Growthology

Why Not a Market for Advancing Innovations out of Universities?

Yesterday I had the privilege of delivering testimony on behalf of Bob Litan in front of the Joint Economic Committee. The subject of the hearing was how the United States could maintain its position on the global frontier of innovation, with a specific focus on universities and federal funding of research and development. Most of the Members of the Committee were in general agreement with the panelists: innovation is key to economic growth, universities are important to R&D and innovation, and the United States needs to make some changes if we are to remain an innovative economy.

On one particular point, however, there was a considerable degree of contention. Congresswoman Carolyn Maloney (D-NY) inquired as to the state of technology commercialization in higher education. Can it be improved? Is everything peachy-keen? 

The Kauffman Foundation takes the position that all is not well in the land of technology commercialization. There are success stories, to be sure: Gatorade, Vitamin D, Netscape, MRIs and so on. And there are star performing universities--Stanford, WARF (the Wisconsin system), and the University of California system do a phenomenal job of moving innovations out of campus buildings and into new (and existing) companies. But universities, on the whole, appear to be under-performing relative to what they could be contributing to economic growth. The Bayh-Dole Act of 1980 allowed universities to hold the intellectual property rights to innovations and discoveries that result from federally-funded research. The result was a wave of university innovations as well as a wave of attempts to move university innovations into the marketplace. Most universities receiving federal R&D dollars established technology licensing or transfer offices (TLOs or TTOs) to manage the intellectual property and serve as the liaison for faculty members seeking to commercialize their innovation. As noted, many universities have managed to successfully commercialize new technologies.

As with anything, however, the structure that was set up in response to Bayh-Dole has now run into problems. The productivity of federally-funded research at universities has been declining for a number of years. Technology transfer offices are typically understaffed and unable to manage their university's stream of innovations--innovations, moreover, that often span a wide diversity of disciplines. At the same time, however, bureaucracy has grown up around the process of technology commercialization and dramatically slowed, if not stalled, the process in many places. Anecdotal evidence abounds of faculty members running headlong into bureaucratic drywall at their licensing office. Furthermore, as a result of the outstanding success of a handful of universities with a handful of innovations, many TTOs and TLOs have implicitly or explicitly adopted a home-run mentality, chasing the next big hit at the expense of many smaller innovations. 

Finally, many universities have latched onto the most easily measured outputs of R&D, patents and licenses. But, there is little correlation between federal research funding and the returns (in patents and licenses) on that funding. Maybe we shouldn't expect there to be such a correlation, of course, but the race by universities in the wake of Bayh-Dole to establish commercialization offices and the drift of research spending toward a more political rather than scientific distribution have raised the implicit promise that there is such a correlation. The wonderful historian Roger Geiger has documented such drift: at one time, the distribution of university innovations and federal R&D money to universities both followed a Pareto distribution, with a handful of institutions far outdistancing everyone else in terms of inputs and outputs. Over time, however, while the distribution of innovative outputs remains skewed, the distribution of research dollars has gradually gotten flatter. We expect proportional output in terms of innovations but don't receive it.

There is no magic solution to these bottlenecks, but my colleagues Lesa Mitchell and Bob Litan have come up with a fantastically simple and novel idea: open up technology transfer to market competition. That is, allow a professor from University X with a potentially breakthrough innovation to go outside his or her university's TLO and use that of University Y, if University Y happens to be more skilled at commercialization in this particular discipline. University X would not be required to relinquish IP rights, and of course the professor is not required to do anything. The idea is simply to bring more openness and competition into a process that has become muddled and distorted. Where else in society do we tolerate such artificial monopolies with public research dollars at stake? This idea, in fact, perfectly carries forward and extends one of the primary motivations behind Bayh-Dole--to smooth the commercialization process. Bayh-Dole was enacted in part to construct a platform upon which faculty and professors could more easily interact with companies (new and existing). Allowing universities to hold IP rights was meant to remove one of the legal entanglements in this process.

Who could oppose such openness? Who could oppose competition when competition has been shown repeatedly to be the best avenue toward maximizing innovation and social welfare? Not to sound trite, but follow the money. Most universities and TTOs and TLOs vehemently oppose this idea. In fact, you can scroll through the webcast of yesterday's hearing to the very last question and witness the animation with which Dr. Samuel Stanley opposes the mere mention of this idea. Basically, the opposing arguments boil down to these: (a) there is no evidence that the current licensing process is dysfunctional; (b) allowing such "free agency" would give rise to all the legal problems that predated Bayh-Dole and were put to bed by that legislation; (c) no professor and no university wants to do this; (d) technology commercialization is a delicate art that cannot be commoditized; and (e) the current system is working fine as it is--as proof, look at all the great innovations universities have given us.

Unfortunately, I did not get a chance for a counter-rebuttal, so I offer it here. First, Dr. Stanley (and others) confuses an absence of evidence with evidence of absence. The absence of overt dysfunctionality does not imply the corollary, that things are hunky-dory. In fact, the arguments I've mentioned above regarding research productivity and returns to patents and licenses would seem to indicate something is amiss, as would the growing stock of anecdotes from frustrated professors and companies. It is of course nearly impossible to prove that something like a university is not living up to its perceived potential in terms of commercializing innovations, but the inability to prove that there is room for improvement is not an argument against opening up the process. That, in fact, is the nub of the free agency proposal--just open it up. No one would be forced to operate as a free agent or to contract with a free agent, as Dr. Stanley seems to think we are suggesting. This is entirely optional, as is any competitive market. It could even be optional at the level of the department or school of any particular university, with one department perhaps choosing to work with ABC agent while another chooses XYZ agent.

