TABLE OF CONTENTS
Acknowledgments
Introduction: Beyond 140 Characters
DOI: 10.7208/chicago/9780226810645.003.0001
[innovation;productivity;entrepreneurship;growth]
While economists have long posited a relationship between innovation, entrepreneurship, productivity growth, and economic output, conflicting observations lead us to question just how much we know about the role of innovation and entrepreneurship in driving productivity and economic growth. The chapters in this volume seek to answer the following questions: What is the relationship between innovation/entrepreneurship and economic growth in specific industrial sectors? How has the relationship between innovation /entrepreneurship and economic growth changed over time? How much do policies, programs, and specialized institutions meant to encourage innovation or entrepreneurship ultimately spur economic growth? Does innovation or entrepreneurship affect economic performance and social progress other than through measured productivity and economic growth, and if so, how can these effects be measured? In this introduction we synthesize the chapters in the volume and present broad conclusions. (pages 1 - 28)
This chapter is available at:
University of Chicago Press
I. Productivity Drivers
II. The On-Demand Economy
III. The Cost Disease Sectors
Chapter 1. The “Weighty” Manufacturing Sector: Transforming Raw Materials into Physical Goods
DOI: 10.7208/chicago/9780226810645.003.0002
[manufacturing;innovation;labor;value added;globalization]
The manufacturing sector encompasses a diverse set of industries that are involved in the transformation of raw materials into physical goods. Over the last two decades, the U.S.’s manufacturing value added (MVA) has slightly grown, however, the U.S.’s percentage of global MVA has declined due to China’s exponential rise. The U.S.’s relatively high R&D spending on manufacturing (66% of industrial R&D) and comparatively low manufacturing value added (14%) can in part be explained by foreign multinationals’ globalization of manufacturing facilities in the last decade. As a whole, the manufacturing sector involves higher value added per capita employed, a greater proportion of the labor force with education at the high school level or below while having on average higher wages for that labor force, higher industry spending on R&D, and fewer private equity/venture capital deals financing new ventures than non-manufacturing industries such as services (including software). The above said, drawing implications from sector-wide trends can be misleading because of the variation in these indicators across sub-sectors. Considering the sector’s diversity will be critical to understanding productivity and labor outcome effects, and appropriate policy responses, if any. (pages 31 - 94)
This chapter is available at:
University of Chicago Press
Chapter 2. Concentration and Agglomeration of IT Innovation and Entrepreneurship: Evidence from Patenting
DOI: 10.7208/chicago/9780226810645.003.0003
[Information technology;patenting;entrepreneurship;entry;innovation]
Information technology (IT) matters to prosperity. The top patenters are increasingly IT companies. We use data on US patents to document four trends in IT patenting. First, firm-level concentration in IT patenting is increasing over time. Second, geographic concentration in IT patenting is also increasing over time. Third, most technology classes experienced a decline in new patenters from 1980 to 2000. However, this was not true of new IT patents. Since 2000, the trend in new IT patenters looks like other classes and is declining over time. Fourth, there is increased geographic concentration of new IT patenters. We do not identify the reasons behind these trends nor whether they are related to overall changes in industry concentration, agglomeration, or prosperity. (pages 95 - 122)
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University of Chicago Press
Contributors
Author Index
Subject Index
Chapter 3. Innovation, Growth, and Structural Change in American Agriculture
DOI: 10.7208/chicago/9780226810645.003.0004
[US agriculture;R&D;productivity;biotechnology;digital technology;technological regulation;precision agriculture]
US agriculture was transformed during the 20th century by waves of innovation with mechanical, biological, chemical, and information technologies. Compared with a few decades ago, today’s agriculture is much less labor intensive and farms are much larger and more specialized, supplying a much-evolved market for farm products. Over recent decades, the global landscape for agricultural R&D has shifted away from farms, away from the public sector toward the private sector, and away from the United States towards agriculturally important middle-income countries, especially China, India and Brazil. US investments in agricultural R&D are stalling even though meta-evidence shows that past US investments in agricultural R&D have yielded very favorable returns: median reported benefit-cost ratios in the range of 12:1. Sustained US investment and innovation will be required to preserve past productivity gains in the face of climate change, coevolving pests and diseases, and changing technological regulations—let alone increase productivity. Great potential exists for innovation in crop and livestock genetics and digital farming technologies to generate new products and production processes, but innovators are facing increasingly strong headwinds from social and political forces that seek to dictate technology choices. (pages 123 - 174)
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University of Chicago Press
Chapter 4. Innovation and Entrepreneurship in the Energy Sector
DOI: 10.7208/chicago/9780226810645.003.0005
[renewable energy;natural gas;climate change;venture capital;patents]
Historically, innovation in the energy sector proceeded slowly and entrepreneurial start-up firms played a relatively minor role. We argue that this may be changing. Energy markets are going through a period of profound structural change. The rise of hydrofracturing lowered fossil fuel prices so much that natural gas is now the primary fuel for electricity generation in the US. Renewable energy technologies also experienced significant cost and performance improvements. However, integrating intermittent resources creates additional grid management challenges, requiring further innovation. This chapter documents the evolving roles of innovation and entrepreneurship in the energy sector. First, we provide an overview of the energy industry, highlighting that many new energy technologies are smaller, modular, and increasingly rely on innovation in other fast-moving high-tech sectors. We then conduct two descriptive data analyses that document a sharp decline in both clean energy patenting and start-up activity from about 2010 onwards. We discuss potential explanations and provide some evidence that while innovation in existing technologies may simply have been successful, continued innovation will be needed in enabling technologies that are more likely to depend on progress in other sectors. (pages 175 - 248)
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University of Chicago Press
Chapter 5. What’s Driving Entrepreneurship and Innovation in the Transport Sector?
