INET Project: Impatient Capital in High-Tech Industries
This second INET research on “impatient capital in high-tech industries” builds on the previous INET project, “The stock market and innovative enterprise”. Through in-depth empirical studies, guided by the theory of innovative enterprise, AIR researchers will analyze the role of finance in the operation and performance of three broad high-technology sectors: communications technology (comtech); biopharmaceutical drugs and medical technologies (healthtech); and wind power, solar power, electric vehicles and the smart grid (cleantech). These are all sectors in which the U.S. government plays important roles in funding research, much of it publicly available, and in providing investment subsidies to specific companies. Given this government funding, one key question posed by this project is whether the business finance available to these sectors entails the “financial commitment” or “patient capital” required to generate innovative products at prices that buyers are willing and able to pay. The other key question is the character of the innovation-inequality relationship based on the relation between those economic actors (taxpayers, workers, shareholders) who take the risks of investing in these high-tech industries and those actors who reap the rewards when these industries generate returns. This research will provide fundamental insights into financial regulation and corporate governance reforms with a view to promoting investments in industrial innovation. It will also consider how the success of industrial innovation can contribute to more equitable and more stable economic growth – or what we call “sustainable prosperity”.
The research builds on a “theory of innovative enterprise” that argues that an understanding of the operation and performance of financial markets related to high-tech industries must be grounded in the analysis of the ways in which businesses and governments organize investment in the innovation process. Whether in comtech, healthtech, or cleantech, industrial innovation occurs in a context of international competition and transnational investment. By placing the operation and performance of US high-tech industries in cross-national perspective, our research project will draw on the governmentinvestment, financial-regulation, and corporate-governance experiences in supporting high-tech innovation of other leading national economies such as Japan, France, Germany, Sweden and China.
Our research will advance the theory of innovative enterprise as a set of principles that can inform policy debates on the role of the firm in the operation and performance of the economy while providing an analytical framework for rigorous research. Our application and development of the theory of innovative enterprise will demonstrate the importance of an economic methodology that integrates theory and history to understand processes of organizational and institutional change as they unfold in real time. A pervasive finding of the study of the innovation process is the critical role of the “developmental state” in undertaking the riskiest investments in physical infrastructure and human capital, as well as subsidizing the costs of innovative enterprise. We ask how and to what extent business enterprises build on these government investments and subsidies by developing and utilizing productive resources. The project will advance a theory of innovation and development that focuses on the interaction of government and business investment strategies as a key determinant of economic outcomes. Public policies that support and regulate the government-business interaction in the innovation process should seek to achieve growth in per capita income with an equitable income distribution and stable employment opportunities. By focusing on the roles of strategy, organization, and finance in the innovation process and by characterizing the innovation process as collective, cumulative, and uncertain, our research framework can discern the social conditions under which investments in innovation can in fact contribute to equitable and stable economic growth.As elaborated below, our research is unique in conducting empirical research that can show the nexus between who takes the risks of investing in the innovation process and who reaps rewards from these investments.
William Lazonick, University of Massachusetts / theAIRnet