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In contrast, innovation economics recognizes that reality is much more complex. With respect to the ‘composition’ and ‘efficiency’ dimensions of the R&D cycle, a major problem is the failure of US innovation policy to divest itself of the ‘black box’ model. The policy point is that each of these technology elements, having different investment characteristics, exhibit different market failure patterns and therefore require different policy responses. Moreover, a majority of trade remains in products, not services, so the manufacturing sector is a serious growth policy issue. And, there is no guarantee that the US economy will maintain a trade surplus in services in the future. There are over 70 varieties of sunflowers and so many colors to choose from. There is evidence of sense organ toxicity. In contrast, an attempt to emulate DoD’s Defense Advanced Research Projects Agency (DARPA) and DoE’s Advanced Research Projects Agency (ARPA-e) role of supporting early-phase technology research (the development of new technology platforms) was the creation of NIST’s Advanced Technology Program (ATP) in 1988. However, ATP was relentlessly attacked by conservatives until the program was finally terminated. Many economies are now compensating for these ‘market failures’ by establishing public-private research partnerships to pool risk, improve the efficiency of R&D, and diffuse new technology platforms more rapidly within domestic supply chains. . These economies are also investing increasing amounts in the supporting technical infrastructure (infratechnologies and standards) to increase efficiency across the R&D, manufacturing, and commercialization stages of technology-based economic activity. Thus, hair growth cycles -makers who suggest that government funding of R&D is wasteful because the resulting technical knowledge spills over to competing economies are ignoring the essential dynamics of global competition; namely, the economy that innovates first and scales up the fastest will likely reap the largest share of the economic rewards because it is a distinct advantage to start out ahead of the competition over multiple life cycles, thereby repeatedly reaping monopoly profits and increasing returns to scale. Today, however, virtually all high-tech companies are focusing more of their R&D spending on applied R&D in order to be competitive in the middle and later phases of technology life cycles, which now afford shorter windows of opportunity than in the past (see Fig. 5). Their central research laboratories are receiving a declining share of corporate R&D investment and an increasing portion of these laboratories’ budgets is allocated to supporting their business units’ applied R&D or assessing external sources of new technologies. . As stated succinctly by Pisano and Shih (2009): … restoring the ability of enterprises to develop and manufacture high-technology products in America is the only way the country can hope to pay down its enormous deficits and maintain, let alone raise, its citizens’ standard of living. Now, instead of companies creating brands and hanging them up like so much window dressing, they had to apply for membership of newly independent, consumer defined brands with names like Green, Fair Trade and Organic. The result is significant ‘free rider’ investment disincentives for individual companies. This complexity requires a significant investment by industry to support standardization, which is used by increasingly large numbers of firms. Finally, technological complexity was sufficiently low so that a single entity (a large R&D-intensive company) could be expected to have at least most of the R&D assets required to independently pursue major breakthroughs. The backward movement of R&D from the original equipment manufacturers to supplier tiers (industries) in manufacturing supply chains greatly increases both the level and complexity of interactions among these tiers. Mission-oriented R&D and subsequent scale-up create a relatively small set of modest-sized markets, with extensions (spinoffs) into much larger commercial markets typically experiencing significant delays. .

As a result, while it continues to adequately fund and thereby lead the world in basic science, it has relied largely on private capital to produce market innovations directly from the resulting science base (e.g. biotechnology) or indirectly through spinoffs from mission agencies’ R&D portfolios (e.g. electronics, materials, IT). Corporations understand the correct technology-based growth model, which is demonstrated in their organizational structure and conduct of R&D: technology platforms are developed in central corporate research labs and the applied R&D (that results in proprietary technologies and ultimately innovations) is then farmed out to the R&D facilities in the company’s line-of-business units. The implications of multiple market failures for technology-based growth policy and thereby the growth potential of a modern economy are depicted in Fig. 6. The ‘black box’ is disaggregated into three technology elements: new technology platforms (also ‘proofs of concept’ or ‘generic technologies’), infratechnologies (and associated standards), and proprietary technologies that are the basis for innovations (the black boxes).

Proprietary technologies are largely private goods, but associated excessive risk and/or time discounting can still lead to underinvestment. Many companies also have dedicated laboratories to assimilate/develop infratechnologies and associated standards (for example, analytical laboratories in chemical and biopharmaceutical companies and metrology labs in semiconductor companies). They are clearly visible within the organizational structure of high-tech companies. Short lead times for suppliers and the integration of new technologies into high-tech service systems require constant interaction between service companies and multiple tiers (industries) in the manufacturing supply chain. Equally important, the jobs created by a technology-driven supply chain are much higher paying-but, they must be sustained over entire technology life cycles to significantly boost to the standard of living. Although the tools and technology to engage in online conversations have certainly evolved, the underlying process is much the same as it was 30 years ago. By integrating electronics industries, Asian economies have taken over increasingly large shares of the value added in electronics products markets.