Innovation and Value-Capture Strategies for Economic Growth
It is no longer enough—if it ever was—to focus exclusively on creating and deploying new technology. For decades, it has been a reasonable assumption that those countries and companies that create and deploy technology will, given a good-enough system of IP protection, capture the economic value of that technological advance, and that this propels productivity and prosperity. Now, various countries appear to be changing the playbook for effective value capture from the world’s innovation system, even while they strengthen their abilities to create value through internal investment in scientific and technological advancement.
If national governments amid an interconnected economy choose to play by different rules designed to steer returns from the global system in their favor, an existential threat emerges to global economic collaboration and to a trading system that has been largely stable, and delivering global economic growth, since the end of World War II. The cracks in the system exposed by governmental activities have been compounded by the pressures created by global economic integration, the growth of trade in services, and the global dispersion and cross-border integration of science, engineering, and innovation. We do not have policy frameworks that are anywhere near adequate to recognize these developments.
It is clear that an in-depth study of the global innovation system, and national and corporate value capture approaches, is needed. This can be the basis for the development of principles—analogous to those for trade in goods and services—to govern national technology, trade, and competition policies adequate to the task at hand.
Twentieth-Century International Agreements, Twenty-First-Century Global Knowledge Flows
The geopolitical reset at the end of World War II, global economic and geopolitical leadership from the US during the post-war years, and the emergence of organizations of global economic collaboration (OECD, bilateral trade agreements, GATT and WTO, the EU, G7, and G20) substantially expanded international trade, as nations around the world generally adopted more open borders for trade. The experience of the last seventy-five years shows the importance of a global economy enabled by relatively free trade, the exchange of ideas, and mobility of people (immigration and emigration). The combination of global integration of national economies, increasingly free trade, and accelerating global technological advance have provided tremendous global economic growth, which has benefitted many countries.
International economic competition in the twenty-first century has, however, three well-understood features. First, the degree of global integration (both among economies and within and among companies) is unprecedented. Second, global economic competition among firms (and, perhaps, countries) is Schumpeterian. That is, advances in the technology of products, services, and production are constantly disrupting and reshuffling markets, industries, and the organization and relative competitive position of firms. Third, the process of economic growth, tied to advances in technology, is evolutionary (market selection for, and against, products and firms) and highly path dependent.
The densely networked and global Schumpeterian economy at the dawn of the twenty-first-century has challenged concepts of national economic advantage that underpin the way competition between nations is characterized, with effects including:
Increases in the global stock and flow of knowledge, capital, and talent have eroded the traditional economic concept of a stable comparative advantage of regions and nations.
The rise of a global knowledge and innovation system has eroded the concept of sustainable national competitive advantage achieved through innovation.
The rise of global production-to-consumer value chains has eroded the concept of sustainable national competitive advantage in production.
The Schumpeterian and path-dependent global economics of the twenty-first-century mean—to policymakers and corporate strategists alike—that comparative advantage, competitive advantage in innovation, and competitive advantage in production are not immutable endowments of country. Rather, the different forms of comparative and competitive advantage are subject to relatively rapid change based on a company or country’s current or potential relative ability to develop, apply, and capture value from advanced science and technology (S&T) knowledge. This is the domain of industrial policy and corporate strategy and management.
The institutions of global economic collaboration have only partially and imperfectly adapted to the new integrated and knowledge-intensive economy. The General Agreement on Tariffs and Trade (commenced in 1948) and World Trade Organization (WTO), which succeeded it in 1995, focused first on rules for trade in goods, and later expanded to focus trade in services, as well as intellectual property protection. Most important, research, development, and innovation have become recognizably critical to national economic (and military) performance.
The creation and flow of advanced knowledge (only sometimes codified as intellectual property) have become the foci of national policies and international rivalry. While trade agreements and the WTO focus on trade and an internationally “level playing field,” national policies increasingly emphasize science, technology, and innovation—issues not well addressed by WTO—as a source of competitive advantage for companies and nations. As a result, in matters such as international enforcement of intellectual property rights, the current regime is inadequate.
