Energy Technology or Energy Innovation

This morning’s LA Times focused in like a laser beam on the key points of President Bush most recent speech on energy: Technology Is Key to Bush’s Long-Term Energy Plan:

President Bush, under pressure to do something about high energy prices, called Wednesday for new efforts to harness the “transformational power of technology” to wean the United States from its dependence on oil and gas.
In his second major energy policy address in a week, Bush proposed several initiatives he said would help address long-term problems contributing to price increases and constraining energy production.
They include government-provided risk insurance for new nuclear power plants, expanded federal authority to approve liquefied natural gas terminals, possible construction of oil refineries on closed military bases and a new tax break for people who buy diesel-powered cars.
But for the most part, the president expressed a bedrock belief in the ability of the private sector to expand energy supplies and promote conservation, with modest government involvement to start.
“In the years ahead, technology will allow us to create entirely new sources of energy in ways earlier generations could never dream,” Bush said. “Technology … is this nation’s ticket to greater energy independence.”

I’ve read the President’s remarks and the LA Time got the focus exactly right: technology will save us.
I beg to differ. Innovation is our hope – technology is only one part of that mix.
The speech (and the Administration’s policies) are focused mainly on technology for new sources of energy. Missing from the President’s speech were the words “information” or “knowledge.” There is a lot more that can be done in the area of energy that makes better use of information and knowledge (often through new technology) on both the supply and the demand side. Smart roads that help reduce conjestion (and reduce gasoline waste); new forms of urban design to build places where people can live and works in close proximity with out the long commute; better energy conservation standards (a key form of information). These are just of few of the energy innovations we could pursue.
However,that is not where the Administration is headed. As Business Week puts it, Bush Is Blowing Smoke on Energy

Plenty of evidence indicates that the White House’s sudden interest in energy policy is driven far more by politics than substantive policymaking.
. . .
But while the speech’s rhetoric was lofty and inspiring, the President’s proposals don’t match up with the problems they purport to solve. They carefully avoid the politically difficult steps that actually would take America farther down the path of energy independence.
. . .
But the goals of energy efficiency and independence won’t be spurred by anything this Administration is currently proposing.

Let’s see if the Congress, especially the Senate, can do any better.

TV makes you smarter and computers make you dumber

Contrasting stories about the effect of information on our cognitive powers.
In last Sunday’s New York Times Magazine, Magazine > Watching TV Makes You Smarter” href=””>Watching TV Makes You Smarter, Steven Johnson argues that the complexities of TV shows has greatly increased, using the example of the Jan. 24, episode of the Fox hit “24”:

For decades, we’ve worked under the assumption that mass culture follows a path declining steadily toward lowest-common-denominator standards, presumably because the “masses” want dumb, simple pleasures and big media companies try to give the masses what they want. But as that “24” episode suggests, the exact opposite is happening: the culture is getting more cognitively demanding, not less. To make sense of an episode of “24,” you have to integrate far more information than you would have a few decades ago watching a comparable show. Beneath the violence and the ethnic stereotypes, another trend appears: to keep up with entertainment like “24,” you have to pay attention, make inferences, track shifting social relationships. This is what I call the Sleeper Curve: the most debased forms of mass diversion — video games and violent television dramas and juvenile sitcoms — turn out to be nutritional after all.
I believe that the Sleeper Curve is the single most important new force altering the mental development of young people today, and I believe it is largely a force for good: enhancing our cognitive faculties, not dumbing them down.

(Note: he calls it the Sleeper effect as a rif on the scene from the Woody Allen movie Sleeper where Allen, as a modern-day Rip Van Winkle, walks up to find that everything he was told was bad for him [i.e. cream pies] are now good for you and vis-versus)
He goes on to explain how this works:

With “Dallas,” the modern viewer doesn’t have to think to make sense of what’s going on, and not having to think is boring. Many recent hit shows — “24,” “Survivor,” “The Sopranos,” “Alias,” “Lost,” “The Simpsons,” “E.R.” — take the opposite approach, layering each scene with a thick network of affiliations. You have to focus to follow the plot, and in focusing you’re exercising the parts of your brain that map social networks, that fill in missing information, that connect multiple narrative threads.

