Mariana Mazzucato - The Value of Everything - Making and Taking in the Global Economy

8. S. W. Leslie, The Cold War and American Science: The Military-Industrial-Academic Complex at MIT and Stanford (New York: Columbia University Press, 1993).

9. See W. Lazonick, Sustainable Prosperity in the New Economy? Business Organization and High-Tech Employment in the United States (Kalamazoo, MI: W. E. Upjohn Institute for Employment Research, 2009), ch. 2: doi: https://doi.org/10.17848/9781441639851

10. Business Week , 1960, cited in H. Lazonick, Sustainable Prosperity in the New Economy? Business Organization and High-tech Employment in the United States (Kalamazoo, MI: Upjohn Press, 2009), p. 79.

11. W. Lazonick and M. Mazzucato, ‘The risk–reward nexus in the innovation–inequality relationship: Who takes the risks? Who gets the rewards?’, Industrial and Corporate Change , 22(4) (2013), pp. 1093–128: https://doi.org/10.17848/9781441639851The structure of this market is particularly important in understanding where innovation risk truly lies. Liquidity is provided by market makers, who underwrite IPOs and ensure the instant sale and purchase of stock at close to market prices. In this way, investor risk is transferred to market makers. Market makers are backed by investment banks, which – as it turns out – are underwritten by the government (K. Ellis, R. Michaely and M. O’Hara, ‘When the underwriter is the market maker: An examination of trading in the IPO aftermarket’, Journal of Finance , 55(3) (1999), pp. 1039–74.

12. ‘I have worked with investors for 60 years and I have yet to see anyone – not even when capital gains rates were 39.9 per cent in 1976–77 – shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.’, The New York Times , 14 August 2011: http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html?_r=2&hp

13. Lazonick and Mazzucato, ‘The risk–reward nexus in the innovation– inequality relationship’.

14. N. Henderson and M. Schrage, ‘The roots of biotechnology: Government R&D spawns a new industry’, Washington Post , 16 December 1984: https://www.washingtonpost.com/archive/politics/1984/12/16/government-r38/cb580e3d-4ce2-4950-bf12-a717b4d3ca36/?utm_term=.27fd51946872. I am grateful to William Lazonick for pointing me to this article.

15. This section on the role of venture capital and the following section on executive pay draw heavily on Lazonick and Mazzucato, ‘The risk– reward nexus in the innovation–inequality relationship’.

16. Ibid.

17. Ibid.

18. P. A. Gompers and J. Lerner, The Venture Capital Cycle (Cambridge, MA: MIT Press, 2002).

19. See S. Davidoff, ‘Why I.P.O.s get underpriced’, Dealbook, New York Times , 27 May 2011; J. Ritter, IPO data website, 2012: http://bear.warrington.ufl.edu/ritter/ipodata.htm; M. Gimein, E. Dash, L. Munoz and J. Sung, ‘You bought. They SOLD’, Fortune , 146(4) (2002), pp. 64–8, 72, 74.

20. Gary P. Pisano, Science Business: The Promise, the Reality, and the Future of Biotech (Boston, MA: Harvard Business School Press, 2006).

21. W. Lazonick and Ö. Tulum, ‘US biopharmaceutical finance and the sustainability of the US biotech business model’, Research Policy , 40(9) (2011), pp. 1170–87.

22. R. Fontana, A. Nuvolari, H. Shimizu and A. Vezzulli, ‘Reassessing patent propensity: Evidence from a dataset of R&D awards, 1977–2004’, Research Policy 42(10) (2013), pp. 1780–92.

23. More formally, a patent holder is awarded a ‘probabilistic’ right to exclude others from using and commercializing an invention (M. A. Lemley and C. Shapiro, ‘Probabilistic patents’, Journal of Economic Perspectives , 19(2) (2005), pp. 75–98: doi: 10.1257/0895330054048650). The patentee must be willing and able to enforce its rights against infringement of the patent. The patentee can license others to use the invention in exchange for royalties.

24. The intensity of patenting activity and the importance of patents – both in relation to appropriability and disclosure – varies in importance across countries, sectors, technologies, and by firm size. Firms in pharmaceuticals, biotechnology and ICT, for example, tend to patent more than firms in other areas. Patents are the most important appropriability mechanism for pharmaceutical companies, for example, whereas in other sectors firms may rely more on secrecy, lead-times to production, trademarks and additional complementary assets to gain from their inventions. Similarly, patents play a far more important role in the diffusion of information for R&D labs in manufacturing firms in Japan compared with those in the US, where publication and informal information exchange is more important (W. M. Cohen, A. Goto, A. Nagata, R. R. Nelson and J. P. Walsh, ‘R&D spillovers, patents and the incentives to innovate in Japan and the United States’, Research Policy , 1(8–9) (2002), pp. 1349–67: doi: http://doi.org/10.1016/S0048-7333(02)00068-9

25. According to M. A. Lemley, in ‘Software patents and the return of functional claiming’, Wisconsin Law Review , 2013(4), pp. 905–64, the costs of software innovation are lower than innovation in the life sciences. Software is also protected by copyrights, which already provide for effective prevention of copying by others. Network effects may help innovators to capture returns regardless of intellectual property protection (more on this later in this chapter). There is, in addition, the open-source community, which suggests that patents may not be a necessary condition for innovation in the sector. Finally, software patentability varies across regions and countries (for example, it is limited in Europe and India, and broad in the US), which also suggests that patent protection may reflect a policy choice.

26. Baumol, ‘Entrepreneurship: Productive, unproductive, and destructive’.

27. R. Mazzoleni and R. R. Nelson, ‘The benefits and costs of strong patent protection: A contribution to the current debate’, Research Policy , 27(3) (1998), pp. 273–84.

28. M. Kenney and D. Patton, ‘Reconsidering the Bayh–Dole Act and the current university invention ownership model’, Research Policy, 38(9) (2009), pp. 1407–22.

29. http://www.nybooks.com/articles/2004/07/15/the-truth-about-the-drug-companies/

30. L. Burlamaqui and R. Kattel, ‘Development as leapfrogging, not convergence, not catch-up: Towards Schumpeterian theories of finance and development’, Review of political Economy , 28(2) (2016), pp. 270–88.

31. Mazzoleni and Nelson, ‘The benefits and costs of strong patent protection’.

32. S. Haber and S. H. Werfel, ‘Why do inventors sell to patent trolls? Experimental evidence for the asymmetry hypothesis’, Stanford University Working Paper, 27 April 2015.

33. J. Bessen and M. J. Meurer, ‘The Patent Litigation Explosion’, Loyola University Chicago Law Journal , 45(2) (2013), pp. 401–40: http://lawecommons.luc.edu/luclj/vol45/iss2/5

34. J. E. Bessen et al., ‘Trends in private patent costs and rents for publicly-traded United States firms’(March 2015). Boston University School of Law, Public Law Research Paper no. 13–24: SSRN: https://ssrn.com/abstract=2278255or http://dx.doi.org/10.2139/ssrn.2278255

35. C. V. Chien, ‘Startups and patent trolls’, Stanford Technology Law Review, 17 (2014), pp. 461–506.

36. W. J. Baumol, Entrepreneurship, Management and the Nature of Payoffs (Cambridge, MA: MIT Press, 1993), ch. 2, p. 25; see also ch. 4.