Shifting jobs in high-tech

Today’s Wall Street Journal reports: “Market Is Hot For High-Skilled In Silicon Valley”. But, as the story explains, the news is not so good for lower-skilled tech jobs:

Past tech recoveries tended to bring new lower-skilled jobs as well as high-skill jobs. This time, tech firms — from big companies like Hewlett-Packard Co. to mid- and small-size firms such as Netflix, Adobe Systems Inc., and SanDisk Corp. — have moved lower-skill jobs out of the Silicon Valley area to cheaper locations, or outsourced them to foreign countries. The new jobs they are creating locally often require specialized skills in engineering and design. Young companies like Google Inc. are simply starting out hiring at the high end, further shifting the overall balance.
A study last month by Joint Venture Silicon Valley, a nonprofit group representing businesses and government agencies in the area, found the nation’s tech capital had a net increase in jobs in 2005 for the first time in four years. Most of the growth came in the category of creative and innovation services, including firms in research and development, scientific and technical consulting and industrial design. In total, the number of Silicon Valley jobs in these areas grew 4% from 2002 to 2005, reaching 72,734. At the same time, the number of jobs in electronic-component manufacturing — which tend to involve assembly and other repetitive tasks — dropped 28% to 23,772, while jobs in semiconductor-equipment manufacturing fell 23% to 58,133.
Overall, 14% of all the jobs in Silicon Valley today belong to a sector called core design, engineering and science. That exceeds the comparable 9.3% slice of the work force in Austin, Texas; 8.7% in Seattle; and 8.3% in San Diego, according to the study.
Doug Henton, an economist and co-author of the report, says with the growth in these creative engineering jobs, a new face of Silicon Valley is emerging. “Ten years ago, this was an engineering Valley that pumped out chips and computers,” he says. “Now it’s all about creative tech and staying on the cutting edge.”

It is true that Silicon Valley is famous for re-inventing itself with each new technological wave. But, as the story points out, there is a downside:

What’s more, as operations and lower-skill tech jobs leave the region, Silicon Valley has a narrower base of industries. That makes the area more vulnerable should another downturn occur, says Steve Levy, an economist at the Center for the Continuing Study of the California Economy in Palo Alto, Calif. “Los Angeles has a far more diverse economic base, with Hollywood, biotechnology, plastics and toys,” says Mr. Levy. “But high-skill tech is all we’re left with.”

(FYI – the full study is available at the Joint Venture website).
The so-called “creative/innovation sectors” are key to economic prosperity in the I-Cubed Economy. But so are operations – which can also be innovative and creative.
And, as operations moves elsewhere, so will the “creative/innovative” sectors. This is exactly what is happening as China and India ramp up their design capabilities.
So — good news that jobs are growing again in Silicon Valley. Bad news that they are growing in such a narrow base.

GDP revisions – and intangibles trade

BEA released its preliminary GDP numbers for 2005 and the 4th quarter of 2005. [Note: BEA releases an “advanced estimate” at the end of a quarter, then a revised “preliminary” figure a month later, and then a “final” number a month after that.]
The GDP growth rate for the 4th quarter was 1.6% — slightly better than last month’s estimated 1.1%. According to BEA the reason for the revisions are as follows:

The preliminary estimate of the fourth-quarter increase in real GDP is 0.5 percentage point, or $14.1 billion, higher than the advance estimate issued last month. The upward revision to the percentage change in real GDP primarily reflected upward revisions to exports, to federal government spending, to equipment and software, and to change in private inventories that were partly offset by an upward revision to imports.

The preliminary real GDP increased 3.5% 2005 (the same as last month’s advance estimate.) Real GDP grew by 4.2% in 2004.
As I discussed in my earlier concerns about what happened to growth, the advanced estimates showed a slow down in services trade. The revision show a continued weakness in services trade. The same is partly true for trade in intangibles. My analysis of the intangibles trade surplus shows an increase in our intangibles surplus in October of $57 million, a decline of $1 million in November, and an increase of only $22 million in December.
Thus, the weakness in our trade in intangibles continues.

