The barred subject of innovation

Reading piles are funny: the Callaghan Innovation (CI) Statement of Intent (discussed here) ended up near a great paper entitled ‘High Anxiety‘ (pdf), by Cormac Gallagher, and an article on functional stupidity. So naturally, I drew links amongst them for a Lacanian critique of an innovation institute.

One thing that struck me with CI is that they know. The clear message from the SoI is, we know how to innovate, we know how to accelerate the high-value manufacturing sector, and we know what has been holding us back. Although there is some talk of experimentation, the real point is, ‘we know what we’re doing’. Even talk of fast failure contains a seed of knowledge — we know what failure is.

That insistence on knowledge takes me in two directions. The first is functional stupidity, specifically the article linked above. Mats Alvesson and Andre Spicer point out that organisations nurture a certain amount of stupidity, and good functioning depends on having the right amount. Too much, and employees spend all day problematising the overarching goals of the organisation and the optimal processes for achieving them. Too little, and there isn’t enough self-reflection to keep the organisation from sinking into a morass of process and procedure.

CI has told us what they know and what they are going to do with that knowledge. They haven’t told us what they are going to do with their stupidity, though, which may be just as important.

The insistence on knowledge also takes me to the agent or subject of innovation, that is, the entrepreneur. Entrepreneurs/innovators are people who create new realities. They take what is and make it something different. To me, that takes an action of willfulness or ego — taking the thing that exists in my mind and making it exist outside my own head. I think of it as an act of desire.

That is why the Lacanian piece made me think. It focuses on anxiety, and specifically the role of anxiety in analysis. It takes issue with the idea that analysis is supposed to provide knowledge, knowledge about why the patient is anxious and what childhood event triggered it and the emptiness of anxiety (‘fear without an object’ in the conventional formulation). Gallagher argues, though, that dealing with anxiety isn’t about covering over a gap with knowledge, but rather about recognising and living with the experience of anxiety. The point is that anxiety is real, all too real, and can’t be captured in the symbolic structure of codified knowledge. In Gallagher’s words:

Lacan argues that this emphasis on knowledge has the effect of barring the subject’s access to his own desire.

If we use this idea in the innovation space, we can see the negative impact that knowledge — that an insistence on the power of knowledge — can have on innovation. If innovation is an act of will or desire, then insisting on knowledge is a turning away from the source of innovation.

Taken together, these ideas mean that CI will likely be too smart for its own good. It doesn’t understand its own functional stupidity, so it is likely to be an ineffective organisation. It also isn’t leaving space for desire, so it probably won’t permit innovators to, y’know, innovate.

On innovation, follow the money

As you might have guessed from the light posting, off-line life has been kicking my patootie. I have no idea when regular service may resume. In the meanwhile, I’ll do what I can.

Today’s topic: Callaghan Innovation (CI). This is a new organisation, a Crown Entity, formed from the old Crown Research Institute IRL (Industrial Research Limited) and some other bits. The idea is to improve innovation in high-tech manufacturing by aligning the researchers better with businesses.

The jaded among you might ask, wasn’t that the goal of the CRIs to begin with. to translate research into economic growth? Why do we have to rebuild and refocus a CRI to do what it should have been doing already? And you would have a point.

The thinking, though, appears to be that IRL didn’t deliver on the promise. The thinking is definitely that there is all this potential lying around the place, just waiting to be unlocked and joined up (why does this sound like a Lego video game?). I’ve been reading the Statement of Intent (pdf), and in some respects it’s really good. The primary roles are described as:

• motivating people to innovate and commercialise
• connect business with resources and skills
• deliver research and technical services.

