Technology is about ideas for getting our jobs done better. Technologies emerge through invention and grow, having an S-curve-like lifecycle. Along the way, they fuel the innovation of goods and services in helping us improve the quality of living standards and create and kill jobs. Like living things, they mature, and new generations take over as a creative wave of destruction. Through the process, innovations keep evolving in episodic form, creating new firms and jobs and destroying matured ones. Besides, the unfolding of reinvention causing disruptive innovation effect also migrate innovation epicenters across the boundaries of firms and industries. Hence, despite technologies’ positive impact on wealth creation, their transformational effects are often painful. Besides, the technology race also leads to the accumulation of market power, resulting in a slowdown of innovation. Therefore, technology policy matters for maximizing and sustaining gain while minimizing loss.
Historically, technology development and exploitation used to be the creative and profit-making acts of individuals and firms. But over the three centuries, technology development and exploitation have been defining prosperity and jobs at the national level. For example, the steam engine and mechanical engineering advancement and exploitation created wealth for the UK and Europe. Subsequently, America’s fortune came from innovations in electricity. The invention and the subsequent advancement and exploitation of the Transistor created the 3rd industrial revolution. As a result, over the 300 years, prosperity gaps between nations have been increasing. And the unfolding of the 4th industrial revolution out of machine intelligence technology has started another round of significant transformation.
Technology has become the cornerstone of economic development and jobs. Hence, technology is too important to be left to the profit-making initiatives of creative minds. We need the increasing role of policy in its governance.
Technology invention and scaling up:
Unlike the past trial and error approach, technology invention requires basic research. Often such basic research is beyond the profit-making appetite of private enterprises. For example, transistors, lithium-ion batteries, electronic image sensors, LCDs, and many more were invented in well-funded research facilities.
Furthermore, for scaling up, they need a flow of ideas that originates from the advancement of the underlying science. For example, the progression of Transistor into VLSI chips, giving birth to Moore’s law, is supported by the application of knowledge of quantum mechanics. However, we credit Intel, TSMC, and ASML, among others, for this contribution; their achievement is based on quantum mechanics. Long before the invention of the Transistor in 1947, quantum mechanics was developed through the contributions of numerous scientists. Invariably, Government funding contributed to the formation of the science base. Similarly, Electrical science forming the base of Electrical Engineering and technology-fueled the innovation out of electrical technology, creating the 2nd industrial revolution. On the other hand, the science base developed by Newton and others created mechanical engineering and thermodynamics, fueling the 1st industrial revolution.
Hence, the formation of a science base and profit-making competition leveraging it through technological invention and refinement play a vital role. Therefore, technology policy should look into how to form a science base and its leveraging through profit-making competition.
Technology policy for nurturing and creating a market at the early stage:
Irrespective of their greatness, all technological inventions appear in an embryonic form. Innovations out of them in their infancy are primitive. For example, a 5MB hard disk emerged as a 1-ton machine. Similarly, a roomful of computer had little computational power in the 1950s, and the user unit of a cellular phone in the 1950s used to weigh 40 kg. Invariably, ordinary civilians do not find them suitable for getting their jobs done. But, in many cases, military and government agencies find them relevant to improve how they perform their jobs. Hence, public procurement playing a vital role in helping innovation out of the early days of inventions is crucial to their growth to unleash latent potential.
But such public support runs the risk of creating rent-seekers. Hence, public procurement of primitive innovations should encourage performance improvement. For example, Danish Government has been supporting wind energy with the clause of performance improvement. Similarly, the Chinese Government has linked subsidies for electric vehicles with the advancement of the underlying battery technology core. Therefore, technology policy should support the market creation of innovations of emerging technologies with the incentive for performance improvement.
Adoption demand a balance in technology policy:
Often, we think that increasing technology adoption has a natural correlation with economic growth. But technology adoption faces several challenges. First of all, at the intersection of two waves, the policy of technology adoption runs the risk of making errors. As the rise of emerging waves and maturity of incumbent waves are fraught with pervasive uncertainties, the policy of switching to the next faces dilemma. For example, the electric vehicle (EV) shows the possibility of taking over gasoline. Does it mean that we should start developing infrastructure to develop the electric vehicle charging stations?