Blocking . . . – an update

An update on the previous posting on the controversy over the refusal to grant a visa to an Indian scientist – Washington Post – U.S. Approves Visa for Indian Scientist:

State Department officials said yesterday that the U.S. Embassy in New Delhi has granted a visa to a prominent Indian scientist who said he was accused of deception and potential links to chemical weapons production when he applied to a U.S. consulate. Goverdhan Mehta said he was told two weeks ago that his visa had been “refused” and that his expertise in chemistry could be a threat to U.S. national security. The case caused a furor in India just days before a visit by President Bush next week that is aimed at building warmer ties between the world’s two largest democracies.
Goverdhan Mehta said he was told two weeks ago that his visa had been “refused” and that his expertise in chemistry could be a threat to U.S. national security. The case caused a furor in India just days before a visit by President Bush next week that is aimed at building warmer ties between the world’s two largest democracies.
Reached at his home, however, Mehta said that he had already canceled his travel plans and declined a visiting professorship at the University of Florida in Gainesville. He said the issuance of a visa will not change his decision.

A reversal of the visa decision is all well and good. But the real issue is a revamping of the process that led to that decision. Where is the State Department announcement that it is reviewing procedures?
Without that, it is like a driver who hits your car, apologizes, pays for the damage and speeds off at 100 mph. Nothing has changed.

Falling incomes

Breaking news from the Wall Street Journal – Fed Study Finds Drop In Household Incomes:

Average U.S. household incomes fell in the 2001-04 period after adjusting for inflation, and growth in household wealth slowed sharply from the previous three years, according to Federal Reserve data released Thursday.
The Fed’s most recent Survey of Consumer Finances shows real average household income shrank in the latest three-year period covered after growing by more than 10% in both the 1998-2001 and 1995-98 periods.
Average household net worth still rose 6.3% on an inflation-adjusted basis, “however, the measured gains in wealth in the 2001-04 period pale in comparison with the much larger increase of the preceding three years,” according to a summary of the Fed survey results.

Like, duh, this is news? Tell me something I didn’t already know.
Ok, please forgive the sarcasm. But can we now stop the “everything is just fine” rhetoric and get on with the task of crafting solutions?

Blocking the flow of information in the information age

Study after study after study tells us that one of the most important channels of information flow is face to face contact. That is why contact among scientists is so important. And, as many (including the critics of the current push for more research funding) have pointed out, the ability to absorb scientific knowledge is key to our economic prosperity — knowledge from everywhere and anywhere.
But somehow that message hasn’t filtered down through the bureaucracy – where foreign scientists are seen as “threats.” For example, as related in today’s Washington Post – Scientist’s Visa Denial Sparks Outrage in India:

A decision two weeks ago by a U.S. consulate in India to refuse a visa to a prominent Indian scientist has triggered heated protests in that country and set off a major diplomatic flap on the eve of President Bush’s first visit to India.
The incident has also caused embarrassment at the highest reaches of the American scientific establishment, which has worked to get the State Department to issue a visa to Goverdhan Mehta, who said the U.S. consulate in the south Indian city of Chennai told him that his expertise in chemistry was deemed a threat.
. . .
The scientist told Indian newspapers that his dealing with the U.S. consulate was “the most degrading experience of my life.” Mehta is president of the International Council for Science, a Paris-based organization comprising the national scientific academies of a number of countries. The council advocates that scientists should have free access to one another.
. . .
State Department spokesman Justin Higgins denied yesterday that the United States had rejected Mehta’s visa and said the consulate had merely followed standard procedure in dealing with applicants with certain kinds of scientific expertise.