The ‘motivating’ part is a bit twee, but connecting and delivering could help. The economics perspective would be that the innovation is path-dependent, is contingent on access to information, and is a process of learning by doing. CI would help by:

• linking businesses and researchers and others to increase the number of pathways, thus decreasing the path-dependence. That is, successful innovation might depend on the right scientist and the right funder meeting, but we can make the meeting a matter of course rather than a chance event
• increasing the visibility of information about capacity and skills, so that it is easier to access the information. By becoming a clearinghouse, CI can be the Trademe of innovation — the go-to place when you want something
• reducing the cost of learning by doing by sharing lessons learned, so that each individual innovator doesn’t have to learn in isolation.

I thought that — in principle — CI could be good. The whole point was to focus on what these businesses needed. Even if you thought of it just as a straight subsidy to R&D, it should still improve the sector.

Then I looked at the budget.

CI has five ‘output classes’, the areas in which it is working. Let me re-interpret the names of the classes and tell you the budget:

• Rah! Rah! Inn-o-vate! = $6m
• Actually working with businesses = $17.5m
• Same-old, same-old IRL = $18m
• Replicating FRST = $6m
• Underpinning Standards work = $6m.

According to the budget, only one-third of the focus is business-centred innovation. One-third is maintaining capacity, which is science-speak for giving smart people money to do whatever they want, and most of the other third is replicating governmental functions. For all the lovely talk about change at the beginning of the Statement of Intent, the budget makes clear that CI is actually pretty conservative.

A new leader

We had news this week that a group of senior people selected a new leader, someone who could help New Zealand address some of its thorny issues.

No, silly, not Francis (although, since you raised him, why have we gone from God’s Rottweiler to one of God’s Marines? What happened to the Good Shepherd?).

Callaghan Innovation, formed from the old Crown Research Institute IRL, announced the appointment of their first CEO, Mary Quin. They are touting her experience at technology companies in the US and experience at a management firm in Alaska.

She has a difficult job ahead of her, so here’s some free advice. The presser focused on her international connections and their potential for improving New Zealand’s links overseas. Sure, that’s a concern, but the job’s much bigger than that. Here’s how it breaks down to me:

• The company — the conversion to Callaghan has been a change, and that requires management. Although IRL is one of the more industry-focused CRIs, in general CRI scientists sit somewhere between university researchers and corporate scientists. They aren’t there for the big bucks, and they aren’t necessarily focused on solving somebody else’s problems (which are notoriously difficult to see). This is a well-known issue with CRIs (see this note from 1997), but at the same time the signals from their shareholder (the Ministry) change with fads and governments while some of their staff have been around since the DSIR days. Quin will need to figure out how to get the culture she needs, but starting with the culture they’ve got.
• The science system — they were always going to choose someone from off shore (the search company was Australian, which set the tone). The difficulty is that the New Zealand science system is run as much by personalities as by policy. Things happen because someone wants them to happen. I’m not making a value judgement here, by the way — it’s a fact of living and working in a small country that there are two degrees of separation and sometimes one degree of freedom. In addition, there are lots of moving parts to the system. Sorting out the who-what-where-why will take time and a deft touch. Quin will need to play those relationships right.
• Industry — this is clearly the area where Callaghan hopes Quin will shine. Some CRIs have excellent relationships with their industries, and they work cooperatively to direct the science in ways that support the industry. IRL was more fragmented than some of the others, and doesn’t have the same strong industry bodies that agriculture has. But, the plan is that the fragmented high-tech and manufacturing sector can learn to work well with Callaghan. That’s going to take a lot of jaw-jawing and some obvious successes to show the way. Quin will need to get out there and talk with the companies where the Ministry sees promise, and then produce something of value within a year or two.
• Overseas — meh. I’m not convinced that the mythical land of milk and honey called ‘Overseas’ is all that important to this job. Yes, we do sell our knowledge and science overseas. For example, IRL’s Richard Furneaux has well-publicised international collaboration with a US group. But all that does — if and when it works — is provide a few jobs for our scientists. What we really need is science that supports our other sectors — ICT, manufacturing, medtech, etc. — so that those companies can take care of the overseas part of the equation. Put another way, Callaghan Innovation shouldn’t be doing NZTE’s job. Quin will need to figure out where ‘overseas’ fits in the business plan to deliver the economic growth that the Ministry envisions.