Of course, the entertainment industry isn’t increasing the cognitive complexity of its products for charitable reasons. The Sleeper Curve exists because there’s money to be made by making culture smarter. The economics of television syndication and DVD sales mean that there’s a tremendous financial pressure to make programs that can be watched multiple times, revealing new nuances and shadings on the third viewing. Meanwhile, the Web has created a forum for annotation and commentary that allows more complicated shows to prosper, thanks to the fan sites where each episode of shows like “Lost” or “Alias” is dissected with an intensity usually reserved for Talmud scholars. Finally, interactive games have trained a new generation of media consumers to probe complex environments and to think on their feet, and that gamer audience has now come to expect the same challenges from their television shows.

In contrast, there is this from yesterday’s Wall Street Journal Evening Wrap:

Feeling Stupid? Blame Your Computer
Talk about unintended consequences: the emails, text messages and instant messages that supposedly make people better-connected can also make them more stupid, according to a new study. In a project sponsored by Hewlett-Packard, Glenn Wilson , a professor at King’s College London, tested the impact on workers of a steady bombardment of electronic messages and found that workers temporarily lost 10 points of IQ as a result of trying to handle all the incoming information — more than double the four-point effect of smoking marijuana and roughly matching the effect of missing a full night’s sleep.

I’m not sure I competely buy either of these arguments. Granted I often feel stupid after a long day at the computer, I’m not sure I feel smarter after watching a TV show. Then again, I don’t watch a lot of TV and am probably watching all the wrong (i.e. dumb) shows.
These findings surely give us something to think about.

Wasting talent – and contibuting to decline

From this morning’s Wall Street Journal – Illegal Immigrants’ New Lament: Have Degree, No Job:

Suffering from a severe shortage of nurses, U.S. hospitals have recruited thousands of workers from countries such as the Philippines, Jamaica and Mexico. Meanwhile, Julieta Garibay’s nursing degree from a prestigious Texas university isn’t helping her land a job with any hospital. The most she can do is volunteer.
Ms. Garibay, 24 years old, who came to the U.S. as a child, is an illegal immigrant. She is part of an emerging class of young immigrants facing a new quandary: They are educated, but unable to get work because of their immigration status.
Their dilemma promises to be an increasing problem as more illegal immigrants attend U.S. colleges. The U.S. Supreme Court ruled in 1982 that all children, regardless of immigration status, are entitled to attend elementary and secondary school for free. But higher education is largely a state matter.
In 2001, Texas became the first state to pass a law allowing undocumented immigrant students who graduated from a state high school to pay resident tuition at public universities. Since then, eight more states have passed similar laws, and bills are before legislators in several other states. In a few states, financial aid is available. For Ms. Garibay, whose single mother is a cleaning lady, the in-state tuition legislation opened up an otherwise unaffordable opportunity.
However, as the first crop of students — about several hundred — who benefited from the Texas bill prepare to graduate in coming months, they find themselves unemployable. Their legal limbo is turning Texas into the test case for what happens to the new class of educated but illegal graduates.

Lawmakers say they anticipated that this problem could arise but hoped Congress would pass a bill to legalize these students. Such a bill is expected to be introduced in the Senate in coming months.

Congress recessed last year without taking action on the Development, Relief and Education for Alien Minors Act. The bill, which has bipartisan support, is expected to be re-introduced by Sen. Orrin Hatch (R., Utah). “The federal government needs to pass the Dream Act so these students can get on with their lives,” says Mr. Bernstein of the immigration advocacy center.
Amid the national furor over illegal immigration, the fate of the bill remains unclear. “Current politics are making this radioactive right now,” says Travis Reindl, director of state policy analysis at the American Association of State Colleges and Universities, a nonpartisan group.
Opponents say they are determined to stall it and still are angry about giving illegal immigrants in-state tuition. “We can’t hold taxpayers accountable to providing discounted education to people in this country illegally,” says Congressman Steve King (R., Iowa). Mr. King acknowledges that the students are likely to pay more taxes as professionals than as blue-collar workers if they remain in the U.S. But, he says, “we can’t make economic arguments” in favor of illegal immigration.

