The Free Market Innovation Machine
Bauntol, Willianz L. Bauntol (Princeton University
Reviewed by A. C. Hyde
Though we still lack criteria by which to measure
innovation with any precision, indirect evidence and analysis point strongly
to the conclusion that the United States is passing through an unusually
noninnovative period in public administration. Government is seemingly
stuck dead center on many important matters of basic policy, foreign and
domestic, and although day-to-day administrative puzzle solving takes place,
nothing very creative is going forward. Far from being innovative, public
administration is in a period of reaction.
Whether you agree or disagree
with the state of progress (or lack of) assessment of innovation
in public administration quoted above, one thing has change very dramatically.
In addition to knowing how important innovation is to economic progress,
we are now beginning to understand how to measure the impacts of innovation
and perhaps more importantly how innovation works. This is due in large
part to the work of economist William J. Baumol.
Taking Innovation Apart
Baumol's new book takes innovation apart and shows why investment in R&D
and innovative activity is essential to organizations who wish to compete.
In Baumol's view, "firms feel forced to incorporate the generation of new
techniques and new and improved products as a critical part of their day-to-day
routine activities. It is built into the company's organization and budgeted
like any other activity." But this is just the why of innovation.
The more intriguing aspects of this new work deal with the how—everything
from budgeting for R&D labs for the purpose of ensuring that innovations
will occur at "reasonably regular intervals" to coordinating innovation
investments via research joint ventures, strategic alliances, and licensing
of proprietary technology to direct competitors.
Innovation vs. Invention
In exploring how innovation works, Baumol also differentiates innovation
from invention. Yes, there is (and always will be) a place for the lone
entrepreneur creating/inventing the next radical technology wave or new
product in the basement or garage. But the larger impact is more likely
to come from what Baumol calls "routinized innovation."
of successful innovation for such industries as pharmaceuticals, IT, and
telecommunications, are both the ability to make continuous investments
in staff, space, and strategic alliances, and putting the control of innovation
investment "in the hands of managers rather than entrepreneurs. Routinized
innovation," Baumol clearly states, "...is not the realm of the unexpected,
of the unrestricted exercise of imagination and boldness that is the essence
of entrepreneurship. It is rather the domain of memoranda, rigid cost controls,
and standardized procedures, which are the hallmark of trained management."
Economist for Economists
Baumol is an economist writing for economists
and the book shows it. The opening chapters are part history, part organizational
analysis, and very accessible to any manager. But when the seventh chapter—on
Oligopolistic Rivalry and Markets for Technology Trading—opens with basic
theory, the next half of the book is filled with economic models, propositions,
matrices, and equations, which were certainly beyond this reader's expertise
(the statute of limitations on this editor's undergraduate minor in economics
having long since expired).
But The Free-Market Innovation Machine returns
to the management realm with a concluding section that asks some very critical
- how important is innovation to the economic success
of our current market system?
- what is the chance that current rates of innovation
fueling economic progress can't be sustained, resulting in stagnation?
- does innovation fuel further innovation?
The last question is handled nicely
in a must-read chapter entitled: Feedback: Innovation As a Self-Nourishing
Process. And yes, Baumol argues that innovation breeds innovation because
innovation has an accelerator effect on increasing productivity and extending
the supply of limited resources. Can Government Be Innovative?
Of course! After all, government is often a major player
in those strategic alliances and R&D projects that are part of the new
world of routinized innovation. The larger question of whether government
can make routinized innovation its own hallmark is a different question.
Baumol's work identifies the internal processes, sustained investments,
and management focus required to produce continuous innovation.
within, there is a new model for transforming government toward innovation
rather than reaction.
Which brings us back to the opening quote. The assessment
at the start of this review was from Victor Thompson's classic work, Bureaucracy
and Innovation, written in 1968. Perhaps the final point is that—whether
you agree or disagree with the assessment for the 1960s or for today—innovation
is something public administration has always worried about. The problem
remains transforming that concern into "innovative activity."
A. C. Hyde is a senior. consultant with the
Brookings Institution. He is an associate editor of The Public Manager.