I wish her luck. It will be interesting, if nothing else. Let’s hope it’s successful, too.

One-sided science reporting

The Dominion Post over the weekend had a set of articles — above the fold, lots of column-inches, full-colour photos — focusing on scientists. That, in itself, is great. The problem is that these scientists were stepping far outside their expertise and the journalists did nothing to rein them in, or at least present an alternative view.

I have previously discussed these problems, but going back over the posts I think I might have been too nuanced. Let me be plain:

• New Zealand has a better environment than most tourists’ home countries. That’s why they want to come here. Are we 100% Pure? Of course not. Does it matter? Yes, no, maybe. Should we get our knickers in a twist that we haven’t lived up to the hype? Of course not — don’t be daft.
• All the talk of creating an innovation ecosystem and fostering a high-tech economy is a patter. A patter is what the con man does to keep you distracted from his hand reaching into your pocket. One article (‘Smart means looking beyond clean green’, which I can’t find on the DP site) pointed to the Kapiti Coast and its efforts to get high-tech manufacturing going. Hey, I’ve looked at it. The KC is tiny — there are single university campuses and factories overseas with more people. There is no way to get the scale, scope, agglomeration, etc. necessary for a leading-edge sector. The New Zealand science system does really well: it publishes a lot, it has plenty of researchers, there are some areas in which we are the world’s best. But let’s not kid ourselves. Oh, and just in case you don’t believe me, check out the Growth and Innovation Framework (pdf) from 2002, which was going to solve all these problems by 2011.
• People live here, and therefore work here, because of the quality of life. I was talking last week with a guy my age who is doing really well in the scientific world in Europe. His work and commute mean that he is away from home 14 hours a day. This is pretty standard in most big cities, where all that great innovation takes place. I’m not interested, and neither are most of the people here. If we wanted that life, we would be living it — elsewhere.
• Don’t bring up alcohol research to prove how scientific you are, unless you are really willing to engage with it. I’ve just played around the edges and I can see how complicated it is. Yeah, okay, jacking up prices and clamping down on access will reduce harmful drinking amongst adolescents. But, at what cost? That is always the question — at what cost? If you don’t ask and answer that question, you are spouting propaganda.
• Spare me the martyr talk. I’ve been hassled over my research, too. Heck, some of it is so controversial I can’t get it properly funded. It doesn’t make you more right.

The core problem is uncritical science reporting. These scientists have to deal with robust debate at work. More of that in the newspapers wouldn’t go amiss.

Scientific freedom

The Committee on Freedom and Responsibility of the International Council for Science is asking various organisations about scientific freedom. They are concerned about the overt muzzling of scientists and reprisals against whistleblowers.

I want to start by saying that this sort of overt censorship is deplorable. It is bad for the muddling-through groping-towards-understanding that we call science. It makes us unnecessarily stupider, and can only serve people with power (else how could it be maintained?).

But in the rush to condemn the silencers, we shouldn’t forget the more pervasive and subtle pressures on researchers. Their ability to conduct research freely and report results openly are also constrained by competitive funding mechanisms and limited career options. It starts at the beginning of the research process. When deciding whether an area of research is ‘worthwhile’, scientists are weighing up effort, risk, and reward. If an area is too risky and doesn’t present enough promise, they will not investigate it. It continues through to publication, when scientists decide what papers to write, submit, and resubmit.