DOI: 10.7208/chicago/9780226810645.003.0006
[transportation;innovation;entrepreneurship]
In this chapter we describe economic, entrepreneurial and innovative activities in the transportation and warehousing sector of the US economy. Recent trends suggest that the warehousing and storage subsector is experiencing rapid economic and technological changes, likely reflecting shifts in how consumers purchase goods. We also review several other recent innovations, including ride-sharing and autonomous vehicles, that are starting to affect this sector of the economy. We find that despite the rapid expansion of internet-enabled services and the digital economy, the importance of transporting physical goods has not diminished. In aggregate, the transportation sector has grown (20% employment growth over five years), but this average increase masks large differences in the composition of the transportation sector (rail and sea transport are down, couriers and warehousing are up). Transportation’s share of value added in the economy has also increased (an absolute increase of 0.3% over five years). As such, warehousing and the automation contained therein (robots, autonomous vehicles, drones) will play a critical role in this increasingly important component of the transportation supply chain. (pages 251 - 290)
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Chapter 6. The Recent Evolution of Physical Retail Markets: Online Retailing, Big Box Stores, and the Rise of Restaurants
DOI: 10.7208/chicago/9780226810645.003.0007
[retail;restaurants;servicification;COVID-19]
We examine changes in the US retail sector between 1999 and 2017. While there were fewer physical stores in 2017 compared to 1999 (consistent with the notion of a “retail apocalypse”), other indicators including employment, real sales, real value added, and real payroll of brick and mortar retailers had recovered to their pre-Great Recession peaks by 2017. Consistent with anecdotal evidence, we document a negative impact of online commerce on physical retail during this period. In contrast, the growth in big box stores was positively correlated with the growth of other retail physical activity across counties. We document a striking rise in restaurants, and including them in the retail sector yieldsstronger trends for physical retail activity. We find restaurant growth was positively correlated with growth of other physical retail, so it was not propelled by a reduction in costs induced by the decline of other physical retail. Instead, we find evidence that two-thirds (one-half) of the growth in restaurant establishments (employment) can be attributed to the relative increase in consumer expenditure share for restaurant food. We note significant venture capital funding for delivery and other services that complement physical retail stores. (pages 291 - 370)
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University of Chicago Press
Chapter 7. The Servicification of the US Economy: The Role of Startups versus Incumbent Firms
DOI: 10.7208/chicago/9780226810645.003.0008
[servicification;supply chain industries;entrepreneurship;STEM labor;innovation;growth]
Over the last few decades, the U.S. economy has exhibited a significant shift from manufacturing towards services. This transition has been particularly prominent in an important subcategory of services industries that drives innovation and employs many high-wage workers: Supply Chain Traded Services (Delgado and Mills, 2020). These industries provide specialized service inputs to organizations and are characterized by high upstreamness, which allow innovations to cascade down to other buyer industries. In this chapter, we explore the role of startups versus incumbent firms in driving the transition from manufacturing to Supply Chain Traded Services between 1998 and 2015. Using the Longitudinal Business Database of the U.S. Census Bureau, we find that startups experienced a large decline in Supply Chain Traded Services, both in terms of entry of new firms and growth of young firms. Instead, job growth in this sector has been led by established firms: the transformation of incumbent manufacturing firms towards services (e.g., Intel), and the growth of incumbent Supply Chain Traded Service firms (e.g., Microsoft). To complement our empirical findings, we discuss potential barriers for entrepreneurial firms, and illustrate the servicification efforts of several established firms. We conclude by offering broad policy implications. (pages 371 - 396)
This chapter is available at:
University of Chicago Press
Chapter 8. Digitization and Its Consequences for Creative-Industry Product and Labor Markets
DOI: 10.7208/chicago/9780226810645.003.0009
[digitization;creative industries;welfare benefit of new products]