I can understand that our security officials are concerned that terrorists with a high degree of technical knowledge might try to enter the US to direct an attack. But surely our procedures should be able to differentiate between those individuals and a distinguished scientist. More in the grey area are all of the foreign graduate students who are finding it more and more difficult to enter the US.
In the information age, the US needs to keep its borders open to the flow of information through all channels – including people to people. Just as I have argued before about patents (which have the potential to restrict the flow of information and innovation), our future economic prosperity demands that we need to get our border security procedures right. This is another reason why our current push for competitiveness legislation needs to encompass the broad issues — not just the narrow issue of R&D funding. There are too many important parts to this puzzle to take the narrow view.

The good, the bad and . . .

The good news is that the competitiveness debate has been re-ignited in Washington. After years of neglect, the issue is back on the table and politicians are vying with one another to be associated with the latest round of competitiveness proposals. Likewise, the interest groups are gearing up for a big push. For example, the Council on Competitiveness is running a major ad campaign: “Where in the World Will the Next Big Idea Come From?”
The bad news is that the debate is in danger of becoming a narrow science funding issue – limited to additional funding for physical science and math and science education. Already the perspectives are being drawn in and some of the more interesting parts of the proposals – such as the creation of a Presidential “National Innovation Council” that would keep the agenda alive and a re-orientation of the Manufacturing Extension Partnership (MEP) program toward innovation – are in danger of being completely ignored.
Such a further narrowing of the debate is regrettable. As I’ve mentioned before, the current competitiveness proposals are already more narrow than they should be – focused on technological innovation rather than a broader view of innovation. For example, the issue of product design and new product development is almost completely missing from discussions. As the field of mechanical engineering is doing through a revival as a key part of design, there are no proposals being offered to help that process.
Likewise, the entire linkage between math/science and the arts is missing. Not even a nod of the head to the importance of the “creative class” outside of scientists and engineers. All this ignorance comes at time when educational institutions, from top to bottom, are leaping into the convergence between arts and science. As a recent story in Inside Higher Ed“A Call to Arts” relates:

Sean Buffington, associate provost for arts and culture at Harvard University, says that “some of the hungriest consumers of the arts happen to be scientists and mathematicians.” The university, he says, is currently in the planning stages for a range of arts and cultural facilities in Allston, the site where Harvard plans a major expansion of science facilities and programs. The Allston plans, says Buffington, reflect the convergence of arts with other disciplines.

Even that bastion of technology down the street from Harvard has discovered the synergy with
“Discover Arts at MIT”:

I came to MIT for engineering…and found art.
“Discover Arts at MIT” is a lively introduction to the people, programs and passions that make the arts at MIT a vital and thriving force. In this 9-minute video presentation, you’ll meet some of the students, faculty and alumni who make up MIT’s fascinating arts community. You’ll also get an inside look at some of the ways–from ballroom dancing to “beat bugs”, from gamelan to glass-blowing–that the arts are widely practiced and celebrated here.

According to Inside Higher Ed:

MIT, in fact, now offers what some in the field have deemed a “model public art program.” This week, for instance, students organized a runway fashion show titled “Seamless: Computational Couture,” which highlighted an array of “technologically experimental” clothing created by students from MIT and several other universities. The project, according to student organizers, was intended to “interpret the conceptual goal of a seamless relationship between technology and fashion.” One creation by Diana Eng, a student at the Rhode Island School of Design, called a “blogger hoodie,” stylistically incorporates a heart rate monitor and camera. The camera takes pictures when one’s heart rate reaches a certain level, and is intended as a fashionable way to capture “involuntary blogging.”

And, of course, the Stanford d-school is a collaboration of engineering, art and business.
Out in the real world – if you can call academia the real world – people at the cutting edge understand the linkage between S&T, the arts and innovation. It is time for Washington to understand this as well — and push for a broad competitiveness policy. If we narrow the agenda to just S&T, we miss an important opportunity to address our real economic challenges.
– – –
And there is also an ugly side to the debate in that some are still stuck in a “what, me worry?” mode. There are many folks in Washington who either don’t believe that there is competitiveness problem or that the government has any role to play in the solution. Luckily, they seem to be in the minority right now. But they still have power to block new proposals. So this latest skirmish in the competitiveness battle is far from over.