The peer review system is an algorithm for moving most efficiently from our current ignorance toward greater understanding. By subjecting findings to intelligent scrutiny, scientists are trying to remove errors as quickly as possible and direct efforts to best effect. The algorithm does not work as well in practice as in theory, because of three things:

• the stakes: if the stakes are merely one’s reputation as a researcher/scientist, then the goal is to get the results right and relevant. Once the stakes are career and research funding, then one’s continued existence as a researcher is constantly under threat. It becomes a fight for survival. Survival strategies include running with the herd, camouflage, becoming an alpha and keeping the betas in check, and finding an uncontested niche.
• the mistakes: the research process includes a lot of mistakes. It is about pushing out into the unknown, so it necessarily involves getting things wrong. The individual researcher can maximise the risk-return ratio by reducing risk — doing uncontroversial work. Some unconventional work will pay off — it will be spetacularly successful. Most unconventional work will not pay off handsomely, but it can nevertheless advance science. As the stakes for mistakes grow, the appetite for risk falls. In addition, the peer review system — based on the opinion of established experts — can perpetuate both accurate knowledge and mistakes.
• the multiple goals: if the science process is supposed to produce greater knowledge, then the goal (the objective function in economic terms) is clear. However, by expressly funding science for economic growth or commercial gain, government introduces additional goals. The scientist is then seeking a solution to a complex objective function. It includes funding levels, publication counts, economic impacts, some abstract idea of knowledge produced, or even the reputation of the organisation. Publishing and generating knowledge are less important where funding must be obtained for survival or if scientists are tasked with producing economic growth.

The core of the problem is understanding what we mean by ‘scientist’. If by that, we understand a person whose main function is producing and communicating new knowledge, then muzzling scientists and punishing whistleblowers is inherently wrong. More than that, funding and career arrangements that increase rewards for safe and conventional are just as wrong and destructive. If, on the other hand, we think that ‘scientists’ are people who work with knowledge to produce economic returns, then it makes business sense that the unprofitable ones — the ones who hurt the bottom line by their actions or inaction — should be removed.

The more that scientists tout their role in economic development, the more they trigger that second logic.

Practicing economics without a licence

In the June issue of AgScience, Prof Shaun Hendy has an article entitled, ‘New Zealand’s voyage of economic self-discovery’. He also has a post with the same title over a Sciblogs. Before I get too wound up, I should give Prof Hendy his dues. He does do fieldwork amongst economists in their native habitat. But in the end, it is dilettantism.

The article sounds impressive — we have a new approach! we have pretty pictures! Nokia! But really, what he is able to tell us is:

• New Zealand is small and distant
• its economy is based on what has worked in the past
• scale is important
• we should be more productive.

He isn’t telling us anything new. No, really, there is nothing new there. And what is there is either useless or confused.

Let’s start with useless. A large part of the article is about connections, about the networks that drive patenting and thus invention and innovation. The article points to several firms and countries where we see economic performance, innovation, and networks. Okay, great. Now, can you tell us why it worked in those places? Is there some description of how our situation is different? What can we generalise from these findings?

But that’s not what we get. Instead, we hear that networks are important and drive scale, so we should have networks. This sounds like the Underpants Gnomes theory of economic development:

1. Build networks
2. ???
3. Growth!

But even worse than useless is confused. See, Prof Hendy argues both sides, and doesn’t even realise it. First, he states:

Economic development is path-dependent. The investment decisions we make now will lead to specialisations that determine the types of products we can invent and produce later.

Then, he goes on to maintain that, rather than picking winners, we need to fund all science:

Because of the variety and unpredictable nature of the science we will need, we must subsidise the generation of new knowledge across the board and not pick winners.

The problem is that path dependence and product space analysis point in exactly the other direction. Roger Procter has done the heavy lifting to explain the economics. The logical conclusion is that certain innovations are more likely to be successful, only certain types of science should be funded, and focusing efforts on those areas is more likely to produce economic returns.

I’m a knowledge fanboy. Let’s have more, let’s make as much as we can. But let’s not fool ourselves that activity = productivity. If the point of science is knowledge, then yay! let’s have as much as our budget constraint will allow. If the point is economic growth, well, that’s different. Then we need to think about playing the odds that are in our favour.