Technological changes have sharply reduced the costs of creating, distributing, and promoting new creative products. This chapter explores the consequences of these changes for both creative product and labor markets. I apply the random long tail lens of Aguiar and Waldfogel (2018) to the product markets. Because new product success is unpredictable, falling costs can deliver products with high realized value, but which would not have been produced before, delivering substantial welfare benefits. I provide rough estimates of the welfare benefits of the growth in movies, television, and books. I have four basic findings. First, available data on movies, television, and books confirm existing findings for music that the random long tail is large compared with the conventional long tail: 9 times as large for books, 13 times as large for television, and 4 times as large for movies. Second and related, the absolute welfare benefit of new creative products is substantial. Third, available evidence on creative labor markets confirms increased activity evidence in product market creation data. Fourth, while total earnings of creative workers are rising, average earnings per worker are falling, although it is not clear how much of the decline in average earnings is simply compositional. (pages 397 - 430)
This chapter is available at:
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Chapter 9. Innovation in the US Government
DOI: 10.7208/chicago/9780226810645.003.0010
[government innovation;R&D;personnel economics;scientific capabilities]
This chapter examines the U.S. government’s intramural research and development over a 40-year period, drawing together multiple human capital, spending, and patent datasets. The U.S. Federal Government innovates along four dimensions: technological, organizational, regulatory, and policy. After discussing these dimensions, we focus on the inputs to and outputs of government intramural technological innovation. We measure innovative effort and results by accounting for government scientists and dollars committed to R&D and patents created with government involvement. Overall, we show that intramural innovations, measured by government-assigned patents, are slightly more original and general, but less cited, than patents awarded to companies and non-government organizations patenting in the same technology classes. The majority of the 200,000 federal government scientists work at the Department of Defense, Department of Energy, and NASA, and are largely in physical science and engineering occupations; other agencies’ scientific expertise is weighted toward mathematics, social sciences, and data analytics. As these latter disciplines’ innovative outputs are less readily patented, measuring federal government innovative output with government-assigned patents is likely to over-emphasize innovations in engineering and physical sciences while under-reporting innovations in other disciplines. We discuss implications of our findings for public- and private-sector innovation and identify questions for future research. (pages 433 - 474)
This chapter is available at:
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Chapter 10. Venture Capital Led Entrepreneurship in Health Care
DOI: 10.7208/chicago/9780226810645.003.0011
[venture capital;health care innovation;valley of death;geography of innovation]
We provide a detailed picture of early-stage innovation in the healthcare sector as measured by the investment decisions of venture capitalists (VCs), whose investment decisions profoundly shape the quality of patient care. Among VC investments, 60 percent of all money was invested in firms working on drugs, another 20 percent was invested in firms working on a project that was related to medical devices, and 20 percent was given to firms working on health care delivery. We also find enormous geographic concentration of healthcare deals which motivates us to explore the “valley of death” hypothesis. This is the idea that many useful inventions are not explored because VCs may not know about them. We find some preliminary support for this hypothesis. (pages 475 - 498)
This chapter is available at:
University of Chicago Press
Chapter 11. Innovation and Entrepreneurship in Housing
DOI: 10.7208/chicago/9780226810645.003.0012
[housing;innovation;entrepreneurship]
In this chapter, I discuss innovation and entrepreneurship in residential real estate and construction (i.e. housing). Based on R&D and patent statistics, housing does not appear to be a very innovative sector. But in the last two decades, there has been a significant increase in the amount of investment going to real estate technology companies. I discuss the companies and technologies which have drawn the most attention from investors. I then review the literature on two major innovation trends in housing: the growth of the internet as a tool for housing search, and the development of home-sharing platforms which allow homeowners to use their homes as short-term rentals. These innovations have likely increased the efficiency of housing markets, leading to higher quality matches between buyers and sellers, and more efficient utilization of space. In comparison to real estate, there appears to have been less recent innovation in construction. In many areas, residential construction is artificially constrained by local land use policies, and estimates from the literature suggest that relaxing these constraints could increase economic growth significantly. Finally, I discuss anti-competitive practices in real estate which may hinder entrepreneurship and the adoption of new innovations. (pages 499 - 536)
This chapter is available at:
University of Chicago Press
Chapter 12. Education and Innovation
DOI: 10.7208/chicago/9780226810645.003.0013
[education;innovation;entrepreneurship;inequality]