Dr. Stanley also predicts that such openness would instigate a return to those dark days before Bayh-Dole when legal machinations corrupted every attempt at commercialization--contract disputes, broken agreements, etc. Oddly, however, technology commercialization at universities is still plagued by these problems--Bayh-Dole did not banish legal disputes, and I'm not sure how Dr. Stanley manages to pull off such cognitive dissonance.

By opening up the technology commercialization process, we would likely see the development of completely new organizational forms to facilitate the process. No one can predict what will happen--and that is exactly the point. Maybe free agency will flop; maybe it won't. But there is no (or shouldn't be) single model when it comes to technology commercialization: free agency would encourage experimentation as a way to lower transaction costs, which was precisely the idea behind Bayh-Dole. In fact, many professors are already finding their way around the TLOs and TTOs, doing "end-runs" around the bureaucracy and finding their own commercialization routes. Rather than see this perversion as a defense of the status quo we should encourage free agency as a way to promote the development of more such alternate pathways. In their promotional materials and commencement speeches, university administrators consistently trumpet the glories of diversity and self-actualization and intellectual experimentation--except, it seems, when it comes to their own operations.

That seems to be a running theme of opposition: technology commercialization is special and cannot be subject to the rules of the market that govern the rest of the economy. Dr. Stanley is far from alone in asserting that each particular innovation is unique and must be granted its own customized commercialization process that can only be run through a TLO. Undoubtedly, there is some truth to this. Just as clearly, however, there is plenty of room to lower transaction costs by standardizing some portions of the commercialization process. This is precisely what UNC-Chapel Hill has done with the Carolina Express License Agreement; we will keep you posted as to whether or not the world ends as a result of this dangerous experimentation with technology commercialization.

Finally, we come to the tried and true defense that everything is fine. Universities have, after all, contributed enormously to economic growth and human welfare. Why mess with success? The real message, however, is: don't mess with us! This is the completely predictable and understandable response of any institution when its monopoly is threatened and should, in fact, serve as a reason to promote more experimentation. Just because universities have contributed much in the past does not mean they are performing optimally today (research is only one of many fronts on which we could have this discussion) and does not guarantee that they will continue to do so in the future. If bureaucracy keeps building up around the discovery and innovation process, it is almost guaranteed that they will not.

Are video cameras hostile to Liberty?

Raise your hand if you think security cameras in public places erode individual liberty.  The right to privacy, for example.

Now set aside the distinction between anonymity and privacy, which some Libertarians do, and consider the cases where cameras have helped catch bad people. And here we define bad people as extremely hostile to individual liberty (murderers, rapists, terrorists).

• Most recently, security cameras identified Faisal Shahzad, the would-be terrorist of Times Square in April 2010.
• The murder of Sandra Cantu in early 2009, now in the headlines because the alleged killer confessed, was partially solved using surveillance camera images of Sandra skipping to play at the killer's home.
• Joseph Smith would still be free but for a security camera which filmed him with a girl he murdered in February 2004: "Smith's friends and co-workers testified that he was the tattooed man pictured in a surveillance video from a car wash security camera who grabbed Carlie's wrist and led her away."

Survelliance has both an enforcement effect and a deterrent effect.  As for the erosion of privacy from this new technology, it exists only by conflating the defintion of privacy with that of anonymity.  And American society does not recognize a right to anonymity. Privacy in the public sphere strikes me as oxymoronic.

We can anticipate a rapid increase in public surveillance in the years ahead, and I think that's an almost unadulterated good.  Every time a reckless driver zooms past you on the highway, don't you wish he could be ticketed automatically?  Instead, we rely on random chance that a police vehicle will be hidden, identify the reckless driver, and pursue him/her successfully.  Wouldn't a better world identify every reckless driver and pacify the roads?  Remember, more Americans die every year from traffic accidents than died during the entire Vietnam war.

Blow Your Mind Study of the Day

A study published yesterday by the Kaiser Family Foundation finds that American kids are, for better or worse, entirely absorbed in electronic media. Kids 8-18 years old spend an average of 7 hours and 38 minutes consuming media content, 7 days a week. This is a 1 hour, 20 minute increase from five years ago. And, final fun thought, the study was initiated before Twitter existed.

It's an easy study to skim, chock full of good charts and tables. Things that stuck out for me are (1) low correlation with bad grades and media consumption habits, (2) an amazing percentage of teens who are allowed TVs in their bedrooms (which is considered bad parenting here at growthology, right guys? Or am I just expressing jealousy hangover from my teen years with my cruel, cruel rents?), (3) the rapid rise in DVR penetration, (4) music consumption is the big gainer, which should cheer the icy hearts at music labels.

Meta-lesson that maybe only I find interesting: Losing Touch is Lost
So here America stagnates in the teeth of the worst recession in modern times, and yet a report shows an explosion of media consumption. Life is worse for these kids how? The growth of virtual consumption is not appreciated by standard GDP metrics, but I think Plato was right. Humans are a social animal, and we derive unmeasurable value from social networks that have become instantaneous in speed and global in reach.  In a nutshell, can you imagine being a high school student today and have no sense of ever losing touch with your friends?  Losing touch. Losing touch is a non-operative concept in their world.

Breaking Through Barriers to Innovation

The search is on for ideas that will stimulate short- and long-term economic growth in the United States without further adding to the budget deficit. Here's a no-brainer: allow university researchers with innovations that are ready to be commercialized to shop around to different technology licensing offices. 

That's the idea advanced by Kauffman Foundation vice-presidents Lesa Mitchell and Bob Litan in the forthcoming issue of the newly revamped Harvard Business Review. This issue features the top "Breakthrough Ideas for 2010" and, happily, this idea comes in at number 6!

Currently, if you are a professor with a new technology or innovation, you typically must work through your own university's technology licensing office (TLO). This is inefficient for a variety of reasons. For one thing, not all TLOs are created equal: some have greater skill than others, while a handful excel. Several decades ago, federal funding of academic research was dramatically skewed toward those universities that engaged in the most commercialization: patents, licenses, spinoffs, etc. In the last twenty or thirty years, the distribution line of federal funding has flattened considerably, with a greater number of schools receiving money than before. This is not to say that the distribution is equal, but it's much less skewed than before.