But then I’m just an economist. Maybe Prof Hendy would like to hear my thoughts on the Higgs boson. After all, I’ve been watching The Big Bang Theory.

Innovation — legal and otherwise

The Libor scandal has been making me think about different sources of innovation.

Innovators produce extra profits for themselves because they do things differently. The theory is that when technologies are well known and widely used, all excess profits are competed away. People and firms using common technologies don’t make much money. You can see this in the real economy: there is a huge number of small firms barely making an average wage. Often, when people buy a business they are really just buying a job.

But what is ‘differently’? And here, I have a theory.

There are the types of innovation we usually think about: new products, like smartphones, or new processes, like continuous fermentation or precision agriculture. The new products are better than old ones so we are happy to pay more for them. The new processes are more efficient, so they produce more with less. Either way, a gap opens up between production costs and consumer willingness-to-pay. For a time, innovators are able to keep some of that gap for themselves.

Another type of innovation is based on social innovation. Sometimes, it is about creating new social norms. Other times, it is about iconoclasts or sociopaths refusing to go along with social norms. These innovators are able to do things that are perfectly legal but that others don’t think to do or that are considered unexceptable. The first cafe in a neighbourhood to put a few tables out on the footpath is an example. Footpaths are, after all, public space, but such cafes appropriate the public space for private use. As another example, some of the extra value from fashion is about flouting social norms for fun and profit.

A third type is illegal innovation. Innovators are doing things that are possible but not legal. They make extra profit because of the gap between what most people do (what is legally allowed) and what they themselves are willing to do. They have a complex problem to solve — weighing up the potential gain from illegal innovation against the risk and cost of legal action. If they can make it work, they profit. Rolling back odometers on used cars is a good example.

Although I set these up as three types, it’s more a three-dimensional space. There is an interplay amongst technology, social relationships, and the law. A new technology can affect social conventions, and may also provoke a rethink of the law. The issues around Facebook and privacy are one example. The ongoing dispute about Easter trading laws — also discussed over at Offsetting Behaviour — is another case in point. Stores opening on Easter Sunday has become somewhat socially acceptable but remains illegal. Some stores are trading and then paying the fine, making a profit along the way.

The Libor scandal is an odd hybrid, too. It is an innovation. The standard procedure is for banks to report their rates and then deal with whatever the Libor ends up being. A few banks figured out an innovation: game the Libor and push it where they want it to be. They could then make profits on the gap between what does happen and what would have happened. I’m not sure what the legalities are, though. Did the banks do anything that was actually illegal? Sure, they appear to have violated expectations about conventional behaviour. But have they just found a gap between social conventions and legal requirements, and exploited it for profit?

There was an article a while back, which is now swamped on the search engines by recent news, that explained the process for setting the rate. The central message was that it was set by a couple of guys making a few phone calls and then guesstimating a number. That’s it. Given that the rate-setting was a social process, it could also be hacked by a social process.

So there’s a broad definition of innovators. It includes the creative and iconoclastic, as well as the sociopathic and criminal.

Trying to see the big picture

I’ve been reviewing research on how well the New Zealand economy works. Good golly, there is a lot of it. People seem to come to one of two conclusions:

1. yeah, nah, it’s about what you’d expect, or
2. it’s stuffed and needs fixing.

I try to take each article or report at face value, at least to start with. I assume it is correct and the research is valid. How can I add it to all this other information in a sensible way? My problem is the divide between ‘it works’ and ‘it’s broken’ sometimes seems unbridgeable.

An exemplar of the first group is Phil McCann’s assessment based on economic geography. He says essentially two things. First, New Zealand is small and distant. Of course, lots of people have noticed that about the country. Then, he goes on to say that the global economy has changed. Face-time has become more important for the high-value, knowledge-intensive work that pays well. That work is not just knowledge-intensive but relationship-intensive. So, it’s no wonder that the country is stuck in second gear. Shaun Hendy’s blog posts have a fuller discussion.