We can’t make economic arguments !?!?!?!?! We can afford to throw away talent? Ok, then how about the moral argument as engraved in on the Statue of Liberty:
“Give me your tired, your poor,
your huddled masses yearning to breathe free,
Your wretched refuse of your teeming shore;
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!”
How we face this test will determine whether America will remain an economic superpower in this new information age. If the radical, anti-immigrant right prevails, then it is clear that they are not serious about maintaining our economy — and we can say goodbye to the American Century. It will be ironic indeed if those on the right who like to trumpet American exceptionalism are the cause of our decline.

Peer-to-peer – not just music

In an earlier posting, “Closing the Barn Door“, I argued that the Supreme Court case on Grokster was a case of locking the barn door after the horse has already run away. Music sharing has moved from peer-to-peer systems to email and iPods. The solution of limiting peer-to-peer technology, therefore, will not address the issue.
If fact, limiting peer-to-peer technology may do more harm than good. The opponents of this lawsuit argue, as was the case with video recorders, there are multiple legitimate uses of the technology and therefore it is not primarily a technology for the sole purpose of infringing on copyrights (that is the legal argument).
In a story on Reuters, Peer-To-Peer Users Share More Than Stolen Songs, reporter Andy Sullivan gives us a great over view of what those other uses are:

Peer-to-peer, or P2P, software allows users to connect directly to each others’ computers, bypassing the powerful servers that underpin much of the Internet. Web pages, spreadsheets, PowerPoint presentations and other material usually stored on servers can thus be made public directly from a user’s hard drive.
That makes online communication much simpler, said Steve Crocker, who helped develop an early version of the Internet as a graduate student in the 1960s.
“When you think about the amount of hardware and bandwidth and storage that we all have available on the most common of machines and then you think about how hard it is to actually work together, there’s a huge disparity,” said Crocker, whose Shinkuro software ( allows people in different locations to work on the same document. Encrypted communication keeps snoops and hackers at bay.
High-school teachers in Washington have turned to Shinkuro to develop lesson plans, and researchers on a polar icebreaker have used it to send back photos of unusual ice formations, Crocker said.
Two online standards-setting bodies, the Internet Engineering Task Force and the Internet Corporation for Assigned Names and Numbers, have developed agendas and other material with Shinkuro, he said.

The story goes on to discuss numerous other applications of the technology, including getting around the censors in China.
Clearly, peer-to-peer is emerging as a key innovation-enabling technology.
Let us hope that the Supreme Court Justices have heard of these examples. In an economic era where innovation should be our top priority, we would be pennywise and pound-foolish if we tried to shut down this enabling technology. It would be akin to making the automobile illegal because sometimes bank robbers use cars to make their getaway.

Teens and information

One of the most important skills that everyone should have in the intangible economy is the ability to find information. Those of us who spend our days on the Internet take this skill for granted. We also view young people as the most Web-savvy. But this may not be the case. As a story in today’s Wall Street Journal Teens Don’t Know Everything relates:

According to a recent study by Nielsen Norman Group, a Fremont, Calif., consulting firm, teenagers are able to complete “perfectly feasible” tasks on a Web site only 55% of the time. The rest of the time, teens either give up or incorrectly complete basic tasks, such as locating free copies of documents that a site provides for downloading.

The researchers lay part of the blame on poorly designed website. The story goes on to talk about the do’s and don’t of designing websites for teens. However, bad websites are a fact of life and people need to develop skills find information. Developing such skills has to be a positive activity – simply “playing around” with the Web isn’t enough. Many colleges require mandatory training on Web-based information retrieval – I know the business school at Georgetown University, where I occasionally teach, does.
But by college it might be already too late. This is a skill that needs to be learned early. Otherwise, we run the risk of perpetuating not just a digital-divide but an information-divide.