Here's the kicker: the distribution of innovation output--patents, licenses, startups--has not changed. It's still skewed toward a handful of schools despite the huge increase in the number of universities receiving federal R&D money. We are not reaping the benefits of innovations that are presumably emerging from all that research and development. 

While some TLOs are more competent than others, moreover, it's also likely that such competence varies by area: one TLO may excel at commercializing life science discoveries while another may have a comparative advantage in computer science. Opening up the market for discoveries and commercialization should help iron out the inefficiencies and barriers that exist.

Kudos to Lesa and Bob for a fantastic article and for advancing a top Breakthrough Idea of 2010.

Early Adopter Tax

Why buy a product for a premium price when it is first launched?  Among my friends, I am a notorious late adopter, but the iPhone changed my mind.

Reading this post from Patrick at cashmoneylife.com reminds me of my old ways.  Good stuff.

I’m not the kind of person who needs the latest gadgets. I don’t enjoy constant upgrading, tinkering, and tweaking, and I don’t want to buy something when it launches, only to see the performance double and the price drop by half in the first year. But I understand why some people do, and that’s cool too. Early adopters spur the industry and lead to the development of new and cheaper technology. It comes with a price though, which is often known as the early adopters tax… and it’s something I try to avoid.

Thoughts on the iPod Touch

First off, I can say this was definitely worth the wait and now I understand what all the fuss is about! The functionality is intuitive, the apps are great, and it’s just plain fun. I’ve already downloaded apps from the iTunes Store, including the Kindle Reader, Stick Wars, and a couple other games and tools. I look forward to getting a lot of use out of my iPod Touch. But of course, new technology leads to a new dilemma…. now I want an iPhone! But I’m not getting one… yet.

Is the General Purpose Device a GPT?

Historians/economists describe a GPT or general purpose technology as something that has a broad impact on the economy -- electricity is a canonical example. Clearly, the computer / microchip is a GPT and its effects are still unfolding. It is to be expected that the computer's effects will continue to unfold and surprise us for the next many decades.

Farhad Manjoo makes me wonder if the "general purpose device" is itself a GPT. In this Slate.com essay titled "The iPod is dead," Manjoo writes:

In time, these players, too, will morph into computers. That's the way computing goes—as Jobs says, general-purpose devices eventually supplant everything else. There was a time when people bought portable word processors because computers were too expensive and all they wanted was something to write with. But in time PCs got cheaper, more portable, and more useful, and it no longer made sense to buy a writing machine. More recently, folks bought little devices called PDAs, tools to keep your appointments and contacts in order on the road. That was short-lived: Now every cell phone is a PDA. It's also a camera and a jukebox. And then there's the case of the Kindle, a dedicated device for reading books. Uh, Jeff Bezos—you might want to watch your back.

If you don't know his bio:

Farhad Manjoo is Slate's technology columnist and the author of True Enough: Learning To Live in a Post-Fact Society. You can e-mail him at farhad.manjoo@slate.com and follow him on Twitter.

The Social Media Revolution Video

Guest post by Charles C. Johnson

Mark Zuckerberg famously quipped that Facebook is a once-in-a-century technology, implying that he was right up there with Gutenberg or Ford. 

At the time, I scoffed at the arrogance of such a statement, but now that I've watched this video, I'm not so sure.

What Michael Robertson is Excited About

Very smart fellow SoCal entrepreneur Michael Robertson lists on his blog the things he is excited about. The most interesting to me:

Meraki - Wifi in my home has always been spotty until I deployed Meraki units. Plug in these card deck-sized devices and they'll automatically connect to each other, and providing complete wifi coverage in even the most troublesome areas. If you find dead zones, or need to expand coverage, simply buy another device, plug it in and extend your network using mesh technology with zero setup. There's a convenient browser based management system and alerts can send email anytime a device become disconnected.

The Israeli Dream: George Gilder Explains How Israel Become the World's Leading Entrepreneurial Economy

Guest post by Charles C. Johnson

There are some fascinating facts in a City Journal piece by technology guru, Geoge Gilder that warrant careful attention for anyone seeking to explain why it is that Israel, in Carl Schramm’s phrase, has become the world’s leading entrepreneurial economy. The entire article is worth reading, but some points stand out.

On how Israel’s economy used to be run.

In a general enthusiasm for public ownership of the means of production and finance, the government through the 1990s owned four major banks, 200 corporations, and much of the land. Israel’s taxes rose to a confiscatory 56 percent of total earnings, close to the highest in the world, stifling even those private initiatives that managed to pass through the country’s sieves of socialism. Erecting barriers of bureaucracy, sentiment, and culture, Israeli leaders balked the entrepreneurs and inventors who gathered there, creating a country inhospitable to Jewish genius.

On how Israel’s policy vis a vis immigration paid dividends and changed the culture.

The influx of Soviet Jews into Israel represented a 25 percent population increase in ten years, a tsunami of new arrivals that would be equivalent to the entire population of France being accepted into the United States. Largely barred in the USSR from owning land or businesses, many of these Jews had honed their minds into keen instruments of algorithmic science, engineering, and mathematics. Most had wanted to come to America but were diverted to Israel by an agreement between Israel and the United States. Few knew Hebrew or saw a need for it. At best, they were ambivalent Zionists. But many were ferociously smart, fervently anti-Communist, and disdainful of their new country’s bizarre commitment to a socialist ethos that punished achievement.