Attracting talent in DC

As I discussed yesterday, talent and skills — often referred to as human capital — is an obvious key intangible asset. Given a boost by Richard Florida’s Creative Class, the idea of attracting talent to an area as part an economic development strategy has been slowly growing. Going beyond technology-based economic development (a narrower version based on attacking S&T resources), this concept is best articulated by my friend Joseph Cortright in his paper, The Young and Restless in a Knowledge Economy. Cortright argue that:

Nationally and locally, we’ve taken a ready supply of workers for granted. In the future, companies and regions will do so only at their peril. Already, signs of shortage are emerging in industries and occupations that depend on highly-skilled, long-tenured employees: nursing shortages are widespread, skilled manufacturing workers are in tight supply and the entire utility industry faces a huge brain drain in the years ahead.
The college-educated 25 to 34 year-olds we call the Young and Restless are a critically important factor in the response to this change. Because they are well-educated, adaptable, mobile and relatively inexpensive, they represent a critical resource for companies looking to expand. They are the part of the so-called creative class that is up for grabs.
And talented young adults are not simply workers. They are also more likely to be entrepreneurs, forming the next generation of growth companies that power metropolitan and national growth.

Now he has turn this analysis on an area I have personal familiarity with – Washington DC. In a recent op-ed in the Washington Post, Wanted: The Young and Restless, he and his co-author state:

data from the 2000 Census show that this city’s [Washington] close-in neighborhoods have a higher level of college attainment than in most other close-in neighborhoods in large U.S. metropolitan areas — higher than Atlanta and much higher than fast-growing Phoenix or Las Vegas.
More than 65 percent of the 25- to 34-year-olds living within three miles of the center of the region (measured from the White House) have a four-year degree or higher level of education, a rate only slightly lower than for close-in San Francisco (67 percent) and significantly higher than hip Seattle (56 percent).
City planners in the District clearly appreciate the significance of vibrant neighborhoods, showcased by the new theaters and shops downtown as well as the city’s marketing campaign “City Living, D.C. Style.” Walkable destinations, lively commercial districts and interesting streets are attractive to the Young and Restless. Good public services, including transit and parks, can also make close-in neighborhoods more appealing.
The ability to capture these young people is already playing an integral role in some cities’ economic success. Booming metro economies such as Charlotte, Austin, Atlanta and Portland, Ore., have increased the number of college-educated adults about five times faster than the nation as a whole. Cities that are losing young college graduates, such as Hartford, Conn., and Rochester and Buffalo, N.Y., are struggling.
So whether the census numbers are right or wrong may not be as important to cities as it used to be. What’s clear is that cities will succeed or fail depending on how much they appeal to this talent-rich pool. And if the number of cranes dotting the D.C. skyline and the still-hot housing market are any indicator, the city continues to position itself well in the race for talent.

I understand and agree with Cortright’s point of view — up to a point. In addition to running this think-tank – Athena Alliance – I am a local DC politician. In fact, I currently serve as chair of the campaign of a friend of mine who is running for City Council using the slogan of a “livable, walkable community.” However, where I disagree with Cortright and others is about outside versus inside talent. Right now the problem with DC is not its ability to attract outside talent. As he points out, we are doing well on that score. Where we are falling down is in our task of developing the talent of those already here. In the same issue of the Post that his op-ed appeared, the front page had the second in a two part series of stories on the failure of the District’s unemployment and training system (see part 1 and part 2).
A few years ago, Brookings economist Alice Rivlin took a careful look at DC economic future. Ms. Rivlin knows DC intimately, having served as chair of the congressionally mandated Control Board, which took over the bankrupt city in the 1990’s. In a 2001 paper, Envisioning a Future Washington she argues that there are two ways to increase the population and income base of the city. The first is “The Adult Strategy: More Middle- and Upper-Income Singles and Couples.” In this strategy, city attracts young talent (“the young and the restless”) and wealthy retirees (who enjoy the city amenities and don’t want the work of the large suburb house anymore). This strategy has numerous benefits for the city: an extremely positive impact on the city’s tax base and revenue, bring new residential property onto the tax rolls, increase the value of existing real estate, improve profitability of new and existing neighborhood businesses create new jobs in the retail, entertainment, and personal services sectors, decrease unemployment rates and make the city more livable and attractive for both current and new residents by increasing the potential clientele for restaurants, shops, and entertainment venues.
This strategy has a downside as well:

However, by itself, the adult strategy poses a serious risk of exacerbating racial and class tensions and widening the gulf between rich and poor in the city. Some lower-income residents would benefit from additional employment and more profitable neighborhood businesses, and find themselves owners of more valuable houses. But higher property taxes on those more valuable houses and rising rents might drive low-income people, particularly those without subsidized housing, out of the city unless strenuous efforts were made to enable them to stay. While some ethnically diverse neighborhoods would prosper, gentrification of lower-income neighborhoods could increase tension and resentment. Long-time residents might fear that newcomers lacked lasting commitment to Washington and would not be likely to fight for better schools or help for low-income families.

The other scenario is “The Family Strategy: More Middle-Income Families with Children.” In this scenario, the city rebuilds its middle class – especially families with school-age children. Rivlin warns that the family strategy will be more difficult for the city:

The family strategy puts more stress on the city’s budget than the adult strategy. These families may not have earnings as high as the families without children, and they require more public services. The District would have to put substantially more resources into improving the schools, subsidizing housing, and providing recreation and other services important to families with children. Indeed, these costs would add up to considerably more than the additional revenue brought in by increased income, sales, and property taxes attributable to middle-income families.

But the benefits may be greater:

A successful family strategy would boost the demand for neighborhood services and the payrolls and profitability of the businesses (such as grocery stores and family restaurants) providing them. Rebuilding the population of middle-income families and improving the effectiveness of education holds the promise of creating neighborhoods with a strong sense of community, whose residents are committed to remaining in the District, participating in its political processes, and working to improve the city and its institutions.
A family strategy might not widen the gulf between affluent and lower-income groups in the city as much as the adult strategy, because it would fill in the middle.

Of course, these are not either/or choices. As Rivlin points out:

These extremes–either an “adult only” or a “families with kids only” policy–are worth discussing merely to make the point that Washington needs to pursue both strategies at once. The primary objective should be making the city an attractive place for a diverse population to live and work. That requires policies designed to attract and retain a mix of residents, including adults and families with children.

But this discussion is an important reminder that fostering economic prosperity in DC, as elsewhere, will require paying attention to all segments of the population. In yesterday’s post, I referenced Richard Florida’s recent Newsweek article where he states:

Leaders must understand that economic competitiveness hinges on developing the full creative capabilities of the store clerk and landscape laborer as well as the computer scientist.

In DC, we need to do as good a job developing the creativity of our store clerk and landscape laborer – and unemployed – as we are doing in attracting the young and restless. The two go together, with each wing powering our economic flight.

Expanding the Creative Class

One of the often cited dangers of our economic trajectory to the I-Cubed Economy is the creation of a society of have and have-nots. Those with the skills/talent/knowledge to succeed will prosper in this “brainwork” economy while those involved in less intellectually challenging (and more physical types) of activities will not. The great middle class, created by well paying manufacturing jobs, will disappear.
But that scenario need not occur. As I have often argued, all jobs require some creativity and level of tacit knowledge. It all depends on how we structure the activity. If we “dumb-down” jobs, we will loss the creative potential of the workers engaged in that activity; if we “smart-up” jobs, we open the door for greater innovation and productivity.
As Richard Florida has said, the next big challenge for the Creative Society is to bring in those millions of workers who are struggling in this economy. Now Florida has written a more extensive discussion of that idea in Newsweek – “The Secret to Future Growth”:

Equally important [to the creative sector] will be the continued expansion of the service economy, where more than 5 million new jobs will be added, including retail salespeople, customer-service representatives, janitors, waiters and landscapers. Because these jobs pay a third of those in the creative economy, and half of those in the declining manufacturing sector, this trend is generally seen as a danger sign, a signal that the labor market is cleaving into two classes: high-skilled, high-paying creative work and much-lower-paying service work. The general consensus is that the only way to raise wages for these jobs would be with massive government intervention.
But a new generation of service companies is discovering that increasing pay and improving working conditions can add significantly to the bottom line. A good example is Best Buy, which employs 90,000 people and is the largest specialty retailer of consumer electronics in the world, with annual sales of some $25 billion. Taking a page from Toyota’s much-lauded management system, employees are encouraged to improve upon the company’s work processes. Small changes suggested on the salesroom floor—a teenage sales rep’s reconception of an Internet phone-calling display, or an immigrant salesperson’s proposal for ways to target advertising and service to non-English-speaking communities—have been implemented across the company, generating millions in added revenue. Best Buy likes to grow from within so motivated employees are able to move quickly from in-store sales to retail management, where pay increases substantially
This retail revolution provides a model for turning service work into stable middle-class jobs. Thriving companies such as Best Buy, Starbucks, Whole Foods, REI, and the Container Store dominate lists of the best places to work. Many of them are increasing pay and benefits and making their work environments more stimulating. At the Container Store, for example, the typical hourly worker earns $29,277 a year, or 50 percent more than the U.S. retail industry average. They’re doing this not out of altruism, but to increase productivity and profit.
Of course there is more to do. The service economy, particularly fast-growing personal-service fields like haircutting and landscaping, is dominated by small and medium-size companies who are unable or unwilling to upgrade pay and working conditions. The “on-ramps” that better-paying service jobs can provide remain too few and far between. The leaders in Davos must understand that economic competitiveness hinges on developing the full creative capabilities of the store clerk and the landscape laborer, as well as the computer scientist and the architect. And they should look beyond the tech sector for models.

Many of these are what I call “tangible service” jobs — jobs that primarily involve the physical manipulation of matter rather than “intangible service” jobs which primarily involve the manipulation of information. There is no reason, however, that physical manipulation of matter needs to be separated from use of information and knowledge, especially tacit knowledge. The Taylorist model of physical production is not necessarily the best.
Already we can see that a number of these jobs are part of the creative economy — depending on how you structure them. For example, a barber might be seen as a traditional service job; a high-priced hair stylist is certainly part of the creative economy. So expanding the creative economy is a much a mindset problem as an economic one. People must realize that the phrase “our employees are our most important asset” is more than a nice slogan — and that it applies to everyone, from the CEO to the janitorial services. Once that mind shift occurs, the creative economy will expand rapidly.

Focus on innovation, rather than invention

John Hagel and John Seely Brown have written a telling critique of our current innovation plans in Business Week – Funding Invention Vs. Managing Innovation

George W. Bush’s proposal to increase federal government R&D spending is revealing on two levels. It suggests a growing sense of urgency about the need for the U.S. to strengthen its innovation capability. At the same time, it provides insight into the mindsets that are making the U.S. more vulnerable to global competition.
While executives of large Western companies and policy-makers of Western governments continue to view innovation through 20th century lenses, entrepreneurial companies in Asia are harnessing the opportunities of the flat world to pursue broader forms of innovation appropriate for the 21st century.
In the West, we still confuse invention with innovation. Even worse, we tend to focus narrowly on breakthrough technology or product invention — that’s what really gets the adrenaline going. Anything else is marginal and uninteresting.