But if the rising wave of EVs saturates before taking over the gasoline one, the investment runs the risk of being wasteful. Similarly, if we overlook the development of EVs and keep investing in gasoline-based transportation, we might be late in benefiting from emerging better technology options. Besides, the rise of hydrogen-based automobiles adds further complexity to policy decisions.
The next one is about the implication of technology adoption on value addition capability, competitiveness, and jobs. For example, automation improves quality, reduces wastage, and lowers costs. But invariably, it minimizes the role of human labor in production. Hence, countries having labor-based competitiveness should maintain a balance between technology adoption and local value addition. For example, the adoption of autonomous vehicles can reduce accidents, resulting in lower deaths, injuries, and damages. But it will also create unemployment. Furthermore, the delegation of roles of perception and decision-making from humans to machines also raises the issue of shifting liabilities of accidents and erroneous functions.
As explained, technologies do not keep growing linearly. Instead, it takes place in episodic form. At the intersection of two waves, the investment runs the risk of being wasteful. How to minimize it is a technology policy challenge.
Intensifying competition and dealing with market power:
It’s well understood that competition is at the core of the rapid progression of technologies, making innovations around them increasingly better and cheaper. Hence, the market economy favors the policy of profit-making competition out of ideas. To take advantage of it, competitors keep increasing R&D investment, resulting in growing capital expenditure. But the marginal cost of implementation of research outputs is negligible. Besides, it also keeps expanding the quality and reducing the cost. Notably, this effect takes intense form once ideas find implementation in software form, as the cost of copying software is zero.
Besides, the addition of certain features creates network externality effects, resulting in growing perceived value with the customer base. Besides, competition takes further advantage by reusing common assets among a group of products, creating a scope advantage. Hence, there is a growing natural tendency for monopoly in technology innovations. As a result, the market economy suffers from the limitation of maintaining competition due to intelligent firms’ accumulation of market power.
To counter it, invariably, regulation fails due to the risk of throttling innovation and information asymmetry. It appears that the solution lies in nurturing the next wave out of reinvention for creative destruction. Hence, technology policy needs to have a deeper understanding of the science and how to nurture latent potential through the fueling of waves of creative destruction. Furthermore, the intersections of two waves caused by reinvention lead to disruptive innovation. As a result, innovations migrate. Hence, technology policy should look into the advantage of reinvention instead of suffering from it.
Migration of innovation epicenters due to reinvention creates major technology policy issues:
Incumbent firms or inventors tend to remain busy with the profit-making business of mature products. As a result, they fail to pursue reinvention to create a new wave. Often, new entrants take advantage of it and chase the reinvention wave. If incumbent firms fail to make timely switching, the innovation epicenter migrates. Such migration may end in the loss of innovation of existing firms and their countries. For example, Japan took over the innovation edge in Cameras, Computer storage, and many more from the USA due to the disruptive effect of reinvention. Hence, incumbent firms and their host countries face the policy challenges of such consequential effects. On the other hand, it is an opportunity for aspiring countries to snatch away innovation edge, demanding suitable technology policies.
Graduating from technology idea importer to exporter:
Over the last three hundred years, the world has been divided into two halves—idea producers and importers. Some countries have attained the role of producing ideas and exporting them as products and process features. At the same time, the rest of the cohort is in the business of supplying natural resources and labor to implement. Due to the growing role of ideas in creating economic value, idea producers have become far more prosperous than suppliers of natural resources and labor (objects, in the language of Paul Romer). On the other hand, ideas create demand volatility and determine objects’ value. Hence, object supplying countries have been increasingly relying on idea-producing countries. Therefore, there is a growing aspiration among object supplying countries to be idea producers and exporters. But how to attain it is a daunting technology policy challenge.
There seem to be three ways for being idea producers: (i) invention, (ii) incremental innovation, and (iii) reinvention. But the challenge is more than producing ideas. Until producers win the race, there is no market value for idea production. Therefore, technology policy to profit from ideas is far more than supporting education, research, and creativity. In addition to idea production, the policy challenge is to win the competition race of global idea trade.
Insights from the above areas indicate that technology policy should deal with more than issues pertaining to capabilities, facilities, skills, knowledge, and organization for successfully creating helpful services or products out of ideas. Instead, technology policy must focus on winning the global competition race of creating economic value out of ideas. Besides, it must deal with governing competition and fueling episodic evolution of products out of reinvention. Hence, technology policy issues demand fresh thinking.