On the successes of Israel’s reforms:

In under 25 years—starting from those first modest tax reforms of the mid-1980s—Israel has accomplished the most overwhelming transformation in the history of economics, from a nondescript laggard in the industrial world to a luminous first. Today, on a per-capita basis, Israel far leads the world in research and technological creativity. Between 1991 and 2000, even before the big reform of 2005, Israel’s annual venture-capital outlays, nearly all private, rose nearly 60-fold, from $58 million to $3.3 billion; companies launched by Israeli venture funds rose from 100 to 800; and Israel’s information-technology revenues rose from $1.6 billion to $12.5 billion. By 1999, Israel ranked second only to the United States in invested private-equity capital as a share of GDP. And it led the world in the share of its growth attributable to high-tech ventures: 70 percent.

On the growth of Israel’s economy

Germany, ten times larger, roughly tied Israel. In 2008, Israel produced 483 venture-backed companies with just over $2 billion invested; Germany produces approximately 100 venture-backed companies annually. The rankings registered absolute performance, but adjusted for its population, Israel comes in far ahead of all other countries, including the United States.

The Robots are Coming, Air Force Edition

Matt Yglesias is taking some flak for a very insightful blog post about the UAV revolution reshaping the Air Force, inspired by a joke General David Petraeus made recently that is taking some flak as well. It seems many comments on Matt's post are disparaging his lack of familiarity with the military, so I thought I might fly to his defense given I have some cred here (USAFA degree, 2 tours of duty in Asia, combat interrogator, and a huge SF collection).

Here's the joke from Gen. Petraeus:

To recall an illustrative story, a soldier is trudging through the muck in the midst of a downpour with a 60-pound rucksack on his back. This is tough, he thinks to himself. Just ahead of him trudges an Army ranger with an 80-pound pack on his back. This is really tough, he thinks. And ahead of him is a Marine with a 90-pound pack on, and he thinks to himself, I love how tough this is. Then, of course, 30,000 feet above them an Air Force pilot flips aside his ponytail. Now — I’m sorry. I don’t know how that got in there — I know they haven’t had ponytails in a year or two — and looks down at them through his cockpit as he flies over. Boy, he radios his wingman, it must be tough down there.

Here's the commentary from Matt Yglesias:

The trouble is that advanced technological developments are driving this logic even further forward through the use of unmanned aerial vehicles. From a rational point of view, UAVs piloted from afar from operators far from the field of battle are a huge win. ...

A service that consists of guys sitting in cubicles playing video games is going to have trouble holding its head high amidst a warrior ethos. And consequently, the Air Force is tending to resist the technological imperative to go more remote.

First off, anyone who thinks the joke told by Petraeus is unprofessional should, in the words of John McCain, "get a life." This is how military folks jab one another. Marines are dumb, airmen are smart. Marines are brave, airmen are smart. That's how the joke goes, people.

Matt's analysis focuses too much on the psychological sensitivity of Air Force officers, but his assessment is fundamentally correct. The Air Force has painted itself into a corner in the sense that the new wave of technology is challenging what has been considered its central mission and identity. While a few may feel as Matt describes, it is incorrect to assume that all Air Force officers are "tending to resist the technological imperative to go more remote." Sure, the institutionalized "fighter pilot-bomber pilot-heavy pilot-other officer" pecking order of the branch is resistant to threats to its structure, and yes, there is a quiet identity crisis / search for mission. But it is pretty clear where that search will end up.

The misfortune of the Air Force is its name. When the Army Air Corps was established as its own branch of service, the rationale was driven more by the rise of nuclear weaponry than airborne weaponry (Think of it this way: America fought and won its only two world wars without needing a separate air arm). Would there be identity confusion if it were named the Nuclear Force?

In fact, the distinction of the Air Force is rooted not in the sky or in the atom but in a rebellious attitude against the status quo of the existing military way of war. The lesson is drummed in every day at the Academy, where cadets eat three meals in Mitchell Hall, named after the controversial General Billy Mitchell (1879-1936):

He antagonized many people in the Army with his arguments and criticism and, in 1925, was demoted to Colonel. Later that year, he was court-martialed for insubordination after accusing Army and Navy leaders of an "almost treasonable administration of the national defense." He resigned from the service shortly afterward.

The heart and soul of the Air Force is innovation, and I would say it goes so far as "creative destruction" in the Schumpeterian sense. This is not an insight, and many blue-suiters have been making the case for years. The evidence, you might say, is the thousand UAVs flying around the skies of Iraq right now.

What's more important is that military strategy overall needs innovation now more than ever.  Asymmetrical warfare can be an advantage to the U.S. if we push the automation of warfare downstream -- ground drones, insect drones. Think of it: a well placed robotic poison bee sting could have saved the world from a lot of war or two. Rather than worry about its warrior role, the Air Force should recognize that by seizing the leadership role in robotic and remote technologies, it will become the predominant branch for conventional, or killing, wars. In 20 years, we can imagine an Air Force that has subsumed all the others in the arena of combat, making the traditional warrior role of the Marines and Army next to irrelevant.

The big innovation that the Army and Marines are hungry for is more effective counterinsurgency (COIN) strategy, particularly in the area economic development.  Face it, the Air Force has the firepower side of the equation pretty well covered. It's the soft side of power where American strategy is weak.

Let me explain using another military joke, one that I used to tell to my roommates and Army buddies when I was stationed at Yongsan in Seoul. First, with a straight face, I asked if they had heard the news about the new rifle the Army had selected to the replace the standard issue M-16, introduced 40 years ago. No, no, they said, haven't heard. Yeah, I told them, after entering all the data from recent military situations - the Cold War, the Balkans, the Gulf War - it was pretty clear what the basic roles were for the Air Force and the Army. So the new weapon system the Brass had selected after careful deliberation by Pentagon experts was the M-21 nylon fiber broom, to help grunts clean up after the zoomies have won the combat phase. To be issued by Christmas. And my buddies, suckered, just groaned and told some story about ponytails and cockpits.