They go on to say:

In the 20th century, scale and efficiency became key sources of economic value. Companies spent a lot on R&D and standardized and automated the rest of their operations, constraining opportunities for creativity outside the lab. As competition intensified, companies squeezed their R&D budgets in the quest for cost savings, while still looking for the “silver bullet” that would insulate them from competitive pressures. Given that mindset, it’s understandable that CEOs hammer on the government to spend more to help them find the next breakthrough.
But if we shift our attention from invention to innovation, we begin to see a much broader horizon. Innovation — the ability to create and capture economic value from invention — is what really drives both the economic prosperity of nations and the shareholder value of corporations.
Innovation isn’t just confined to commercialization of new products. It can also build upon creative new practices, processes, relationships, or business models, and even institutional innovations such as open-source computing — invention occurs in all these domains. And while breakthrough innovations can generate significant economic value, sustaining that value requires a capacity for continual incremental innovations.

Agreed, but unfortunately Hagel and Brown offer us only generalizations as solutions:

There’s now an opportunity to connect with creative talent wherever it resides and build relationships that enable all parties to innovate more rapidly and to get better faster by working with each other. Fully exploiting this opportunity will require a fundamental re-think of our approach to mobilizing resources, creating much more scalable pull platforms to support large numbers of participants, in place of the push approaches that constrain our innovation opportunities.
Of course, this is a very different vision from the one embedded in the proposal to increase federal spending on R&D programs. Rather than centralizing spending on a national level, this vision sees the potential created by more distributed approaches to innovation management on a global level. If Western executives don’t embrace this vision more aggressively, they will become increasingly vulnerable to competition from companies that do. No amount of spending on R&D by Washington will save them from this fate. Only a shift in mindset will.

Far be it for me to downplay the need for a mindset shift; I have been calling for a shift in mindset for years. But such a shift also requires a shift in practical actions. This is where the vision falls short. For example, are Hagel and Brown calling for increased offshoring of R&D? Or better mechanisms for small and medium size companies to tap into the knowledge crated in other nations? What would a “distributed approaches to innovation management on a global level” look like? And how does it produce incomes and jobs in the United States?
I realize that these are not questions that they may have the answer to immediately. But they are the type of questions that need to be answered before we buy to much more into “the vision.” It is time to move from generalities to specifics. I hope that is their next article.

Patents and innovative evolution

The normal argument for patents is that the exclusive rights granted by patents are needed to provide the financial incentives required by the innovators. That argument is often juxtaposed with the concern that these exclusive rights are a monopoly power that may impede future innovation.
The latter argument is hinted at in a remark by MIT Finance Professor Andrew W. Lo, a true Wall Street “rocket scientist.” Dr. Lo is the director of the MIT Laboratory for Financial Engineering. Business Week describes his research:

One of his projects is an attempt to incorporate evolutionary psychology and evolutionary dynamics into modern finance with his Adaptive Market Hypothesis (AMH). In essence, AMH argues that investors use trial and error to establish rules of thumb in the markets. Their skills improve as they climb a learning curve, and then, inevitably, they confront changes in the market that render some strategies obsolete. The survivors innovate, and come up with new ways of making money.

In a recent interview with Business Week – Online Extra: “Economists Suffer from Physics Envy”, Dr. Lo made an interesting side comment about patents:

Q: You think Charles Darwin’s ideas about evolution, natural selection, and the like apply to the financial markets?
A: Yes. For instance, the hedge-fund industry is the Galapagos Islands — where Darwin [developed the idea of] evolution — of finance. Because of the lack of patents, speed of innovation, and the ruthlessness of competition, we can see evolution in the hedge-fund industry. It looks nothing like it did five years ago.

In other words, the lack of patent is a factor in the industry’s ability to evolve, i.e. innovate. If Dr. Lo’s Adaptive Market Hypothesis is a specialize version of a “general theory of innovation” (which I think it may be), then we need to think very carefully about how the patent system stands as a barrier to (rather than a facilitator of) innovation.