Our Industrial Age mentality

Liz Ryan at Business Week asks the right question in her most recent column Face Time: The New Assembly Line:

Back in the day, Henry Ford put out some fine automobiles and, while he was at it, revolutionized the workplace: He perfected the assembly line, which required workers to arrive at a designated time and work together in a complex, multitask operation. Good going, Henry!
A century later, sophisticated information technologies have given rise to the “knowledge worker” — a person whose chief contribution to a company is intellectual. In Ford’s time, a great day on the assembly line occurred when employees worked sans mistakes and accidents. In 2005, a good day is when a brilliant idea comes to mind that will help an organization leap ahead.
It’s wonderful, slippery stuff, this knowledge work. Its tools are facile minds that think and brainstorm nonstop — morning, evening, and suppertime, on the job or off. So, why do we so often manage knowledge workers as though they were assembly line folk?

The reason, she goes on to explain is rather clear. Face time — as she puts it, the time we spend in the office visible to management — is easy to managers to see.
It is also easy to count. We can measure the number of hours put it (and the cost of those hours). In fact, that is how we measure productivity. But we have a hard time measuring creativity and innovation on a day-to-day basis. As the old saying goes, we manage to what we measure. So we manage the input of time (face time) in some hope that it translates into output. Someday, I’m sure we will all look back and say, “what a quaint and silly idea.”

Fostering bottom up innovation

I go to lots of meetings in Washington on innovation. Most of the time we are bemoaning the lack of an innovation policy in this country and wondering what it will take to get the US back on track.
My major complaint is that invertible, when it comes time to propose possible solutions, we fall back on the stand answers: more funding of R&D, train more scientists and engineers, and create an infrastructure that allows them to collaborate better (both social and hardware infrastructure).
That’s fine for top-down innovation — innovation that comes out of the research lab. But as a 2002 RAND study pointed out, the innovation system is much broader and deeper than that:

we immediately think of scientists and engineers working sometimes on their own but most often in laboratories or R&D facilities operated by private industry, by universities, and to some extent by the government. Yet, much innovative activity occurs outside the formal precincts of R&D labs. R&D departments tend to be an artifact of large firm organization. But in all company settings much “fixing” that amounts to innovation is done on the line by employees not principally charged with the innovation task. This type of informal activity too is an element of the national innovation system.

Another major source of innovation is users. Virginia Postrel’s column yesterday in Business > Innovation Moves From the Laboratory to the Bike Trail and the Kitchen” href=””>the New York Times, “Innovation Moves From the Laboratory to the Bike Trail and the Kitchen” reviews Eric Von Hippel’s leading edge work in this area:

When most people think about where new or improved products come from, they imagine two kinds of innovators: either engineers and marketers in big companies trying to “find a need and fill it” or garage entrepreneurs hoping to strike it rich by inventing the next big thing.
But a lot of significant innovations do not come from people trying to figure out what customers may want. They come from the users themselves, who know exactly what they want but cannot get it in existing products.
“A growing body of empirical work shows that users are the first to develop many, and perhaps most, new industrial and consumer products,” Eric von Hippel, head of the Innovation and Entrepreneurship Group at the Sloan School of Management at the Massachusetts Institute of Technology, wrote in “Democratizing Innovation,” recently published by MIT Press.

Unfortunately, we don’t really understand the policies that could foster bottom-up innovation. In his book, Von Hippel outlines the public policy problem:

An important first step would be to collect better data. Currently, much innovation by users-which may in aggregate turn out to be a very large fraction of total economic investment in innovation-goes uncounted or undercounted. Thus, innovation effort that is volunteered by users, as is the case with many contributions to open source software, is currently not recorded by governmental statistical offices. This is also the case for user innovation that is integrated with product and service production. For example, much process innovation by manufacturers occurs on the factory floor as they produce goods and simultaneously learn how to improve their production processes. Similarly, many important innovations developed by surgeons are woven into learning by doing as they deliver services to patients.
Next, it will be important to review innovation-related public policies to identify and correct biases with respect to sources of innovation. On a level playing field, users will become a steadily more important source of innovation, and will increasingly substitute for or complement manufacturers’ innovation-related activities.