In fact, the resistance to COIN in the Army has been equal if not greater than the resistance to UAVs in the Air Force. Forutnately, the right side is winning, albeit slowly. Just maybe the military will learn that winning the peace is a hundred times more important, if ten times harder, than winning the war. If we need a rebellious Air Force attitude to shake things up and overcome the firepower mentality, all the better.

Wired Looks Into Craigslist's Refusal to Innovate

Guest post by Charles C. Johnson

In the latest issue of Wired, Gary Wolf takes Craigslist to task for failing to iterate upon its 1999 website design. In an age of apps, why doesn't Craigslist make itself more user-friendly? Wired investigates. [Emphasis is mine.]

 Each of these sites, of course, is merely one of the many sections of craigslist, which dominates the market in facilitating face-to-face transactions, whether people are connecting to buy and sell, give something away, rent an apartment, or have some sex. With more than 47 million unique users every month in the US alone—nearly a fifth of the nation's adult population—it is the most important community site going and yet the most underdeveloped. Think of any Web feature that has become popular in the past 10 years: Chances are craigslist has considered it and rejected it. If you try to build a third-party application designed to make craigslist work better, the management will almost certainly throw up technical roadblocks to shut you down.

Most baffling about the article was just how lightly Craigslist is staffed, reflecting, no doubt, founder Craig Newmark’s fascination with creating online public goods.

Craigslist gets more traffic than either eBay or Amazon .com. eBay has more than 16,000 employees. Amazon has more than 20,000. Craigslist has 30. Craigslist may have little to teach us about how to make decisions, but that's not the aspect of democracy that concerns Newmark most. He cares about the details, about executing all the little obvious things we'd like government to do. "I'm not interested in politics, I'm interested in governance," he says. "Customer service is public service."

Craigslist, though, might be onto something in its refusal to innovate.

. . .  craigslist is old-fashioned in any number of ways. It relies on email and the telephone in an era of SMS and social networks. It sticks to traceless transactions in an industry that makes its living collecting data from every touch. And just as people who run technical companies are reaching an apex of confidence in their ability to invent new forms of community based on sharing everything, craigslist still treats social life as dangerously complex, deserving the most jaded caution. Corporate isolation, user anonymity, refusal of excessive profit, glacial adoption of new features: These all signal Newmark and Buckmaster's wariness about what humans, including themselves, might do if given the chance. There may be a peace sign on every page, but the implicit political philosophy of craigslist has a deeply conservative, even a tragic cast. Every day the choristers of the social web chirp their advice about openness and trust; craigslist follows none of it, and every day it grows.

Tablet Wow

The Journal broke a great story today about Steve Jobs, back at Apple, pushing the design on their newest killer product: the tablet. Also, check this WIRED story about a zero price Dell-Intel product, which predicts 2010 will be the "Year of the Tablet." 

This reinforces my belief / fascination in innovation during a recession. The wave of technological progress is bigger than the ripples of business cycles, even financial panics.

Anyway, I phoned Bob Cringely to get some inside scoop from him, but only got his voicemail saying that he's "in the office, and working like a son of gun."  He'll know.

How and Why Apple and AT&T Killed Google Voice

Guest post by Charles Johnson

Hedge fund manager Andy Kessler has written an excellent op-ed explaining why and how Apple and AT&T killed the new iPhone application, Google Voice, while it was still in the craddle. He writes, 

Apple has an exclusive deal with AT&T in the U.S., stirring up rumors that AT&T was the one behind Apple rejecting Google Voice. How could AT&T not object? AT&T clings to the old business of charging for voice calls in minutes. It takes not much more than 10 kilobits per second of data to handle voice. In a world of megabit per-second connections, that's nothing—hence Google's proposal to offer voice calls for no cost and heap on features galore. 

What this episode really uncovers is that AT&T is dying. AT&T is dragging down the rest of us by overcharging us for voice calls and stifling innovation in a mobile data market critical to the U.S. economy. 

For the latest quarter, AT&T reported local voice revenue down 12%, long distance down 15%. With customers unplugging home phones and using flat-rate Internet services for long-distance calls (again, voice is just data), AT&T's wireline operating income is down 36%. Even in the wireless segment, which grew 10% overall, per-customer voice revenue is down 7%.

(Any takers on bets for when AT&T will ask for its own bailout?)

The kerfuffle over the Google Voice application is a great example of how awful monopolies can wind up being for consumer choice and innovation.

When the iPhone was released exclusively with AT&T, I promised that for that very reason I would never buy another Apple product. Kessler rightly argues that locking technology retards innovation. Just how many other potentially societally beneficial applications are out there that won't see the light of day due to the stranglehold that Apple exploits on its own pipeline: the Apple Store? 

And fortunately, there's a way around those who would lock us out from using our own products to their fullest extent. One of the first things a friend and I did when he got his iPhone was figured out a way to put SkypeOut on the phone and to unlock it from AT&T. (Skype Out allows you to call any landline, mobile, or Skype in the world for about 12.95 a month. You get 10,000 minutes and can call from any computer in which its installed.) 

Cell phone plans really need to start to reflect the law of the one price, if only to ensure that innovations affect all segments of the market. According to a recently released report by the OECD, the U.S. lags behind most of the world when it comes to a mobile usage pricing. For high cell phone users, it costs nearly 6 times as much in the United States as Denmark. 

Until we get some real competition in the cell phone plans, I'll see you on Skype. 

Hard Drive Crash

Our third generation PC just went up to the boy's room, where upon booting up booting up booting up loop, we realized something might have gone amiss whilst climbing the stairs. Hence to the repairshop, where I learned yesterday in a phone call with "Da5id" that my memory had been lost. This, friends, is my first hard drive crash.

