Knowledge and Technology
Lecture 6

Innovation and Technology

1. Innovation and technology
   1. Creates economic growth
   2. Accounted for approx. 68% growth of the U.S.
2. Technology – the knowledge of how to combine resources to produce goods and services
   1. Product innovation – the development of new or better products
      1. Create new markets
         1. Personal computer
         2. ATM (cash) machines
         3. Pharmaceutical products
   2. Process innovation – the development of more efficient, lower-cost production techniques
      1. Robotics
      2. Managerial innovations
3. Governments foster research
   1. Subsidizes research in universities or research institutes
   2. Allows firms to create a consortia for research
      1. Antitrust Laws
   3. Protect intellectual property
      1. Patents, trademarks, and copyrights
4. The product life cycle
   1. U.S. firms invent new products
   2. Develop products for the home market and export to foreign markets
   3. Japan, Asian tigers, or China
      1. Improve the products or reduce production cost
      2. They begin to produce products
      3. The export low cost products to the U.S.
   4. Success if innovation is a standardized production
      1. Example
         1. Laptops made in China; widely accepted
         2. China's dragon CPU; not accepted

Viewpoints of Innovation and Technology

1. The Three Perspectives
   1. The liberal view – property rights are fundamental to the functioning of a market system
      1. Property rights
         1. Rivalry – one person using a property excludes other people
         2. Excludibility – people who did not pay for the resource can be prevented from using it
         3. Create incentive to use resources efficiently
      2. Public goods – knowledge, innovation, and inventions
         1. Nonrivalry – one person consuming or using the good does not preclude another form using the same good
         2. Excludibility – non-paying people cannot be prevented from using the resource
         3. Free riders will consume product and not pay for it
      3. Intellectual property rights
         1. Trade-off
            1. An innovator is granted monopoly power
               1. Research costs money
               2. Allows innovator to recoup its costs
            2. Expands knowledge that could lead to more knowledge
               1. Scientists build upon the idea that leads to more discoveries
               2. Creates spillover effects
                  1. Intel located a chip making plant in Costa Rica
                  2. Country has rising class of computer programmers
         2. Patents – protects an invention for 17 years
         3. Copyrights – protect the expression of an idea, not the idea itself
            1. Protects books, movies, and ideas
            2. Includes software and databases
            3. Prevent the unauthorized reproduction, distribution, and sale
            4. Protection lasts for the life of the author plus 50 years
         4. Trademarks – a sign, logo or names registered by a manufacturer to identify its goods
            1. Protection is usually granted for ten years
            2. Renewable
            3. Benefits
               1. High quality and reliability
               2. Reduces search costs
               3. Promotes quality standards
               4. Encourages repeat purchases by consumers
   2. Mercantilists – knowledge is a source of national wealth and power
      1. Technological advance countries
         1. Closely guard their own technology
         2. Prevent other countries from adopting technology
         3. Dominate the international markets
      2. Countries must
         1. Avoid technological dependence
         2. Acquire foreign-owned technology
         3. Not fall behind in technology
   3. Structuralists create dependency on the rich industrial countries
      1. Industrial countries maintain their technological advantage over Third World countries
         1. Create monopolies
         2. Extract profits from Third World countries
         3. Third world countries cannot adopt technology because of protection of patents, trademarks, and copyrights
         4. Deepens dependency
2. Piracy is widespread
   1. U.S. music, movies, and software are pirated
   2. Windows 7 was released on torrent websites several days before the official release from Microsoft
   3. Countries have different rules – creates enforcement problems
      1. U.S. Patent Law – the first to file gets patent
      2. Other countries – the first to develop gets patent
      3. Examples
         1. U.S. patents for animals, the white mouse in 1988
            1. Patent for the process
         2. Other countries – cannot patent life
   4. Weak intellectual property rights
      1. Free riders can use knowledge
      2. Insufficient resources would be devoted to R&D
      3. Fewer new and lower-cost products would be available to consumers
      4. Foreign firms have lower development costs, since they copy the technology
         1. Then foreign firms can underprice the U.S. firms
   5. Difficult to control information
      1. The internet allow information to be passed around the world in seconds
   6. U.S. is aggressive for protecting intellectual private rights
      1. U.S. was a later comer and signed the Berne Agreement in 1989
      2. U.S. can impose trade sanctions against countries that have wide-spread piracy
      3. WTO can also help protect property rights
      4. Preserves technological superiority
      5. U.S. may have gone too far
         1. Scientists and computer programmers avoid the U.S.
         2. Illegal to talk about encryption and decryption technologies
            1. Smart cards
            2. DVDs
            3. File formats are protected – MP3, MP4, etc.
            4. Old established firms go after new companies that have similar “too similar” products