Can We Measure the Power of Ideas?

Thomas Edison is considered by many to be one of history’s greatest inventors. His Menlo Park was arguably the world’s first dedicated research and development institute. It housed scores of dedicated researchers and engineers. On the process of making new breakthroughs, Edison reportedly said “Results! Why, man, I have gotten a lot of results. I know several thousand things that won’t work.”

It may come as a surprise to many then that even when we know what does work, it has been difficult so far to measure the true economic and social impacts of new technologies. This is largely because new patents and ideas will not only have direct applications but create knock-on, evolutionary technological opportunities – what are commonly described as ‘spillovers’. Knowledge spillovers arise if the innovation and knowledge generated by one inventor helps other inventors in advancing further innovations. If we could better estimate these spillover effects, then we could better allocate collectively our best minds and resources to the most powerful ideas and technologies.

The Patent Rank

Research from the London School of Economics and Political Science (commissioned by Huawei in 2018), directly addresses this challenge. Their team use a novel research technique to measure knowledge spillovers, which they have termed ‘Patent Rank’. It applies the same principles as those of Google’s Page Rank algorithm for web search but to the network of global patent citations. Their research methodology calculates not just the number of cites that accrue to individual patents but also their wide-ranging influence in terms of the extended chain of citations. It also allowed the research team to compare the overall influence of ICT to that of other modern technologies including robotics, biotech, 3D printing and cleantech.

The research finds that across countries, the pattern of national spillovers basically mirrors that of the pattern of comparative advantage or specialization according to innovations per capita. Some notable exceptions are the high average spillovers for 3D printing technology in the UK, robotics in Italy, and wireless communications in China.

Which Tech Spills the Most?

As to the most powerful types of modern technologies, the patent-rank research suggests that ICT technologies generate substantially larger knowledge spillovers on average than those generated by others. This holds even when ICT is compared to exciting frontier technologies such as biotech and clean energy. And within the ICT category, wireless technologies generate more than 50% higher knowledge spillovers than other comparable fields, hinting at a pre-eminence in terms of helping forge other breakthroughs.

Wireless communications has also experienced the longest period of elevated spillovers – from the early 1980s onwards. Robotics experienced some major peaks in spillovers in the early 1970s and early 1980s but has largely flatlined since. Nonetheless, the LSE researchers caution that lags in the citation process mean that they are unable to capture the spillover contribution of the latest wave of robotics research in the late 2000s and 2010s, as breakthrough innovations take time to diffuse their spillovers into further inventions and innovations.

The aggregated results also identify a worrying turning point in the magnitude of spillovers. Average global knowledge spillovers have fallen across all technology areas from the late 1990s onwards. This involves the tapering of a sharp spike in knowledge spillovers for ICT earlier in the 1990s (which coincided with a burst in economic productivity in the USA). However, ICT spillovers are still around 25-50% higher than the pooled set of all other technology areas at the end of the period considered.

What Should We Make of All This?

A number of suggestions come to mind for policymakers around the world. First, the high knowledge spillovers that evidently accrue in ICT suggest a role for enhanced, government supported R&D investment in this area. This could include grants and/or tax credits to encourage much greater R&D in ICT fields. This is because knowledge spillovers are ‘social’ and extensive. Private actors are not incentivised sufficiently to invest in line with what are frequently much larger social returns. The Patent Rank indicator provides a metric for evaluating comparative advantage and the current state of knowledge that could inform government R&D policy.

Only three of the countries in the study have a comparative advantage that lies within the ICT categories: Korea, the US, and France. In designing industrial strategies governments often express their desire to support areas of national comparative advantage. This could mean only limited support for ICT. However, the research findings of the patent rank methodology strongly suggest that industrial policies should be based on areas that generate the highest amount of spillovers, not current advantages. This leads to a substantially different ranking of technologies warranting support, with ICT consistently (and wireless communications within that) leading the field.

Finally, the research suggests that governments consider divesting control or oversight of ICT policy in the same manner as say many central banks have become independent over national monetary policy. Such independent control would allow enhanced long-term planning and insulate policy-making from overt rent-seeking. Targeted and enlightened support for the most powerful ideas and inventions will be of enormous benefit to us all as we approach the fourth industrial revolution. Edison also said, “There’s a way to do it better. Find it.”

Click the link for the full report, The Evolving Role of ICT in the Economy.

Disclaimer: Any views and/or opinions expressed in this post by individual authors or contributors are their personal views and/or opinions and do not necessarily reflect the views and/or opinions of Huawei Technologies.