I'm not so concerned about anything that might have been on the machine except one thing. Hiromi will worry if all the photos have been saved, and it will take a few days to assure her that they were successfully copied to the second generation machine. That whole experience makes me appreciate the value of ophoto.com (now called Kodak gallery, I believe) but also reinforces my suspicion that they would capture my photos and exert some form of monopoly pricing power over the situation. And I'm pretty sure that all the work, dissertation, bad poetry, and homework files are backed up. No, the one shame is that all record of a long-lost entrepreneurial venture is vanished.

The venture was called KillerSurvey, and I tinkered on it for a few years as a hobby. Eventually, surveymonkey.com surged ahead with the same idea. I neglected the site for so long that apparently the hosting company shut it down (one of the benefits of losing my credit card every so often, I suppose). The result is that the files are no longer hosted anywhere, let alone backed up on the now-crashed hard drive. So I am having this difficult-to-name emotion. I've lost something I created, and it has melted away like a dream in the fog of waking.

I guess I would feel a little better if I could find another online survey maker that would allow me to embed short self-made surveys in my blog posts. Maybe there's a Google app or a TypePad widget?

Twitter: The Fastest-Aging Technology in History

I am apparently the last person on the entire planet to hear about this: 15-year-old Matthew Robson has made quite a splash with his pithy observations on the communication habits of modern teenagers. In light of our recent discussions here on Growthology, I found the conclusions about Twitter quite interesting, as well as the evident but unsurprising difficulties the executives at Twitter are running into.

So if teenagers don't use it, and if, as I read somewhere, most people abandon Twitter after a month, how in the world will we ever organize democratic protests in the future? Oh, right, the old-fashioned way: social media has an irritatingly ironic way of obscuring our collective memory. 

A Few Thoughts on Tyler Cowen's New Book

[Another guest post from Charles Johnson, one of our summer interns.]

Tyler Cowen's new book, Create Your Own Economy: The Path to Prosperity in a Disordered World is one of the more engaging books I've read recently. It rests comfortably in the niche between books about behavorial economics and social technology. Careful readers of this blog will note that Tyler Cowen was a participant in the Kauffman Economic Bloggers Forum in February. We prepared videos of the participants. You can see him on video discussing blogging here. Cowen is a seasoned blogger at his blog, Marginal Revolution. 

The thesis for Cowen's new book is that technology is allowing many of us to become autistic-like in our processing of information and consumption of entertainment and culture. We've moved into a "bits" culture where we can constantly be orienting and re-orienting our culture. This remix culture is evident in everything from iPods, to blogs, to delicious, and to Facebook. In a way, I took this part of the book as a kind of demonstration that we can all become renaissance men because the costs of such renaissance have plummeted. We don't need Jefferson's library when we have a worldwide web with easy information at our fingertips. 

Cowen's book can be read as an appeal, that, for the sake of society at large and the individuals in particular, we should embrace neurodiversity, or the different ways in which our brain is wired. (You can hear him discuss the book in an interview with John J. Miller of National Review here.)

I was struck by this paragraph about autism and the foundation of companies. We know that dyslexics tend to have high rates of firm creation. (See here for more details). But what about autistics? 

Here Cowen points to the work of Simon Baron-Cohen, who is a researcher of autism at the University of Cambridge. (Simon Baron-Cohen created an AQ test -- or autism quotient -- that you can take here to see if you might have autistic-like tendencies.) Cowen recounts that Baron-Cohen believes that there may be a lot more autistic high achievers than most people realize. On p. 24-25, Cowen writes about some of these high achievers. [The bolding is mine.] 

Craig Newmark, founder of the web forum Craigslist, has written on his blog that his history as a "recovering nerd" is connected to Asperger's. It is perhaps no accident that autistics are known for their attachment to lists as a means of processing, recording, and ordering knowledge. Bram Cohen, creator and former CEO of BitTorrent, also describes himself in terms of Asperger's syndrome. He founded the company at age twenty-nine and BitTorrent has been a pioneer in exchanging digital information over the web; one of his key insights was how BitTorrent could break up files into smaller bits and send through the bits rather than the whole file at once. Cohen mastered three programming languages by the age of sixteen and his work on BitTorrent is regarded as brilliant. The best-known example of an autistic high achiever is Temple Grandin, a woman who has pioneered commonly used improvements in animal treatment and slaughterhouses; her unique cognitive perspective has helped her understand when animals are afraid and how they can be made to feel more secure. 

I've yet to see a scientific paper or serious clinical discussion of the autistics who hold political office, work in Hollywood, start web 2.0 companies, or run major U.S. corporations or hedge funds.

If Baron-Cohen is right that there is the huge reserve of highly successful autistic achievers, I wonder why there hasn't been some kind of online, Craigslist-type sorting website that seeks to place autistic people with the things in which they specialize or some kind of wider texting that seeks to identify and help autistic people find their niches.  

I came upon this idea when I was spending time with my next door neighbor, who has Asperger's. He has an obsession with clocks and with taking them apart and putting them back together. Imagine the societal benefit if he could be placed with a clock making company. 

Indeed, if I could fault Cowen's book for one thing, it's that it doesn't take the ideas he's advocated and move towards policy. Still, perhaps policy is not one of those things for which Dr. Cowen is wired and I ought to respect his neurodiversity. 

The Twitter Revolution In Iran

What we are witnessing in Iran is the first ever geek-led revolution. You've heard of the Orange Revolution, the Cedar Revolution, and the Rose Revolution. Upon further reflection, Iran is just the place for a Twitter Revolution. It boasts the world's highest per capita number of bloggers.

The Iranian regime is complaining that the U.S. government is behind the Twitterfest, but they couldn't be more wrong. The government has had little to do with it. (Aside from a few tepid remarks by Obama and the State Department requesting not to shutdown Twitter for scheduled site maintenance.)

