More on this book
Community
Kindle Notes & Highlights
The rise in US real-estate prices translated into higher rates of mortgage-equity withdrawal and ultimately boosted consumer spending.
shows that the poorer a family is, the more heavily indebted it is likely to be.
Sustaining economic growth through household borrowing has been aptly defined as ‘privatized Keynesianism’,54 because ‘instead of governments taking on debt to stimulate the economy, individuals did so’.
To ignore the question of value in relation to finance is, then, highly irresponsible. But in the end, the real challenge is not to label finance as value-creating or value-extracting, but to fundamentally transform it so that it is genuinely value-creating.
Impatient finance–the quest for short-term returns–can hurt the productive capacity of the economy and its potential for innovation.
Reforms such as the US Dodd–Frank Act of 2010 attempt to prevent investment banks from using the deposits of their commercial-bank parents (which are ultimately backed by government under deposit insurance schemes) to finance their riskier income-generating activities.
today financialization appears to be thriving again despite its questionable productivity. Financialization remains a powerful force and its capacity for value extraction is scarcely diminished.
Tighter regulation of the activities that caused the last crash has encouraged banks to seek ways around the new curbs, while still lobbying to relax them
It has led less regulated ‘non-bank financial institutions’ or ‘shadow banks’ to expand where banks were forced to contract.
One is ‘shadow banking’, a term coined in 2007 to describe diverse financial intermediaries that carry out bank-like activities but are not regulated as banks.2 These include pawnbrokers, payday lenders, peer-to-peer lenders, mortgage lenders, mobile payment systems
and bond-trading platforms established by tech firms and money market funds.
While average incomes have grown, enabling a build-up of savings especially by the better-off, rising longevity and governments’ reduced appetite for social insurance and pension provision have put pressure on households around the world to make their savings work harder.
it is entrepreneurs, garage tinkerers and their patents that unleash the ‘creative destruction’ from which the jobs of the future come. We are told to welcome the likes of Uber and Airbnb because they are the forces of renewal that sweep away the old incumbents, whether black cabs in London or ‘dinosaur’ hotel chains like Hilton.
Second, in the way that the system of intellectual property rights (IPR) has evolved: a system that now allows not just the products of research but also the tools for research to be patented and their use ring-fenced, thereby creating what the economist William J. Baumol termed ‘unproductive entrepreneurship’.
customers using the network get locked in (finding it too cumbersome or disadvantageous to switch service).
risks in the innovation economy are socialized, while the rewards are privatized.
This is especially the case in areas where a lot of capital is needed and the technological and market risks are high–pharmaceuticals, for instance, and the very early stages of sectors, from the Internet to biotech and nanotech. At this point the public sector can, and does, step in where private finance fears to tread, to provide vital long-term finance.
innovation is collective: the interactions between different people in different roles and sectors (private, public, third sectors) are a critical part of the process.
Such processes are evident in the technologies underpinning some of today’s most ubiquitous products: the iPhone, for instance, depends on publicly funded smartphone technology, while both the Internet and SIRI were funded by the Defense Advanced Research Projects Agency (DARPA) in the US Department of Defense; GPS by the US Navy; and touchscreen display by the CIA.
research has shown that two-thirds of the most innovative drugs (new molecular entities with priority rating) trace their research back to funding by the US National Institutes of Health.
some of the greatest advances in energy–from nuclear to solar to fracking–have been funded by the US Department of Energy, including recent battery storage innova...
This highlight has been truncated due to consecutive passage length restrictions.
Google’s very algorithm was funded by a National Science Foundation grant.
Countries that have a more ‘stakeholder’ approach to corporate governance, many of which are to be found in Northern Europe, tend to involve workers more directly in the innovation process and to train them through well-developed vocational programmes: worker skills are most heavily invested in; they contribute more, and thereby are more able to share in the rewards that their work generates.
When trade union representatives sit on the boards of companies, they are more likely to demand that any sacrifices in wages are compensated by higher investments in areas that eventually create more and better jobs.