McCann is not alone. Some folks at Treasury looked at savings rates. They found that Kiwis are by and large saving enough for their retirements. The savings side of things seems to be working as you would expect, given the wage levels and superannuation. Some other researchers from MED and elsewhere looked at R&D and patenting. They found that the innovation system was about what you’d expect, given size and distance and the structure of the economy. Findings on productivity, such as this and this, are more complex, but they don’t indicate that the economy is somehow failing.

There’s also lots of research for the other side. The Savings Working Group, for example, linked poor economic performance to a low savings rate, which must therefore be raised through various policies. Likewise, the Tax Working Group found that the tax system was holding the economy back and needed significant change. The Powering Innovation report made many recommendations about how to fix the innovation system, with its low R&D investment, low connectivity, and poor performance.

Also in this camp are the many reports that make the problem ‘cultural’. It’s New Zealanders’ focus on the boat, bach, and beemer; or businesspeople’s desire to keep their firms small rather than go for growth; or scientists’ lack of entrepreneurial spirit.

The resolution I’m toying with is to say ‘yes’ to both camps. Yes, firms are smaller and R&D spend is lower and savings aren’t as high as elsewhere. But, these are all rational behaviours given the context of a small, sparsely populated country far from the economic centres of the world. So, yes, it is about geography and we are doing fine once you control for it.

This changes the tone of the policy recommendations. It isn’t about claiming that the institutions (the tax system, the science system, the education system) are messed up and need to be fixed. Instead, it is about recognising that we’re pushing this economy uphill and asking what tools might help.

Is this the best we can do?

Really?! This is the best The Competitiveness Institute could do?

Look, when I started this blog, I promised myself I wouldn’t run down every stupid idea. I would be positive and constructive. Well, it’s my blog and I’ll rant if I want to (rant if I want to). (That, by the way, is a snowclone, a charming term.)

TCI had Prof Enright speak at their conference yesterday. Enright worked with Porter on the 1991 book on New Zealand competitiveness. So far, so good. What did he come all the way from Hong Kong to tell us?

Apparently, NZ is ‘still’ at a crossroads. He laid out two scenarios for the future. In one, NZ is able to use its advantages to its advantage, while in the other, the advantages don’t produce much of an advantage. So, the big take-away message (with chips) is that things could go well unless they don’t. Here, I’ll let the reporter tell us what the professor said:

In essence it’s the ability to develop competitive clusters of companies that can succeed against international competition in the domestic market and can inject themselves globally into those markets in a sustainable way.

If ‘competitive’ = ‘capable of succeeding’, which is all it really means, then he’s just told us that we will succeed when we have companies that can succeed. How is this any help for thinking about the economy of NZ and policies that might promote growth and/or the general welfare?

He is also fuzzy on the details. For example, what is a ‘strong’ government? I can provide examples of ‘strong’ governments I wouldn’t want in charge of the country. How about ‘strong education’? There is some dispute over how ‘strong’ the education is in NZ, and at what levels, and for what portion of the population. What about technical capabilities and Kiwi ingenuity, which he calls our ‘non-traditional advantages’? The innovation literature of the last umpteen years has lauded our capabilities and ingenuity. How, exactly, have they pushed us up the OECD growth table over the last 20 years?

Why am I getting myself in a lather over this? Because improving NZ’s economic growth is hard. It’s economically complex. It involves different people with their own plans and dreams, preferences, ideologies, skills, and resources. Lots of people have been trying to make sense of it for years. We have to get the mix right with workers, skills, business plans, management capabilities, infrastructure, institutions, government policy, international markets, innovations, and that je ne sais quoi that makes it all hum. In general, NZ doesn’t do too badly, just not as well as some other places.

We certainly don’t need someone flying in after 20 years, telling us we are ‘still’ at a crossroads, and offering to write us another report.