This inadequacy has been compounded by the growth of both implicit and explicit national industrial policies in developed nations. Such industrial policies often blend government research, development, and demonstration (RD&D) investment with explicit government tax and regulatory support, trade protections, and antitrust (relief) for specific companies or industries that are deemed important to the national interest.
Why Global Agreements, Policy, and Managements Need to Change
You don’t have to look far back to understand why policies and management need to shift in the twenty-first-century. The Sherman Act establishing US antitrust law was passed in 1890 and amended in 1914 by the Clayton Act and the establishment of the Federal Trade Commission. While the legislation has been constantly refreshed by case law and precedent, nothing prepares the US government to address questions raised by new technology, rapidly advancing disruptive innovation, and globalization—for example, competition/antitrust and consumer protection with regard to global digital platform companies.
Many liberal democracies have an industrial policy, but—to avoid the wrath of doctrinaire economists and to stay clear of violating WTO rules—it flies under the banner of, and is delegated to, various government “mission” agencies (such as the Department of Defense, National Institutes of Health, or Department of Energy in the US); or it is an accident of long-standing practice and not justified by current industrial development needs (such as some supports for agriculture worldwide or the cane sugar industry in the US).
The foundations of industrial policy hinge on generic or pre-competitive technology investments by governments, a kind of “positioning” for future growth industries. It is arguable, for example, that Facebook, Google, and LinkedIn were founded in the US because 1) the Defense Advanced Research Projects Agency of the US Department of Defense pioneered the development of the Internet in the 1980s; and 2) the US National Science Foundation supported Larry Page and Sergey Brin in the 1990s in their graduate research work on search engines at Stanford. The same pre-competitive growth positioning is true with regard to private-sector RD&D investment, though the work tends to be less fundamental, the times are shorter, and the process is less public. Notwithstanding these obvious connections, economic theory often cannot articulate industrial policy benefits beyond support for basic science. There is a need to build a stronger articulation of the case for government support of “generic” or “enabling” technologies.
There are also critical questions about both public and private management of RD&D and of application/commercialization of new technologies. While many national governments invest in, or directly perform, RD&D and early stage commercialization, the scaled application of new S&T by mostly private enterprises underpins both national and global economic growth. The stock and flow of innovation in any country depends on management of government RD&D enterprises, on the management of domestic companies, and—often problematically—on the RD&D and innovation behavior of multinational companies operating from or within the country. This complex—often industry-specific—dance between the RD&D and innovation activities of public and private sectors creates knotty problems for both government and company managements.
Policy, regulation, and the realized experience of public-private collaboration on RD&D are always a kludge and an accommodation of special interests. However, for most countries, and especially for multilateral agreements governing trade and knowledge flows, there is now a huge gap between reality and the implicit assumptions behind current policies.
Policy, Management, and Global Knowledge Networks in the Sciences and Engineering
Private and public institutions that fund and perform RD&D, as well as those that educate and mentor research-capable professionals, are the foundation of global innovation and global economic growth. RD&D organizations play a critical role in both value generation and value capture from new S&T.
As recently as the 1970s, a few hundred centers of science and engineering excellence, concentrated in the US, Europe, and a few in Asian countries, were home for the overwhelming majority of research and innovation–capable scientific and engineering talent. Today, the number of RD&D-capable institutions, and the number of RD&D-capable scientific and engineering talent, has grown rapidly. To a large extent, scientific and engineering personnel move around the world freely and pool in or near institutions that provide a community of peers, capital, economic opportunity, and a culture of innovation.
A twenty-first-century diagram of global knowledge networks in the sciences and engineering would be dominated by three types of organizations:
Research universities and university-related research institutes
Government RD&D investment programs (government laboratories and funding mechanisms)
Corporate RD&D and advanced technology operations, including those of national and multinational firms, public–private RD&D partnerships, and S&T-based startups.