Rather, the people of America - not the government - are helping the Iranian people who are bravely slugging it out in the streets after their election. 

Take the example of Austin Heap, a S.F. computer programmer. He is helping everyday Iranians get around the censors through the use of proxy servers. (A proxy server helps its users conceal their identity.) 

His blog, which lists proxy servers and now password protects them, has grown from a few dozen hits a day to over 100,000 in less than twenty-four hours. People are emailing in to him saying where there are more proxy servers and thanking him for helping them reconnect with loved ones. Even though he's receiving death threats from people within Iran, he knows that he has to continue helping out the Twitter revolution going on there. Unfortunately, he was detected, according to The San Francisco Chronicle. 

By mid-Tuesday, Iran appeared to be blocking all non-encrypted Internet traffic, making the 1,600 new proxy-server addresses now in his in-box temporarily useless. But Heap was working with other professionals and companies seeking new ways to reconnect.
"I haven't been in the middle of an outpouring like this, ever. And it makes me incredibly proud of the IT community," he said.
While it's not clear how much impact Heap's efforts are having, history may look back on his tweets about proxy servers as a profound moment in political evolution, said Stanford's Milani [a professor specializing in Iranian politics]

One growthology's favorite books is Clay Shirky's Here Comes Everybody: The Power of Organizing with Organizations. If you want to understand the Iranian Twittering Revolution, go out right now and buy the book. Or sit at home and order it.  

Shirky describes how for a time, a teenage girl was the Western world's only access point for the coup that ousted the Thai prime minister. Her blog posts on the topic went viral. 

Here's how he described what is going on in Iran right now during a Q&A with TED. Shirky gave a great TED Talk in 2008 and with full disclosure in mind, the Kauffman Foundation, is a TED sponsor.

I'm always a little reticent to draw lessons from things still unfolding, but it seems pretty clear that ... this is it. The big one. This is the first revolution that has been catapulted onto a global stage and transformed by social media. I've been thinking a lot about the Chicago demonstrations of 1968 where they chanted "the whole world is watching." Really, that wasn't true then. But this time it's true ... and people throughout the world are not only listening but responding. They're engaging with individual participants, they're passing on their messages to their friends, and they're even providing detailed instructions to enable web proxies allowing Internet access that the authorities can't immediately censor. That kind of participation is reallly extraordinary.

. . . 

So how does this play out?
It's complex. The Ahmadinejad supporters are going to use the fact of English-speaking and American participation to try to damn the dissidents. But whatever happens from here, the dissidents have seen that large numbers of American people, supposedly part of "the great Satan," are actually supporters. Someone tweeted from Tehran today that "the American media may not care, but the American people do." That's a sea-change.

Coffe, Pre, or iPhone 3?

Buzz is that the Palm Pre will be a serious challenger to the iPhone. The NY Times calls it an "an elegant, joyous, multitouch smartphone" that yields more value per dollar than the iPhone, though with a short battery life. Stephen Levy writes this summary at WIRED, "Great look and superb feel. Well-conceived OS with multitasking and instant notification. Physical keyboard. Utilizes iTunes to load and refresh content. TIRED: Multitasking puts a big suck on the battery. Sprint exclusivity will be annoying to Palm-philes on a contract with AT&T, Verizon or T-Mobile. Keyboard is puny."

I'd love to hear from anyone who is planning to get one when they go on sale tomorrow.

Naturally, Apple isn't sitting still. The next version of the iPhone is reportedly coming out next month.

Case Study in Innovation

Palm, as you may remember, stole Apple's thunder once already. I consider the failed Apple Newton, introduced by he-who-shall-not-be-named in 1992, to be the first handheld computer. While the Newton never caught on, its vision was vindicated by the revolutionary Palm Pilot in 1996.

A case study focusing on Palm inventor Jeff Hawkins and the PalmPilot's early days is available at the University of Cambridge. Forbes has the current development story on the Pre here. .

Just thinking out loud. Let's take account of where technology has taken us... A handheld device in 2009 includes: desktop computing power circa 1995, internet access (wireless), phone, GPS, gaming platform, email, calendar, camera, alarm clock, That's enough to inspire any pessimist. Oh yeah, they have music. And movies. Movies?! And am I the only one who uses his iPhone as a flashlight at night when checking on the kids or tiptoeing to bed myself? I can hardly imagine what computing will be like in 2020.

The Ascent (and Hopeful Descent) of Cash

(The title of this piece comes from a play on words of economic historian Niall Ferguson's book and PBS series, The Ascent of Money, which the Kauffman Foundation helped fund.)

By automating the checkout process at the Foundation lunchroom (where the food is incredible, by the way) the machines don't accept cash, only credit cards. What happens to unlucky staff like this author (lost card) and his research assistant (stolen identity, so he says)? It makes one wonder, will there ever come a day when we do not have cash? When money exists in 1s and 0s and nowhere else? 

Here's a bold prediction (from Atlas, the wunderRA): That day will arrive by 2025, if not sooner.

True, there have been stabs at moving us closer to that day, but none of them have really ignited. For those looking for a really good read, I recommend the book, The PayPal Wars: Battles with eBay, the Media, the Mafia, and the Rest of Planet Earth. The book is written by Eric M. Jackson, who was one of the first employees of PayPal and is reviewed at Reason Magazine by Radley Balko. 

Balko describse my favorite chapter in the book, 

Jackson recalls a speech Thiel gave to Confinnity employees, just a few days after he began work, in which he described his hopes for PayPal to become a borderless private currency. He saw PayPal facilitating trade in currency for anyone with an Internet connection by enabling an instant transfer of funds from insecure currencies to more stable ones, such as U.S. dollars. Thiel explained to his young staff how governments had historically robbed their own citizens through inflation and currency devaluation. The very rich could always protect themselves by investing offshore. It's the poor and middle class, Thiel explained, who get screwed. "PayPal will give citizens worldwide more direct control over their currencies than they ever had before," Thiel predicted. "It will be nearly impossible for corrupt governments to steal wealth from their people through their old means because if they try the people will switch to dollars or pounds or yen, in effect dumping the worthless local currency for something more secure."

