The Economics of Research and Technology

Keith Norris, John Vaizey

• Publisher: Taylor & Francis
• Year: 2018
• Print ISBN: 9780815350101
• eBook ISBN: 9781351163781
• Edition: 1
• Topic: Economics
• Subtopic: Business General
• Index: Economics

Originally published in 1973 this book applies economic analysis to scientific research and to industrial reserch and development and analyses the interactions between these activities and economic activities in general. The book begins by looking at the relationships between science and technology and then:

• Analyses research and development in manufacturing industry
• Explains the different levels of expenditure in research and development in different industries and the role of such expenditure in the growth of firms
• Looks at the distribution of science and technology expenditure
• Discusses the international transfer of technology

The book draws on evidence from several fields of study and imposes a theme upon the variety of evidence.

CHAPTER 1

Taxonomy

Our first task is to define clearly some of the terms which will crop up frequently in subsequent chapters. In this chapter is a series of definitions. We have deliberately spaced them out and we must emphasize that much of the value of economic analysis in this complex field depends upon clearing up a certain amount of terminological muddle. There are wide discrepancies between the use of the terms by economists and by scientists, technologists and others who are undertaking the activities which economists are discussing. Furthermore, there is no general agreement among economists as to standard definitions of terms, and there may well be disagreement among scientists and technologists, although this is not of immediate concern to us here. Inevitably a chapter of this sort tends to be rather dull, and we ask the reader to be patient.

We start by distinguishing between science and technology. ‘Technology’ is a good example of a word which is interpreted in several ways. We can identify at least five meanings in common usage:¹

1. A general definition is that ‘technology covers all the scientific and engineering activities in the process of industrial innovation’. This fails to distinguish between science and technology, a distinction which we shall wish to draw.

2. ‘Technology can be taken as synonymous with engineering.’ The basis of this interpretation seems to be that those who work in technology are usually trained engineers and have engineering qualifications.

3. Technology is often defined by engineers as a set of craft techniques. The practical emphasis inherent in this usage renders it similar to that suggested by Galbraith: ‘The systematic application of scientific or other organized knowledge of practical tasks.’²

4. There is the standard dictionary definition—‘the science of the industrial arts’.

5. The meaning most commonly found in economics is a hybrid of the previous definitions. Technology is seen as defining a spectrum of available techniques, which define the various combinations of inputs which will yield any given (physical) output. Technology thus defines a production function.

No doubt there are many other interpretations of the word ‘technology’. Enough has been said, however, to illustrate the nature of the problem. Although most interpretations have a certain similarity, there are enough differences to be a source of potential confusion. Each definition has its merits, but we have thought it worth while to set out at the start the precise meaning which we attach to various terms. We make no special claim for these—either in clarity or originality—and, in fact, in most cases we shall be simply restating a definition in fairly common usage. In any case, by drawing attention to the linguistic muddle, we have illustrated the protean nature of the matter we are dealing with. We will take technology to refer to the available set of techniques.

Science is the objective body of knowledge which has been accumulated and organized by systematic study. Thus, it is not confined to the understanding of natural or physical phenomena, and the characteristics which distinguish science from all other knowledge or understanding are that it must be objective and it must be possible to disprove it. Science is concerned with understanding, while technology is concerned with practicalities and with usefulness. Thus, technology is, in a sense, the embodiment of science in a set of techniques.

