Tuesday, April 7, 2020

What are innovation commons?



“An innovation commons is a system of rules for cooperation to facilitate pooling of information in order to maximize the likelihood of opportunity discovery”. That is how Jason Potts defines innovation commons in his book of that name.

Hopefully, that brings to mind hobbyists meeting in coffee shops, somewhere on the internet, or at backyard barbecues where they are tasting home brews and exchanging information about recipes. If so, you are on the track toward an understanding of innovation commons. If you have heard stories of successful entrepreneurs who obtained their most valuable ideas by interacting in similar ways, you might sense that innovative commons can be very important.

It might surprise you to learn that until recently few economists understandood the importance of innovation commons. Of course, those with an interest in technology would have read at some stage that Steve Jobs was once a member of the Homebrew Computer Club, and know of similar stories about other entrepreneurs who started as hobbyists or enthusiasts exchanging information freely with people with similar interests. However, it is one thing to know such stories and something quite different to realize that your professional understanding of the innovation process needs an overhaul.

Economists have thought of innovation in several different ways that view a single organization or individual as a prime mover. Innovative firms allocate resources to research and development, which leads to the launching of new products or adoption of cost-reducing technologies. Joseph Schumpeter’s bold entrepreneurs play the central role in innovation, leading to a dynamic process of creative destruction. Israel Kirzner’s innovative entrepreneurs are alert to profit opportunities. Edmund Phelps’ grassroots innovators are struck by new ideas, and then become investigators, experimenters and managers of innovation.

You might think that economists should be excused for overlooking the importance of innovative commons because they are a relatively new phenomenon. Jason Potts makes the point that common-pool innovation has existed since the beginning of market capitalism. He cites discussion of the Republic of Letters by Joel Mokyr, an economic historian. The Republic of Letters set up norms and incentives that supported a market place of ideas among the educated elite in Europe in the latter part of the 17th and early part of the 18th centuries (for a brief summary see my review of The Culture of Growth). In The Enlighted Economy, Mokyr makes a strong case that in Britain during the 18th century the ‘legitimization of systematic experiment carried over to the realm of technology’. He suggests that the proliferation of provincial ‘philosophical’ societies discussing practical and technical issues often served as clearing houses for useful knowledge between natural philosophers, engineers and entrepreneurs (p 48).

Recent examples of areas of technology where innovation commons are important include blockchain, civilian drone technology, AI and gene editing.

Jason Potts’ own innovative contribution has been to develop an economic framework to explore the collaborative processes through which information comes to be available in a form that a potential entrepreneur can discern as a profit opportunity, if sufficiently alert. The framework Jason has developed contributes to understanding of the knowledge, coordination and governance problems associated with innovation commons. In developing that framework, he draws heavily on insights of Friedrich Hayek about the importance of distributed knowledge, and insights of Elinor Ostrom about governance of commons.

Innovation involves a knowledge problem because relevant information is distributed so that each person with relevant expertise can only know part of the picture, and there is great uncertainty about how that information might be useful. Innovation commons enable individuals with expertise to cooperate to pool information and discover opportunities. The formation of such commons is ad hoc and rules for governance develop spontaneously to promote cooperation.

Innovation commons tend to be temporary. Once they have created information about entrepreneurial opportunities, that valuable resource is likely to be exploited by some member who can effectively capitalize on it. At that point the conventional model of entrepreneurship comes into its own, and the commons collapses to some other institutional or organizational form.

Much of the book is taken up by discussion of rules of innovation commons, institutions such as industry organisations and a critique of conventional approaches to innovation policy (public investment in innovation and building infrastructure for innovation).

There is also an interesting discussion of ways to combat an increasing tendency for enemies of innovation to prevent it, thus contributing to a slowdown in productivity growth, particularly at the technology frontier. The enemies of innovation present themselves as having concerns with safety, sustainability, tradition, fairness, justice etc. even when their intention is to avoid the losses they are likely to incur from disruption of existing technology.

Who will engage those enemies? This is a collective action problem: the costs are borne individually, but the benefits are an industry-specific public good that accrue to all who follow.
In some instances, the first mover can capture sufficient benefits to make it worthwhile to engage the enemies of innovation. Uber may have done that with its ride-sharing technology.

Jason suggests that governments may also help. One role he suggests is promoting collective learning to demystify a new technology. He mentions public broadcasting in that context, but public broadcasters seem to have been more comfortable helping the enemies of innovation. At a more ambitious level, he suggests that governments should work toward “a social contract, culture and institutional system that are tolerant of innovation and prepared to engage with its enemies”. Good luck with that!

Jason also suggests that innovative commons can play a role in creating a large pool of participatory stakeholders, each with a vested interest in developing the technology and its institutional (regulatory) framework. Examples include open-source software and technologies that have emerged from hackerspaces, such as 3D printing and cryptocurrencies.

Are innovative commons likely to result in a fundamental change in society?
Jason Potts’ answer:
“The innovation commons—including the adaptive behaviors and the institutions that compose it—are … a natural part of an open, evolving, market economy. They are not prima facie evidence of an emerging turn to a new type of more cooperative economic society.”

That is probably right! Nevertheless, as previously discussed here, it is possible to conceive of circumstances in which new technologies that are evolving in innovation commons - blockchain technology and decentralized collaborative organizations – could result in some quite fundamental changes in society.

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