Sunday, February 17, 2008

Energy and Innovation

Pascal Zachary is the New York Times's man in Silicon Valley, and he's done a quick tour of SV companies working on solar. This is not Zachary above, however, but T.J. Rogers, CEO of Cypress Semiconductor and also the head of its new solar company, SunPower Corporation.

Call me shallow, but I would feel less like this were less of a publicity stunt if Rogers weren't dressed like the missing member of a barber-shop quartet.

The article mentions a couple of promising tech areas - thin-film and the more original solar thermal. The technology is incredibly interesting.


The business statements are incredibly boring. I mean "boring" in the clinical sense of the experience that comes from disavowing a painful truth. Boring-but-true statements #1 and #2 are:
  • "Affordable solar development is also still dependent on government subsidies."
  • "so much of our effort is going into short-term victories that I worry our pipeline will go dry in 10 years."
There is nothing explicit at least in SV culture or the "California ideology" of high-tech entrepreneurship that supports the government subsidies - call them public investments - that allow for long-term victories. I juxtapose this to the organizational capacities of Asia and Europe, and I worry about us.

Most U.S. readers don't think this contrast between markets and government reflects reality. At least two generations of sociologists, B-school theorists and journalists have discovered the network, and consider it the crucial third term. High-tech business pulls people and resources from everywhere - government labs, universities, large corporations, start-ups, NGOs, and takes whatever it needs. In the U.S., networks are thought to make government direction obsolete, whether it's called investment, industrial policy, or something else.

A case in point is a good piece by Jason Owen-Smth and Woody Powell in the book Cluster Genesis, whose title starts making the book's core point that both research and development take place in clusters that combine disparate institutional forms and continuously and dynamically evolve. The authors look at "strategic alliance networks" in biotech in Boston and the Bay Area, identify five types of organizations and four kinds of connections among them (R&D, financial, licensing, and commercialization). The core point is that clusters and their geography form the infrastructure of biotech development. Although big firms tried to "cherry-pick" the best people and ideas, and everyone predicted biotech shake-outs and consolidation, this trend "faced significant obstacles imposed by deeply collaborative R&D efforts and a mobile scientific work force." As the sector evolved, "the pattern of dense inter-connection deepened, suggesting that the original motivation of exchanging complementary resources had shifted to a broader focus on mining innovation networks to explore new forms of collaboration and product development."

The network is thus more fundamental than financial markets or government planning, in this view, and in some sense the latter categories don't really make sense since they never operate as such. Owen-Smith and Powell find that Bay Area biotech has relied more on venture capital than Boston-area firms, which had more partnerships with academic and public-sector organizations. And yet although the Bay Area relied more on private capital, and Boston on public science, both regions did quite well, generating successful firms and valuable products.

But there are important differences in the innovation systems too. The "private" Bay Area system produced almost twice as many patents per firm as Boston's public. But another measure (variance in forward citations) is higher in Boston, suggesting that that region may engage in more "'exploratory' innovative research." In other words, the VC-fueled Bay Area folks may patent everything in sight, including incremental improvements as a defensive play.

Another important network indicator is "prior art" citations in patents, or backward citations. The "open" public-science structure of Boston-area biotech made 71 percent of its citations of prior art to non-biotech firms while that number was only 45 percent in the Bay Area. Owen-Smith and Powell interpret this to mean that the more commercially-driven, VC-based Bay Area cluster consisted of firms that were interested in their own research and that of their competitors, and less in research from outside their industry sector. When the authors compared a firm from each area that had developed competing therapies for the same condition (relapsing multiple sclerosis), they found this pattern replicated in the patent citation patterns of the respective firms.

The same pattern appears in a third indicator - product type. The Bay Area cluster produced more therapeutics more quickly - about twice as many. But the Boston cluster focused on treatments for rare diseases covered by "orphan designations" that offered "tax breaks and regulatory assistance to organizations that develop such medicines." There was a difference in strategy in the two cases, and although the authors don't use the term, Boston is closer to the outcomes one would expect of "public science" - addressing a clear need even when markets will offer modest or minimal rewards.

Thus "network" isn't so much a third term as a compound of the other two. Good empirical work redivides it into two familiar tendencies. The first cluster - the Bay Area's - is composed "largely of competitors and investors [who] are primarily concerned with speed and with commercial development, hence they pursue a more focused innovation process that relies heavily on internal R&D and attention to the efforts of direct competitors." On the other hand, there are "firms that are embedded in networks anchored by public research organizations and that lack strong investor involvement" and thus don't only "pursue immediate commercial returns." The latter, Boston model relies on external sources of knowledge and favors "more exploratory efforts at discovery." Governing ties in Bay Area firms tend to be more exclusively financial. Finally, the Bay Area model seems to be suffering some kind of lock-in, as the need for access to early capital sends firms back to the same small group of VC folks - with their same strategies, connections, and goals - again and again and again.

Even scholars dedicated to network theory with excellent data point out the constant danger of market failure and the rarity of a strong foundation of Boston-style public science.


There's also something about the sheer exteriority of this understanding of innovation - big and small companies, capital flows, people from famous corporations who start new ones. What about the invention process?

I happened to read this passage in a London Review of Books piece about a new book on gravitational waves.
Near the end of the 17th century, Edmond Halley examined records of medieval and ancient solar eclipses back to the time of Ptolemy. He discovered that when he used the position and trajectory of the Moon to determine retrospectively when solar eclipses should have occurred, the times calculated differed from the actual ones by up to an hour. Halley deduced that in the past the Moon must have moved across the sky from east to west more slowly than in his own time. This was a far-reaching, even heretical assertion. For the Moon to have changed its motion in such a way would imply that its course through the heavens did not repeat in periodic orbits. Such ‘secular’ changes in its orbit could eventually cause the system itself to disappear, and the Moon to fall into the Earth or escape into space. For many philosophers, to theorise that the cosmos could decay in this way was a slur on the Almighty, as it implied that God was such an unskilled craftsman as to have constructed a system of stars and planets that could fall into ruin and disorder. Nonetheless, Halley was right, as even the fundamentalists were eventually forced to concede. The question now became: what causes the secular acceleration of the Moon?
This passage amazed me. I can't imagine running these complicated hand calculations for days and weeks and maybe months, coming up with a one-hour difference over decades and centuries, and not thinking oh well, I screwed up a line of my math. How do we still find and nurture these people - the ones with the sheer courage, the mind-boggling stubbornness, to decide they are right, everyone else is wrong, there's a one-hour gap, then come up with a new theory, one that would not be bourne out for hundreds of years?

How do we remake a business system with enough space and time to allow this kind of research? How likely is it to happen in California?

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