While the network of RD&D organizations is global, the overwhelming majority of the organizations are located in approximately twenty countries where public and private RD&D expenditures regularly exceed 2 percent of GDP and/or $1,000 per capita annually. The list of RD&D-intensive countries includes the US, Germany, China, France, Japan, and South Korea, as well as smaller economies such as Sweden, Denmark, Israel, and Singapore.
Further, RD&D organizations worldwide are knit together as a dense network by personnel flows and exchanges, collaborative research, open publication, national and international patent systems, government-to-government technology exchanges, frequent commercial transactions, and innovations that draw on multiple sources of science, engineering, and intellectual property rights (IPR) from around the world.
Due at least in part to their intangible and collaborative nature, the global integration of science and engineering knowledge networks (and, therefore, national innovation systems) started much earlier and moved faster than the global dispersion and integration of economic activities such as manufacturing supply chains. Today, no country or corporate entity “goes it alone,” either in economic growth or the underlying in science or technology. Every nation’s need to access and use new scientific and engineering knowledge developed outside its borders.
While increasingly borderless, the global knowledge networks that drive value generation and new-tech value capture are shaped by national policies and international agreements. These range from national policies and practices for investment in science and engineering through education policies (especially higher education and graduate education), and from economic policies, with regard to IPR, taxation, antitrust, and foreign direct investment (FDI), to trade agreements and practices.
Finally, it is important to recognize that advances in science and technology have been responsible for visible and dramatic improvements in global human health, environmental quality, and safety and security (e.g., in mitigation of impact of natural disasters). While these improvements can sometimes be characterized in the language of economic growth and prosperity, this misses the point that the contribution of science and technology to human welfare involves much more than economic prosperity. In other words, some substantial portion of the stock and flow of scientific and technological knowledge is, and should be, treated by policy and management as the common or shared property of humankind.
The project has four workstreams. The first three focus on global innovation and national value-generation and capture roles of:
A. Research universities and allied research institutes
B. Government RD&D investment operations
C. Private and corporate RD&D operations (including public–private collaborations)
The fourth workstream focuses on national policies and international agreements that affect the shape and performance of innovation relative to global economic growth and human welfare:
D. National economic and S&T policies
All four workstreams are organized around international working meetings, with participants bringing operating perspectives and analysis from a number of countries. Each workstream has the same basic structure, addressing a) norms of organization, management, and policy considerations by country of origin or operation; b) international operations and collaboration, competitive reciprocity, and responsibilities (by practice or regulation) to country of origin; and c) mechanisms of value capture (and failures) for national interest and global growth.
The project has four workstreams organized around four small international working meetings—with members bringing operating perspectives/analysis from a number of countries. Each workstream has three steps: 1) briefing material development, 2) a working group meeting focused on country-comparative analysis, and 3) post-working meeting publication of policy recommendations. Three of the workstreams are organized around comparing national practices—and asking policy and management questions—with regard to an element of global RD&D and innovation networks:
A. Research universities and allied research institutes, policy, and management
a. Norms of organization, management, and policy by country
b. Transparency, and methods and roles of international collaboration and international reciprocity
c. Mechanisms of value capture (and failures) for investors, research performers, and national interests
B. Government RD&D investment operations, policy, and management
a. Norms of organization, management, and policy by country
b. Transparency, and methods and roles international collaboration and international reciprocity
c. Mechanisms of value capture (and failures) for research performers and national interests
C. Private and corporate RD&D organizations, management and public-private interactions
a. Norms of organization, management, and policy considerations by country of origin or operation
b. International operations and collaboration, competitive reciprocity, and responsibilities (by practice or regulation) to country of origin
c. Mechanisms of value capture (and failures) for national interest
The fourth workstream has the same basic format but does not focus on RD&D performers or funders, but rather on national policies and international agreements that affect the shape and performance of innovation relative to global economic growth and human welfare:
D. National economic policies, including FDI and trade agreements
a. Norms of organization and policy by country
b. Transparency, international harmonization, and international reciprocity
c. Mechanisms of value capture (and failures) for national interest
Trade and national security concerns—especially the recent trade war between the US and China—have raised the idea of some conscious decoupling of economies and supply chains, though that may prove very difficult for nations as entwined as the US and China. Economic decoupling would be trivial in comparison to the challenge of decoupling the transborder network links in science and engineering. National S&T, trade, and economic policies need to reflect this reality.
