country’s tech advantage.
a. Talent shortage post War - Bush recommends US removing barriers to higher education for science (for students that cannot fund it), scholarships.
b. Example: A*STAR - Agency for Science, Technology and Research (Singapore)
c. Counter - Too much STEM. expense of humanities and social sciences. - Govt should incentivise industrial R&D through tax breaks and strengthening the patent system
a. R&D tax deductible - income tax deductibility of R&D expenditures means more spending.
b. stronger patent laws - Expenses and uncertainty around patent law system are preventing small enterprises form turning new ideas into valuable products and services for the nation.
c. Example…
d. Counter: rent seeking / monopoly - Increasing deductibility of R&D expenditure may lead to rent-seeking behaviour to exploit this incentive. Use accounting tricks to hide non-R&D expenses under R&D budget. Also, patent laws grant monopolies as its hard to improve patent laws for small enterprises without increasing monopoly power.
2
Q
Building on Bush, describe the ‘linear model of innovation’ and its critiques.
A
- Linear model of innovation describes 3 main stages - tech moves from basic science to a product / service.
a. R&D Phase - Small financing (running experiments), Tech risk high due to uncertainty around viability of science, no returns, main funding from public R&D budget.
b. Pre-commercial - Increased funding / investment from govt, tech risk still high & political risks become more important as firm needs to increase payroll and other expenditures, risky returns.
c. Market Penetration -> Adoption - funding is largely debt / equity from institutional investors / public market, risk shifts to market risk, other competitors, suppliers etc…, commercial returns possible. - Criticisms
a. uni-directional movement - model assumes that tech moves from science to market in one direction, does not take feedback loops into account (test product at pre-comm stage to find areas of improvement) use this to work back into research stage.
b. Science as main source of ideas - untrue. Today, digitally networked markets, firms can co-generate ideas with users (eg crowd funding websites - ideas are planted and firms can receive feedback from users before creation).
c. Research not a starting point - Not many tech changes need to start from basic research. Combinatorial ideas that seek to create value by combining existing tech’s (eg smart homes, internet of things) - these do not involve basic research.
3
Q
Discuss some common market failures, common policy solutions, critiques of those solutions.
A
- Spillover effects not priced by market mechanisms
a. Externalities occur in form of social benefits or costs that are not taken into account by private individuals or firms (eg clean air act) - Information Asymmetry
a. - high monopoly power
4
Q
What is industrial policy?
A
Def: An industrial strategy is a co-ordinated set of industrial policies aimed at achieving several national objectives (Pitelis 1994). Traditionally this has involved the state favouring certain industrial sectors or firms that have been deemed nationally important, or in which the nation has a comparative advantage in. Classified into 4 categories:
- Supply-side industrial policy measures
- Policies that increase supply of complementary factors
- Demand-side policies
- Standards & institutional change policies