A vast body of research shows that educational investments yield long-run benefits for students. Less is known, however, about the role of education in encouraging entrepreneurship and innovation. This chapter summarizes existing evidence on the link between education and innovation and presents open questions for future research. After a brief review of theoretical frameworks on the link between education, innovation, and economic growth, we explore three alternative policies to encourage innovation through education: expanding access to basic skills, improving the quality of education, and investing in universities. We also review the literature on the role of innovation for education. We find that increasing investment in basic skills would help potential future innovators reach the knowledge frontier and take advantage of their natural talents. Since research universities play an important role in knowledge creation and innovation, democratized access to them would likely yield benefits in terms of innovation. While technology alone is not a panacea, there is much potential for technology to lower the cost of providing extremely effective personalized education. (pages 537 - 558)
This chapter is available at:
University of Chicago Press
Panel Remarks: Creating “Smart” Policy to Promote Entrepreneurship and Innovation
DOI: 10.7208/chicago/9780226810645.003.0014
[innovation;entrepreneurship;economic policy;high-growth;start-ups]
Entrepreneurship is key to unlocking innovation and fostering regional and national economic productivity. Extensive studies demonstrate that small and young firms contribute to innovation and employment growth. But which of the many types of small firms are responsible? Of the over 30 million small businesses in the United States, most are sole proprietorships or local Main Street shops, and only a small number are high-growth businesses. The heterogeneity of America’s small businesses has led to some confusion and missteps in policy circles regarding the best strategies to promote entrepreneurship and innovation. We describe three policy areas: improving access to capital, delivering entrepreneurship advice and education, and creating entrepreneurial ecosystems, and show how policy solutions that drive high-growth start-ups differ from support for Main Street small businesses. (pages 559 - 568)
This chapter is available at:
University of Chicago Press
Panel Remarks: Measuring Business Innovation Using a Multidimensional Approach
DOI: 10.7208/chicago/9780226810645.003.0015
[innovation;Census Bureau;measurement;administrative data;survey;Center for Economic Studies]
Advancing the US Census Bureau’s mission “to serve as the nation’s leading provider of quality data about its people and economy” requires a robust and agile research and development program working in close collaboration with external experts and Census Bureau programmatic staff. Even straightforward concepts, such as the use of industrial robotics in manufacturing, can require a multidimensional measurement approach. While the Census Bureau is known for its surveys, some of our most innovative work combines survey data with administrative data or combines multiple sources of administrative data. In this brief chapter, I discuss the multidimensional research and development approach the Center for Economic Studies (CES) at the Census Bureau takes in attempting to better understand business innovation. Since it is not possible to provide details on these many interrelated efforts, I highlight our multidimensional approach by giving examples of research using administrative data, survey data, and indirect inference. A more complete view of CES research activities is provided in our annual reports and working paper series. (pages 569 - 576)
This chapter is available at:
University of Chicago Press
Chapter 13. Where Innovation Happens, and Where It Does Not
DOI: 10.7208/chicago/9780226810645.003.0016
[innovation;productivity;sectoral differences]
In the United States, economic growth rates are remarkably steady. Innovation is typically seen as a primary explanation for this growth. One measure of innovative effort is research & development (R&D) expenditure, which also appears in aggregate to be a broadly steady activity. This aggregate steadiness, however, masks remarkable underlying sectoral differences and dynamics, where specific industries have experienced extraordinarily different productivity gains and innovation investment. Why would innovative effort differ so greatly across industries? If the innovation engine operates weakly in some sectors, is this outcome inevitable? What are the implications of these differences for meeting ongoing challenges? As the US economy appears caught in an aggregate productivity slowdown, what roles and opportunities can individual sectors play in overcoming this challenge? This chapter addresses these questions. The discussion integrates across the sector-specific analyses that constitute this book and provide rich and diverse perspectives. The goal here is a synthesis that, while necessarily incomplete and often speculative, provides a framework for thinking about the enormous diversity in innovative effort and productivity gains that we see. (pages 577 - 602)
This chapter is available at:
University of Chicago Press