Von Hippel makes suggestions in four areas:
1) Intellectual Property Rights, where he raises the concern that the current IPR regime is too restrictive.
2) Constraints on Product Modification:

Current efforts by manufacturers to build technologies into the products they sell that restrict the way these products are used can undercut users’ traditional freedom to modify what they purchase. This in turn can raise the costs of innovation development by users and so lessen the amount of user innovation that is done.

3) Control over Distribution Channels:

Users that innovate and wish to freely diffuse innovation-related information are able to do so cheaply in large part because of steady advances in Internet distribution capabilities. Controls placed on such infrastructural factors can threaten and maybe even totally disable distributed innovation systems such as the user innovation systems documented in this book.

4) R&D Subsidies and Tax Credits, were the bias is toward manufacturers-innovation rather than user-innovation:

important innovative activities carried out by users are often not similarly rewarded, because they tend to not be documentable as formal R&D activities.

While this is an interesting list of issue, I think it probably only begins to scratch the surface of our policy bias toward top-down innovation.

One end note: Von Hippel also warns of the challenges to National Competitive Advantage:

Nations may be able to create comparative advantages for domestic manufacturers with respect to profiting from innovation by lead users; however, they cannot assume that such advantages will continue to exist simply because of propinquity.

In other words, in an era of global manufacturing, just because something was invented here, doesn’t mean that it will be produced here. That is another dimension that we take into consideration as we development a comprehensive innovation policy.

Eminent Domain and Intellectual Property – update

In a posting last month, I mentioned a bill in the DC City Council to use eminent domain to control the cost of drugs. Apparently, the bill’s sponsor, David Catania has backed off of the eminent domain argument – see Washington Examiner: News:

Catania, I-at large, on Tuesday circulated a substitute bill that eliminated the eminent domain provision.
He replaced it with language that makes it an “illegal trade practice” to overprice medications.
The substitute authorizes the city to use its “broad police powers” to regulate commerce, Catania said. If a medication’s price is determined to be excessive under the District’s Consumer Protection and Procedure Act, the mayor could request a compulsory license as a “remedy,” Catania said.
A hearing would then determine whether the drug maker loses its patent.
Ross Weber, Catania’s spokesman, said the substitute was introduced to “avoid the stickiness of eminent domain” – the practice of taking private property, in this case intellectual property, for public use.

The question still remains — is a patent “property” that can be seized (with fair compensation) by a local government. Or is a patent a Federally granted monopoly right.

Google and the irrelevance of GAAP

Yesterday’s Wall Street Journal Heard on the Street column contained a very interesting quote in its story on Google’s pre-IPO accounting for stock options (as background GAAP is Generally Accepted Accounting Practices — the set of accounting rules that US companies must use in their financial statements):

“On the surface, it makes the numbers look more favorable on a GAAP basis,” said Youssef Squali, an analyst at Jefferies & Co. in New York. But, he said, when comparing Google’s core financial performance to its rivals, “GAAP is the last thing you’d use,” because of the diverse factors, such as options expenses, it takes into account.

If GAAP is the last thing that analysts use for comparing companies, then what is it good for? As the Financial Accounting Standards Board (FASB) puts it:

Accounting standards are essential to the efficient functioning of the economy because decisions about the allocation of resources rely heavily on credible, concise, transparent and understandable financial information. Financial information about the operations and financial position of individual entities also is used by the public in making various other kinds of decisions.

In other words, investors need a clear set of standards with which to judge investment opportunities. The whole purpose of GAAP is to provide a consistent set of financial measures across companies.
When analysts start saying that GAAP is irrelevant to judging a company like Google, then we know our accounting system is clearly broken.
(More later when I publish my paper on Reporting Intangibles.)