The fourth workstream will draw primarily on examples from RD&D-intensive countries. While less than comprehensive, a group of about two dozen RD&D-intensive countries captures the bulk of RD&D enterprises in an increasingly dispersed global setting (research universities and institutes, government RD&D funding programs and RD&D performers, and corporate research enterprises) and, thereby, demonstrates the full range of the national institutional, policy, and corporate approaches to RD&D.
Goals and Outcomes of the Project
No single project can aspire to rewrite the policy and RD&D management handbook for all nations or companies. Therefore, the project goals focus on three purposes:
Illustrate and document the nature of global RD&D and innovation knowledge networks, and consider international trends and pressures for tighter coupling, or decoupling, of those networks.
Illuminate material differences in the practices of nations and companies, with a special focus on value-capture methods and implications for international agreements, global innovation, and economic growth.
Explore and document approaches (laws, regulations, norms, practices, international agreements) that are practicable in the near term and intended to maintain or strengthen global innovation to achieve global economic growth and improve human welfare.
Exemplary Policy and Management Questions for Workstreams
Are current international agreements (and enforcement of agreements) adequate to protect the technological capabilities, assets, and IPR of firms? Are agreements and enforcement adequate to protect critical national assets, capabilities, and IPR? What aspects of agreements or enforcement need to be changed to assure innovation and economic growth? Is “decoupling” a viable option, how might it work, and what are the implications?
Are there approaches that reconcile global interests in growth and welfare with national security or economic development interests that dictate stopping, or forcing modifications to, the purchase of domestic firms with important technological assets by foreign entities?
How can we evaluate whether the technological activities, assets, and IPR of a domestic or multinational firm align with the interests of a nation in economic growth, employment, consumer surplus (low prices), or long-term development of a specific industry or set of industries?
To what degree is it in the global interest for national governments to fund the development of generic (precompetitive) technologies? To directly support both value creation (commercialization) and value capture to the benefit of the domestic institutions and constituencies?
Should competitors be able to collaborate on RD&D and jointly agree not to license/sell technology to firms located in certain countries? Does government participation in collaborative RD&D change this determination?
What approaches reconcile global interests with national interests in delaying or halting the sale to foreign entities of intellectual property and other technologically relevant assets developed through government funding of research at universities or elsewhere?
What, if any, local content, local supplier development, and forced IPR sharing rules should be allowed by international FDI agreements? How are these rules enforced, and what are mechanisms of redress?
Each of these policy questions is accompanied by an often-ignored set of RD&D and innovation management questions:
Do we understand value capture as well as we understand value creation? How should value capture considerations change management practices?
What is the capacity of government agencies in timely evaluation of the current and future “national” importance of emerging technologies? This capacity may exist in matters of national defense, but what is the technology management or industrial policy theory that guides the protection, or support of, commercially vital industries?
Domestic and multinational companies manage their RD&D enterprises (both in-house and with external partners/vendors) in pursuit of shareholder value. What is their obligation to consider the interests of countries and citizens in their actions? And what does that mean in terms of RD&D management?
National antitrust laws, as well as environmental and consumer protection regulation, often place nations in opposition to to the actions of multinational companies. When these disputes involve new or rapidly changing technology, how do governments find and deploy adequate technological sophistication to shape the development and application of technology in the national interest?