In the case of venture capitalists, their real genius appears to lie in their timing: their ability to enter a sector late, after the highest development risks had already been taken, but at an optimum moment to make a killing.
These early investors are doubtless crucial to the innovation process. The critical question here is: are their rewards proportionate to the risks they take?
by contrast, the public sector’s direct share is close to nil.
From the start of the VC industry, entrepreneurs and venture capitalists had often surfed on a wave created by decades of government investment.
Much of the work to commercialize military technology was done in the research labs of established ICT companies like General Electric, Texas Instruments, AT&T, Xerox and IBM.
The very possibility of an IPO encourages investment–although it has to be said that investors with one eye on the exit door and the other on the clock might not be ideal for nurturing a company to its potential.
Despite this patchy record, hundreds of biopharmaceutical start-ups have been able to raise finance through IPOs and continue in business for many years, often without the encumbrance of an actual product. These product-less IPOs (or PLIPOs) survive through R&D contracts with big pharmaceutical companies and through the speculative trading of their shares on NASDAQ, fermented by news about the success or failure of the latest clinical trial.
Yet the examples of the fortunes made in the 1990s and early 2000s by founders, venture capitalists, early-stage employees and senior executives from the Silicon Valley tech boom rippled out, resetting the norms and expectations for what leaders in more established sectors ought to be paid.
inflated expectations have also been built into the patent system, and more pervasively in innovative industries like ICT, biotech and pharmaceuticals.
The second key way in which value has been extracted from the innovation economy is by the appropriation of returns through the patent system (IPR). In the last century patents, and associated tools like copyrights and trademarks, have gone from being devices to stimulate innovation to means of blocking it.
the patent system no longer aids the innovation economy but inhibits it.
what is being patented; the length of patent protection; the ease with which patents can be obtained; and the reasons for seeking patent protection.
patents are no longer restricted to actual ‘inventions’ (products), but now include ‘discoveries’ (the knowledge behind products).
they may also apply to discoveries that help in the exploration of future innovative possibilities, such as diagnostic procedures, databases, analytic methods, or scientific principles with some potential practical application.
the US Bayh–Dole Act of 1980, which made it possible for universities and government research laboratories to hold patents on the results of publicly funded research.
Firms must now negotiate–and pay for–a licence before entering a market to access proprietary information that would previously have been available in publications.
Such university licensing challenges the traditional ‘open science model’, where basic research outcomes were–as they should be–freely and equally available to everyone.
legal changes have extended the protection patents offer: now, patents can be renewed.
There is a parallel here with copyright laws: over the last century the entertainment industry has increased copyright protection from fourteen years to ninety-five.
‘strategic’ patenting to patent around areas with a view to blocking competitors. This goes against the second role of patents, which is to allow the diffusion of resources. Such strategic patenting can be especially effective when a patent is obtained at an early stage of the development of a technology, before the technical standard is properly determined, or in fast-paced and patent-intensive fields such as ICT or biotech, where innovations are highly interdependent or complementary.32 An early patent gives its owner the chance of setting the dominant standard and blocking improvements
...more
Another related and growing practice is ‘patent-trolling’: the strategic holding of patents, not to develop or commercialize the underlying idea but deliberately to collect royalties through patent enforcement.
‘patent trolls cost defendant firms $29 billion per year in direct out-of-pocket costs’.34 Another study finds that in aggregate, ‘patent litigation destroys over $60 billion in firm wealth each year’,35 with the costs falling more heavily on smaller firms.
Today’s narrative, which plays up the role of the private sector in innovation and plays down that of the state, has created space for broader and stronger patents to proliferate.
In patent-intensive sectors like pharmaceuticals, greater patent protection has not led to increases in innovation. In fact, the opposite has happened.
At the same time, there have been numerous lawsuits attempting to extend patent validity on existing drugs by reshuffling old combinations of compounds.
Worse, because public institutions funded most of the key scientific discoveries behind health innovations,42 taxpayers are now paying twice: first for the research and second for the premium that pharmaceutical companies