At various points in the book we shall examine the relationship between science and technology, but it should be emphasized at this point that the links between the two are not simple and are far from being perfectly understood. In some cases an addition to scientific knowledge is seen to lead directly to a change in technology. This was true of the development of nylon which was undertaken by E. I. du Pont de Nemours & Co. in the U.S.A. between 1927 and 1938. The company decided, in 1927, to allocate $250,000 annually to a programme of basic research into polymerization. The work was undertaken by a young chemist named Dr Carothers. In the next three years, the work can be said to have led to an advance in the scientific knowledge of the process by which molecules join together to form polyesters. In 1930 it was noticed during an experiment that as the heated polymer was withdrawn from a vessel, it could be drawn out in the form of a fibre and that the fibre remained tensile even when cold. However, it was easily softened by heat. This phenomenon had not been observed before. It was thought that some similar polymer could be developed which would form a fibre for use in textile manufacture. Later work resulted, in 1938, in the construction of the first pilot plant to produce nylon. At this point a change in technology occurred.¹

To be able to identify a clear causal link between a change in technology and some previous change in science is the exception rather than the rule. A recent study of eighty-four technological advances could only identify two cases where the route could clearly be traced back to scientific research.² It seems that most technological advances are based simply upon previous technological knowledge. This has been true of some very striking advances. For example, Dr Christiaan Barnard has written: ‘In performing the first heart transplant I operated as a technologist. The only scientist involved was William Harvey, the man who gave us an understanding of the nature of the heart back in 1628. In much the same way I suspect that Isaac Newton was the only real scientist involved in putting man on the moon.’³ It is also self-evident that many results of scientific research by their nature do not lead—and are not intended to lead—to any change in the productive processes or to new products. In Chapter 8 we further examine this complex and interesting question.

Research is the process of adding to the total, or advancing the limits, of scientific knowledge. It is customary to distinguish between basic, or pure, research and applied research. The former is undertaken with no specific commercial objectives, while applied research tackles problems with immediate commercial potential. Again, the distinction is often vague. Some basic research is undertaken in the laboratories of firms and it is difficult to see why they should incur such expenditure if there were no prospect of monetary return. Thus, it is important to emphasize that, while basic research has no specific or immediate commercial objectives, it clearly may have commercial potential. Firms, of course, have many objectives and survival is more important for some than profit maximization; others may undertake research because they want to, not because it helps them. But over the whole range of firms commercial principles probably predominate. Most research is, as we shall see, undertaken in the public sector, at least in the U.K.

Commercial objectives become paramount in the development stage of a new process or product. Development can be seen as the process of selecting the most (commercially) promising research results and using them to create new products or processes. The development phase includes the construction of prototypes or pilot plants. Throughout the development phase economic constraints operate. Only processes or products that are likely to be profitable in given market conditions will be ultimately used, and hence development is concerned with identifying these processes and discarding others. An integral part of development activity is design and it is here above all that commercial and production possibilities are exhaustively considered. The end of the development phase occurs when a new process is introduced into production, or when a production line is set up to produce a new product or to exploit a new process. Where do invention and innovation fit into this?

Invention is the creation of new technological knowledge; an innovation is the embodiment of this knowledge in actual productive processes. Thus, it is invention that changes the set of techniques available, while innovation changes the technology. It is not until innovation occurs that an invention has an effect on the way goods are produced, or on the type of product. In the past the distinction between invention and innovation was often easy to make in practice, for the inventor and the innovator were different people or organizations. The inventor sold the rights of his new technique (or product) to a firm who subsequently applied it in production. Today, although it is easy to underestimate the role of the individual inventor, invention and innovation often take place within the same organization, which tends to blur the distinction between them.

The main point at issue is whether an invention makes use of available and existing scientific knowledge, or whether invention may include some element of scientific discovery. It is argued, for several important reasons, that the distinction between invention and discovery is worth making.¹ First, scientific discovery is not concerned with usefulness or practicality, and indeed most discoveries are not immediately useful. Secondly, a scientist is now a recognized professional worker, in a university or research laboratory, publishing his results for scientific purposes. An inventor is a different animal, usually concerned with patenting his results, and often (as many studies have shown) an ‘odd bird’. A scientist may be an inventor, but the two functions are distinct. Finally, scientific discovery is general in the sense that it may provide the base for a large number of inventions. There is, in fact, usually a long time lag between discovery and invention, especially at periods when the advance of scientific knowledge is rapid. Science is international and simultaneous discoveries are frequent. This was brought out clearly in the discovery of DNA. Had Watson and Crick not cracked the secret, then Pauling in the U.S.A. would shortly have done so.¹ Because of the generality of discovery and because of the time-lags, the possibility of the patentability of a change may make the distinction clearer: inventions are patentable, discoveries are (usually) not. On this criterion, invention occurs subsequent to—or at least separate from—research, which we have defined as the process of adding to scientific knowledge. This conceptual distinction may, of course, be rather difficult to draw in practice, but it is a very important one, as we hope to show.