Sadly, it seems that the libertarians in the room may have been too optimistic and that the only full scale innovation we will see is if the government exits the currency market a la Hayek's theory of competitive and therefore stable, currencies.

 

If history is any indication, privatized money can work. See economist George Selgin's great book, Good Money: Birmingham Button Makers, the Royal Mint, and the Beginning of Modern Coinage, 1775-1821, which documents the coinage entrepreneurship of Matthew Boulton, who built one of the best mints in existence after he landed a government contract to mint coins for Britain. People loved his coins and so use of the Royal Mint's coinage fell. Of course the British government's Royal Mint wasn't pleased about decline of their coinage and so it reasserted control and gave it back to the initial monopoly.

We all know the dangers that printing excess money can do to an economy. Milton Friedman's restatement of the quantity theory of money -- and subsequent Nobel Prize for Economics -- leaves little doubt. And yet, in light of the recent economic downturn, I think we must ask ourselves, Can we afford paper currency? 

A recent Wired Magazine article makes the point that minting them coins ain't cheap and that it cost in excess of 848 million dollars in 2008 alone, just to print things we'd just as soon not have. Here's the essential paragraph: 

To maintain our stock of hard currency, the US Treasury creates hundreds of billions of dollars worth of new bills and coins each year. And that ain't money for nothing: The cost to taxpayers in 2008 alone was $848 million, more than two-thirds of which was spent minting coins that many people regard as a nuisance. (The process also used up more than 14,823 tons of zinc, 23,879 tons of copper, and 2,514 tons of nickel.) In an era when books, movies, music, and newsprint are transmuting from atoms to bits, money remains irritatingly analog. Physical currency is a bulky, germ-smeared, carbon-intensive, expensive medium of exchange. Let's dump it.

Wow, talk about wasted resources. Fortunately, companies like PayPal, are leading the way to a cash- (and check-)less future. 

Between 2003 and 2006, noncash payments in the US increased 4.6 percent annually, while the percentage of payments made using checks dropped 13.2 percent. Two years ago, card-based payments exceeded paper-based ones—cash, checks, food stamps—for the first time. Nearly 15 percent of all US online commerce goes through PayPal. Smartcard technologies like EagleCash and FreedomPay allow military personnel and college students to ignore paper money, and the institutions that run dining halls and PXs save a bundle by not having to manage bills and coins or pay transaction fees for credit cards.

Hmm... avoiding cons and bills... maybe Kauffman's dining hall was on to something, after all.  But not so fast! MIT economist, Amy Finkelstein, has found that when EZ-passes are installed on road high ways, the charges to the tolls become less noticeable and therefore become subject to higher increases. Might that hold true for services or goods that are sold in non-competitive markets as well? I guess, we'll just have to wait and see.

New Asymmetry: Robots in the U.S. Military

Economic growth has some perverse implications. Not only does new technology allow for enhanced weaponry, but it also implies a reluctance for humans to tolerate casualties. One could argue that the collapse in human mortality and frailty in modern societies has stoked a rising intolerance for the bloodshed of war. An interesting result is that American attitudes towards was seem less sensitive to the carnage of war, so long as our side is relatively unscathed.

Regardless of other causes, the basic fact is that robotic war-fighting is extraordinarily effective in terms of costs and benefits. For surveillance alone, a small robot can see bad guys or sniff our roadside bombs in a mortally costless fashion that defies imagination and traditional concepts of war. Once you expand imagination to the offensive realm, the impact of robotics is obviously revolutionary. Consider these facts, quoted from P.W. Singer's article in Wilson Quarterly:

• When U.S. forces went into Iraq in 2003, they had zero robotic units on the ground. By the end of 2004, the number was up to 150.  By the end of 2005 it was 2,400, and it more than doubled the next year. By the end of 2008, it was projected to reach as high as 12,000.

• All told, some 22 different robot systems are now operating on the ground.

• The amount spent on ground robots, for example, has roughly doubled each year since 2001.

• In addition to the Predator and Reaper [two large robotic air drones], a veritable menagerie of drones now circle in the skies over war zones. Small UAVs such as the Raven, which is just over three feet long, or the even smaller Wasp (which carries a camera the size of a peanut) are tossed into the air by individual soldiers and fly just above the rooftops, transmitting video images ....

• As new prototypes of aerial drones hit the battlefield, the trend will be for the size extremes to be pushed in two directions ... The military's estimation of what is possible with micro air vehicles is illustrated by a contract let by DARPA in 2006.  it sought an insect-sized drone that weighed under 10 grams (roughly a third of an ounce), was 7.5 centimeters long, has a speed of 10 meters per second and a range of 1000 meters, and could hover in place for at least minute.

The big idea in military strategy is "asymmetric warfare" where conventional forces face an enemy that is smaller, lighter, and qualitatively different. While that asymmetry poses difficult problems, the rise of robotic warfare is in the process of turning asymmetry upside down. The power of force stemming from greater financial resources, traditionally manifested in heavy conventional arms, is being supplemented by robotic forces that are smaller, lighter, and qualitatively different than revolutionaries and guerillas.

Peace on Earth?  It would be nice to think so. While I am convinced the battlefield is changing faster than most soliders, let alone policymakers, can anticipate, the path to peace is on the other side. Strategic counterinsurgency requires transformative construction, not transformative weaponry. I'm certainly not the first to say so. I wouldn't put it past the brightest minds in the Pentagon to already have worked on robots that build roads, schools and hospitals.