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What it Takes to Innovate in the Old Economy

Richard van Atta

Richard van Atta (A. Kotok)

12 February 2016. Innovation is important throughout the modern economy, particularly in established industries that may lack the excitement of hot new sectors like biotechnology. A panel at the American Association for the Advancement of Science, or AAAS 2016 annual meeting today (12 February) in Washington, D.C. examined ways of creating innovation in these legacy sectors.

One of those legacy sectors is the military, and Richard van Atta of Institute for Defense Analysis described the key role of Defense Advance Research Projects Agency or DARPA in keeping the U.S. technologically far ahead of potential enemies.  Van Atta said Department of Defense and its predecessors were forced to become innovative when challenged by adversaries during World War II and the Cold War.

That need to innovate produced the Advanced Research Projects Agency or ARPA, which created a unique culture for innovation, designed to disrupt and challenge established hierarchies in the U.S. military, a classic hierarchical organization. Early tasks given ARPA, which included getting the military in space and detecting nuclear weapons, forced the agency to establish a culture that rewarded cutting-edge outcomes and rapid development.  And reporting directly to the Secretary of Defense, as does DARPA today, insulated the agency from bureaucratic battles among the individual services.

Van Atta pointed out DARPA today continues its unique entrepreneurial culture, where the only surprises the agency hopes to encounter are those it inflicts on adversaries. The agency has little hierarchy and is designed to be disruptive, which van Atta said is driven by ideas and focused on outcomes rather than process.

DARPA hires program officers — subject-matter experts who envision future technological developments for DARPA and recommend its awards — for only a few years, thus people in those key positions do not get entrenched. These experts, said van Atta, “are hired to be crazy people,” encouraged to take risks and find high-payoff outcomes.

To encourage risk taking, the agency has no labs of its own, so if one or more projects do not work out, it has little direct investment to write off. But as a result, DARPA develops close relationships with academic and commercial labs, seeking out new ideas and scientists ready to take part in its mission and culture.

Van Atta expressed his personal view questioning whether DARPA can continue to provide DoD with a large technological advantage. While DARPA can keep finding highly innovative solutions, the agency still needs the cooperation of the individual services to make those new technologies happen. And technological, economic, and geopolitical trends will make it more difficult for DARPA to keep its large current advantage.

Manufacturing as a source of innovation

William Bonvillian, director of MIT’s Washington, D.C. office and Charles Weiss, a visiting scholar at AAAS and former professor at Georgetown University’s School of Foreign Service, organized the panel, and offered insights from their new book on innovation in legacy industries. Among those sectors, Bonvillian and Weiss singled out manufacturing as both a key sector on its own as well as a source of innovation.

This view of manufacturing as a generator of innovation is recognized in some countries, such as China and Korea, but not so much in the U.S. Over the past 30 years, noted Bonvillian, the U.S. evolved into an “innovate here, produce there” paradigm, that he said could easily result in a “produce there, innovate there” outcome, which would be damaging to the U.S. economy and employment.

In response to a question from Science & Enterprise about fewer new jobs being created today by advanced manufacturing,  Bonvillian illustrated how manufacturing stimulates general employment growth. He described new job creation like an hour glass, where the narrow part in the middle is the fewer number of direct jobs created by advanced manufacturing. However, the wider part at the top represents more research and development jobs, while the wide part at the bottom indicates the additional new jobs created in distribution, retail, service, and supplies.

Also on the panel was Marianne Haug of University of Hohenheim in Stuttgart, Germany, who offered the electric power industry in Europe as a case study of innovation in a legacy sector. Haug showed how the European Union encourages innovation in the industry with binding commitments on reductions in carbon dioxide, increases in renewable energy, and greater energy efficiency. These commitments require individual countries to change the way they produce electricity and modernize its distribution.

In addition, Denmark, Sweden, Finland, France, Spain, and Germany have made large strides on their own in modernizing their power grids and expanded use of renewable fuels.  Germany, Haug noted, plans to increase its renewable fuels for electric power from 27 percent in 2015 to 80 percent by 2050, which means large investments in upgrading the country’s power grid and new wind and solar technologies.

Haug added that not all countries in Europe are making these advances. Poland, for example, still generates 90 percent of its power with coal. In addition, large supplies of natural gas found with fracking make it possible for the U.S. to decrease use of coal for electric power, without introducing other innovations in its electric power industry.

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