Dan Breznitz’s book, "Innovation in Real Places: Strategies for Prosperity in an Unforgiving World," asks – and answers – crucial questions about innovation-based growth and how it can help build and stabilize whole communities. Written for policymakers, researchers, community and business leaders, the book is meant as a tool for people who want to change society.
Breznitz is the Munk Chair of Innovation Studies and Co-Director of the Innovation Policy Lab. He is a professor at the Munk School and in the Department of Political Science and a fellow of CIFAR where he co-directs the program on Innovation, Equity and the Future of Prosperity.
Innovation in Real Places: Strategies for Prosperity in an Unforgiving World was published in April 2021 by Oxford University Press. Breznitz will discuss the book further with Ludwig Siegele, US technology correspondent at The Economist, on April 21.
What is your definition of ‘innovation’, and what is the importance of the parameters of your definition?
First, let’s be clear about what innovation is not: it is not invention. Invention is coming up with an idea— innovation is the whole process of putting that idea into play within society. It’s the ability to use the same things you need in order to produce and service an item to make that item cheaper, or better, or both. And it’s the ability to come up with completely new products and services and bring them into being. It's not enough that we invent a COVID vaccine—we have to get it into society.
This is why we must care about innovation and innovation policy. They are about economic growth and increased social welfare. Without innovation, we would be stuck at home with COVID for the rest of our lives. That's why innovation is important—it is also why all levels of innovation are important. Yes, you need to innovate at a very high level to come up with the first product—but then you need to figure out how to produce it in high quality and in huge quantity, constantly improve it and grow the ways you administer it. If we care about innovation’s impact on society, we must stop thinking obsessing solely about inventions, and realize that it's the process of applying ideas in society.
You admit that this book took longer to write than others you've written, partly because it was challenging to write about your research and findings in a way that was accessible to everyone. Why is it particularly important that the lessons of this book be understood by a wider audience?
As I sat down to write, it was clear to me that we have a lot of great research on innovation, but that we are extremely bad at explaining it to people who can and should use it. We're really bad at clarifying what it means for policymakers, for community and business leaders. As a result, we have let several dangerous myths— on innovation, venture capitalists, intellectual property rights—become the paradigm. To counter that I wrote a book that says: here is the latest research and this is what it tells us about the world. Let's think about what it means for you. Let’s think about how you could develop policy that will actually improve your community. I tried to be truly pragmatic because my hope is that this book becomes a tool for people who want to change society.
The book advocates for sustained, innovation-based development and growth that whole communities can benefit from. How do communities work together to stay on innovative paths long-term?
We live in a world of globally fragmented production. The Ford Motor Company originally produced its whole product inside its own four walls, in one city. Today, research happens in one place, development in another, engineering in a third. Components come from all over, are assembled all over, and then distributed back to consumers all over the world. So, for a community to succeed at innovation, it needs to understand its strengths at the different stages of innovation—it can’t be, and doesn’t need to be, good at them all.
We seem to be obsessed with the need to imitate Silicon Valley, which is at the very high end of innovation. But if you care about your community and society, you should find your place within the other stages and levels of innovation, which offer you a larger number of very good jobs and ongoing security. For instance, who is more safe and prosperous today? The U.S., which invented several of the COVID vaccines, or countries like Taiwan, which innovated in the design and production stages to produce masks, ventilators and PPE?
How can policy help good innovation, and how can it hinder it?
There wouldn't be innovation-based growth without government policies. Innovation is a very risky and uncertain business, and individuals and companies would be hesitant to take it on without policy support. Innovation policies need to lower the risk in order to incentivize the actors. Innovation also requires enormous initial investment with uncertain results. This reality necessitates changes to financial regulation systems, which is the job of policymakers. Finally – someone needs to keep their eye on the public interest. Someone needs to bring all the actors together to develop plans and agree on who does what and how the results are shared. That's the role of public policy and policy leaders.
You say that innovation has winners and losers, and that when the winnings aren’t shared and/or the losses aren’t mitigated, the economic and political fallout can be widespread. Can you describe this?
Let's go back to the questions of why we want innovation and who is paying for it. If our real focus is on creating widely shared prosperity, then you need a model that might diminish the number of massive winners but will instead spread out the winnings.
Silicon Valley is the opposite of this. It is an innovation system where a very few people are given really good wages and very interesting work. If they're successful, they are given lottery tickets called stock options that promise them a massive financial exit. But none of this will be widely shared, and most members of the community will not stand a chance of even joining the game. As a result, you see rapidly growing inequality. Communities and governments need to decide what they mean by ‘success’ and, if it looks like Silicon Valley, they need to worry about the majority of people who can’t share in it. They need to consider the political backlash, and the last few years have given us some of its very bitter taste. The Silicon Valley model is focused solely on the novelty stage and its financial model is geared solely toward financial exits, not toward the long-term growth of companies or significant local employment. If you pursue it and are successful at it, it will be at the cost of enormous inequality.
