Public policy to ramp up design thinking

Maybe this will help.
For some time I have been advocating an approach to innovation and problem solving called “design thinking.” Unfortunately, when you say “design” people (i.e. policymakers) think of ascetic and artful creation — not problem solving. But problem solving is exactly what design thinking is all about (see earlier posting).
So I was very pleased to see today’s New York Times story on design thinking and the Standford D.School (officially the Hasso Plattner Institute of Design): “Solving Problems for Real World, Using Design.”
As the story points out, design thinking is an iterative process based on understanding customer needs. Innovation does not follow the old industrial era linear model where basic research leads to applied research leads to technology development leads to product development lead to product demonstration which finally leads to commercialization. Rather innovation is more like a stew – with various elements — technology, business models, financing, organizational structure, marketing concepts — being combined to create the end product. Design thinking is a method of harnessing that process.
And it works. The story highlights one pair of students who sold the company they developed through the D.School to LinkedIn for $90 million. But that is only one example. As the story notes:

In the eight years since the design school opened, students have churned out dozens of innovative products and start-ups. They have developed original ways to tackle infant mortality, unreliable electricity and malnutrition in the third world, as well as clubfoot, a common congenital deformity that twists a baby’s feet inward and down.

Here is the really hopeful sign: “Sarah Stein Greenberg, a alum and managing director, says she receives inquiries every week from universities looking to mimic the curriculum.”
So let’s give that effort a kickstart. For example, the Obama Administration has proposed a National Network for Manufacturing Innovation with up to 15 Institutes funded at up to $1 billion. At least one of those Institutes should be devoted to manufacturing and design thinking (see earlier posting). The proposal by ITIF to create 20 programs on manufacturing in major universities should be expanded to include at least 5 d.schools (see earlier posting). We already have an NSF program to create and fund Engineering Research Centers (ERCs) in a number of areas; we should create one for design thinking. We should expand the Manufacturing Extension Partnership (MEP), EDA and SBA services to explicitly include design thinking (assistance in indentifying and managing intellectual capital). We have numerous programs to help fund STEM education. How about a few to support design thinking, especially in K-12?
These are but a few places where public policy can promote and support design thinking. With all the focus on “innovation”, maybe we need to get back to what that term really means. Innovation is about solving real problems in the real world. And design thinking is an important way of reaching that goal.

Big GDP revision for intangibles

A surprise announcement by the BEA this morning that US GDP actually grew by 4.1% in the 3rd quarter of 2013. The earlier revised estimate published earlier this month showed the GDP growth rate at 3.6% – itself an upward revision of the advanced estimate of 2.8%. The good news is that consumer spending looked healthier than previously reported.
The really big news is that investments in intellectual property products (i.e. research and development; entertainment, literary, and artistic originals; and software) was revised upward to an impressive 5.8%! According to the BEA’s analysis of the previous (second) estimate, most of the growth in this category was due to great investments in software, pri­marily prepackaged software. That analysis seems to hold up for the new data as well. Investment in R&D was up only slightly while investment in entertainment, literary, and artistic originals declined slightly.
IPP percent 3Q13 -3rd.png

November employment

November looks like has been a relatively good month for the US labor market. This morning, the BLS announced that total nonfarm payroll employment grew by 203,000 and the unemployment rate dropped by 0.3% to 7.0% in November. This is far better than economists had expected; they had forecast job growth of only 185,000 with an unemployment rate of 7.2%.
The other good news is that the total number of involuntary underemployed (part time for economic reasons) dropped to a level we have rarely seen in the past 4 years. Both the number of those on slack work and the number of workers who could only find part time work dropped. involuntary underemployment is still well above pre-Great Recession levels.
Involuntary underemployed November 2013.png

Revised 3Q GDP and intangibles

BEA has revised its estimate of economic growth up significantly this morning. The second estimate of the 3rd quarter GDP now shows that the U.S. economy grew 3.6% compared to the advanced estimate of 2.8%. Economists had been expecting a slight upward revision to 3.1% or 3.2%. Much of the upward revision was due to a greater increase than earlier estimated in private inventory. While the higher level of growth is welcome news, the inventory build up is not so good news. Unless demand also picks up, higher inventories mean a slowdown in production later on to reduce the inventory overhang.
The good news is the business investment was revised upward from a growth rate of 3.5% from the advanced estimate of 1.6%. That improvement was due to a significant upward revision of equipment investment from a -3.7% to 0.0%.
However, the growth in investments in intellectual property products (i.e. research and development; entertainment, literary, and artistic originals; and software) was revised downward. Last month’s advanced estimate of the growth in this area was 2.2%. That has now been revised to 1.7%. Still, that is better that the decline of 1.5% in the 2nd quarter.
IPP percent 3Q13 -2nd.png

October trade in intangibles

This morning’s trade data for October shows the deficit declining by $2.4 billion to $40.6 billion. Exports were up by $3.4 billion to a record level of $192.7 billion while imports grew by only $1.0 billion to $233.3 billion. The drop was about what economist had expected; they predicted a deficit of $40 billion. The deficit declined in both petroleum and non-petroleum goods.
Our trade surplus in pure intangibles also improved, rising to $16.1 billion as exports grew faster than imports. [Note: while this is the same level as reported last month, it is an increase over the revised data for the past 6 months released today.] Exports of business services grew faster than imports and royalty receipts (exports) were up more than royalty payments (imports).
Unfortunately, our Advanced Technology deficit grew again in October by $1.7 billion to $9.8 billion. There was an increase in life sciences and opto-electronics imports coupled with a slowdown in aerospace exports and an increase in aerospace imports. The key sector of information and communications technology remained roughly the same as last month.
Advanced Technology goods also represent trade in intangibles. These goods are competitive because their value is based on knowledge and other intangibles. While not a perfect measure, Advanced Technology goods serve as an approximation of our trade in embedded intangibles. Adding the pure and embedded intangibles shows an overall surplus of $6.3 billion in October, compared to $7.8 billion in September (revised).
BEA’s October release also revises the data for the past 6 months. Exports of business services were revised downward by $100 to $200 million per month and imports revised downward by over $500 million per month (slightly over $300 in April). As a result, the surplus in business services was revised upward. However, royalty payments (imports) were revised upward and royalty receipts (exports) revised downward so that the royalty surplus was revised downward. The result was a revision upward in the overall intangible surplus.
While the changes only amount to a 1.5% change at most, this revision changes the dynamics of the surplus. The surplus actually shrank slightly in July and August while growing in September. The previous data showed just the opposite.
Intangibles trade-Oct13.png
Intangibles and goods-Oct13.png
Oil goods intangibles-Oct13.png

Note: we define trade in intangibles as the sum of “royalties and license fees” and “other private services”. The BEA/Census Bureau definitions of those categories are as follows:

Royalties and License Fees – Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term “royalties” generally refers to payments for the utilization of copyrights or trademarks, and the term “license fees” generally refers to payments for the use of patents or industrial processes.

Other Private Services – Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term “affiliated” refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise’s voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.