Having separated invention from research, only part of the problem of distinguishing the terms from each other has been solved. We can either place invention at the culmination of applied research activity or we can place it in the development phase. Many inventions in a patentable form occur in the development phase, yet development is often defined as the improvement of inventions. We have taken invention to be the creation of a new technique. An invention may follow some research findings, but it has usually arisen in the process of developing some other process.

An example of such an invention is the float-glass process, by which liquid glass is drawn on to molten tin. The bottom surface takes on the mirror-finish of the molten tin, while heat applied from above eliminates imperfections on the upper surface. The concept of using molten tin was first patented in 1902, but the float-glass process was not patented until 1959, by Pilkingtons, following seven years of intensive development work.

It is easier to place innovation in the research and development process. It occurs at the end of the development phase when a new process is introduced into production or when a productive line is set up to produce a new product. At this point the economic impact is immediate; Pilkington’s float-glass process is an example. There is the problem, however, that improvements to processes and products occur subsequently to innovation. Many weaknesses become apparent only when production takes place on a significant scale. Thus, some development will take place subsequently to innovation and this may be initiated and partly undertaken by production personnel. This serves to emphasize, once more, the overlap of research, development and production.

We finally need to distinguish between technological change (or advance), a change in technique and technical progress. A technological change is a change in the available set of craft techniques, whereas a change in technique occurs when there is a change in the technique(s) chosen out of the available spectrum of techniques. Such a change may occur in response to a change in factor supply or price. In the simplest case the technology may offer various ways, some using a lot of labour, some using many capital goods, of producing some commodity. In ordinary economic reasoning it is held that, if wages rise relative to the price of capital goods, then firms may tend to select a more capital intensive technique in order to reduce their production costs.

This distinction is conceptually neat, but in practice it is very difficult to make because technological change occurs at the same time as relative factor prices change. We can, however, make the distinction in some cases. The first automatic cotton picker was produced in 1924, adding a new technique to those available. The automatic cotton picker saves labour, and in the late 1920s and early 1930s the massive unemployment in the U.S.A. meant that the optimal technique for cotton picking remained the traditional method of picking cotton by hand. By the end of the Second World War, conditions had changed and the cotton picker began to be produced—and used—on a commercial scale. Even in this case it is not totally realistic to separate out changes in technology from changes in the technique used, for the employment situation led to the Harvester Co. postponing its efforts to improve the rather inefficient cotton-picker it had first produced in 1924.

So what does the term ‘technical progress’ mean? Here it is very important to make clear that the term as used in most of the literature, and as we shall use it, does not necessarily have anything to do with science and technology. To be more specific, ‘technical progress’ should not be confused with the terms ‘technological change’ (or ‘advance’) and ‘changes in technique’. Let us first be precise about technical progress. It is convenient here to talk in terms of an aggregate production function—we need not worry at this point about the p...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Preface
• Introduction
• 1. Taxonomy
• 2. Resources Devoted to Science and Technology
• 3. Individual Inventors and Patents
• 4. Research and Development Expenditure in Manufacturing Industry
• 5. Research and Development in the Firm
• 6. Innovation
• 7. The Diffusion of Innovations
• 8. The Public Sector
• 9. Some International Questions
• 10. The Effects of Technological Change
• 11. Technology and Growth
• Epilogue
• Index