You dedicate a section of the book to exploring the dysfunctions of three areas of the global economy that many people most strongly associate with innovation: intellectual property rights, finance and data. You also outline some strategic actions that communities can take to excel in these areas, despite their dysfunctions. What lessons do you hope people will take away from this section?
The problem with those domains is that as a local leader, or even as a president or prime minister, you have zero chance of fixing how these domains work globally. They are too fragmented and too convoluted. So instead, you need to understand how the game is being played, and how you can play it strategically — and yes, often cynically — so your community has a chance. The global system is dysfunctional, and if you don’t see that and act within it, your companies, taxpayers, educational institutions, etc. will be all be taken advantage of and left behind.
You clearly differentiate the stages of invention, production and innovation, and you spell out four distinct stages of global production. Can you explore these for us?
Invention is coming up with an idea. Innovation is the process of turning that idea into reality, and production is the piece that does so. Unfortunately, we have become obsessed with first-time inventions and have forgotten that real growth comes from making things consistently better, more affordable and more reliable. If there is something truly new in our supposedly new global economy, it is the fragmentation of production, which has caused new entry points for innovation-based growth to open up in old and new industries alike. The best way to understand this new world and its opportunities is to think about its four discrete stages:
- Novelty: this stage has colonized the imaginations of entrepreneurs, corporate leaders, policy makers and politicians, and is embodied in Silicon Valley and Israel. New technologies, pioneered by new companies and financed by new forms of investment, create whole new industries and a lot of wealth for their founders, financiers and hopefully their communities. But there is a very dark side to this model: rapidly growing inequality.
- Design: when today’s corporations come up with product ideas that are too vague to put into production, they often hand them off to companies that specialize in design, prototype development, or production engineering. These firms in turn rely on various suppliers, prototypers and assemblers to turn a concept into a working product. Places that excel in this stage enjoy sustained and widely-shared prosperity and create good jobs for people with all level of skills and wealth.
- Second generation product and component innovation: Here, firms improve, expand and redefine a product, either by applying incremental innovation or by expanding its use and utility. Fascination with novelty obscures this stage’s importance, which is often the unsung hero of economic growth. Firms working at this stage specialize in making existing products and technologies better, more reliable and more appealing to wider groups of users. This stage can have significant impact on seemingly unrelated fronts: for instance, Germany is one of the few western economies that has a positive trade balance with China. This is partly because it is a world leader in machine tool innovation, and many of the products pouring in from China are made using German machines.
- Last but not least is Production and Assembly: The innovation here is in figuring out how to profitably produce ever more complex products from the thousands of components developed by companies around the world, and how to systemize production using constantly changing materials. Companies in this stage must be able to react extremely quickly to produce arrays of extremely sophisticated products, ramp up production to millions of units, or fully abort it. They incur significant costs, carry a lot of risk, and get by on extremely low margins. This is a feat of innovative ability that few, if any, American and European companies are capable of performing. It is not a surprise that the best and most innovative Chinese companies are the undisputed global hub of Stage 4 innovation. It is not glitzy and does not inspire media attention, but it produces sustainable economic growth, millions of jobs and, arguably, more benefits to humanity then most Silicon Valley startups will ever produce.
Early in the book you talk about two common childhood tools/toys that have sparked observations about innovation: bicycles and Jenga. How has family influenced your thinking on innovation, and how do you notice innovation in your domestic life?
I have two kids, and when we first went bike-shopping for them I remembered the bicycle I had as a child and how heavy it was. And we go to the bike shop today – and they’re so unbelievably light! It’s a miracle. And so, I started to wonder about the innovation that happened there, and I found the story of two companies, Giant in Taiwan, and Shimano in Japan. One company looked at material science, and the other focused on leg movement and how that can be transformed into power. And they adapted bikes accordingly. But my point is that a huge amount of R&D and engineering went into these adaptations, and neither would have happened without state policies and investment in innovation, industry and education.
And then there’s Jenga. It’s a game where you build something and then it crashes, and then you build it again and it crashes again. And every time, you try a different construction, and you learn something. We have been playing Jenga with our global system of production for the last forty years, but our policies have not changed.
We still think that we are working on our first Jenga building when, in fact, we are on our third or fourth. Children learn that you don’t need to be too careful at the beginning of Jenga, but once there are a lot of holes in the building you need to change your strategies—otherwise, the building collapses on your turn. And the role of a social scientist in a public university is to say to leaders and policymakers, "Hey, we are in the third stage of a Jenga game, and you play as if we just started."