Trade agreements and domestic economic polices (e.g., tariffs, FDI, or competition policy) with international implications tend to be static in comparison to the pace of change in tech-based industries. What agencies or mechanisms allow governments, and government-to-government negotiations, to continuously realign slow-moving policy with fast-moving science and technology?
Much RD&D investment is high risk and can be slow to pay off. This is especially true for investments in generic or pre-competitive technology, where feedback from users (to shape the development process) is thin or nonexistent. What mechanisms of public and public–private investment decision making are most effective for these types of investments, and do they vary by country, industry, and/or technology?
Outline for Workstream 1 Briefing Material and Discussion
Research Universities and Allied Research Institutes
1. By policy and practice, many research universities in liberal economies serve humankind: open to the world, open publication, and educating the next generation of researchers and tech practitioners.
a. Where are research universities not open, and/or what are material differences in character of openness?
2. Because of international openness, research universities in the US and in many other nations are portals on the increasingly dense network of research and innovation worldwide: nobody goes it alone anymore.
3. Because of domestic and international openness, research universities make major contributions to both mature companies and the startup economy (value generation) in home countries and abroad.
a. Reciprocal openness and policies make sure the rising tide of global knowledge lifts all boats (call it automatic value capture).
4. Even the most open universities have long experience navigating national defense security concerns (experience in national defense value capture).
5. Now and in the near future, universities face a new type of challenge in national commercial security concerns.
a. How international reciprocity fails and challenges the logic of automatic national value capture.
6. Approaches to increasing national value capture (return on taxpayer investments) without abandoning mission of service to humankind or values of openness.
a. Graduate students in science and engineering (applying national value capture logic to citizens and foreign nationals).
b. Faculty and researchers (applying national value capture logic to citizens and foreign nationals).
c. Research and intellectual property (national value capture logic and export control practices for special cases).
d. Corporate partners, startups, and spin-outs (rules for corporate partners and inbound FDI in university-driven startups).
 Innovation is a broad concept that, for this project, encompasses changes in organizational practices and human artifacts ranging from a small improvement in the delivery of healthcare to a particular population to an industry-disrupting change in catalysts used to create plastic products. Innovation—from the most incremental to the most fundamental—rests on, and contributes to, the current stock of human knowledge. While there are still some basement inventors and innovators, the breadth, depth, and steady growth of codified or embedded scientific and engineering knowledge and institutions means that fundamental disruptive innovation rests virtually always on a base of advancing science and engineering knowledge from a connected global network.
 This knowledge is mostly created through global networks of government research funding, research universities and institutes, and companies, and much is tacit knowledge embedded in the skills of scientists and engineers.
 While this type of national economic planning is an anathema to traditionally trained economists, a) it is common, though it often flies under the banner of preserving certain industries or rescoures for national security or the general welfare of the population; and b) there is evidence from developing economies that it can work as a national or regional development tool, often at the expense of other industries within a country or the same industry in competitor countries and regions.
 Encompassing, at least, the natural and social sciences, as well as applied sciences such as medicine.
 Innovation is a very broad concept. The focus of this project is on value capture from innovations recognizably built on the world’s rapidly growing stock and flow of science and engineering knowledge.
 In basic science; in applied fields such as public health, environmental engineering, or space exploration; and among longstanding allies in national security technologies such as aerospace, nuclear weapons, and encryption.
 See Appendix A for policy and management challenges that will be used to structure discussion and input at the working group meetings.
 See Appendix B for exemplary elaboration of the issues to be briefed to and then discussed by the working group on research universities
 Requires strategy, management, and operational sensitivity to differences in science and technology.
 Relatively insensitive to differences in science and technology.
The BRG Institute was founded by Berkeley Research Group, LLC as an independent nonprofit corporation to advance knowledge on the global economy, the corporation, technological innovation, financial institutions, and elements of law and policy through research, open publication, and public engagement.