Mowery Nber Oct091


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Mowery Nber Oct091

  1. 1. Federal R&D and the Development of U.S. IT David C. Mowery Haas School of Business U.C. Berkeley & NBER
  2. 2. Overview <ul><li>Three “new industries” emerged during 1945-1980 in information technology: </li></ul><ul><ul><li>Semiconductors. </li></ul></ul><ul><ul><li>Computer hardware. </li></ul></ul><ul><ul><li>Computer software. </li></ul></ul><ul><li>Federal R&D spending was essential to the creation of these industries, but…. </li></ul><ul><ul><li>The effects of Federal R&D investment were influenced by other policies, notably procurement, antitrust, and IP policy. </li></ul></ul>
  3. 3. Semiconductors (1) <ul><li>Wartime military R&D in electronics & radar technologies supported work on semiconductor materials. </li></ul><ul><li>Transistor was developed within Bell Labs R&D program on long-distance transmission. </li></ul><ul><li>Bell Labs team “raced” Purdue University researchers in discovering the transistor, but industry subsequently assumed leadership in technology development. </li></ul><ul><ul><li>1956-57: Stanford Prof. James Gibbons was seconded to Shockley Semiconductor to learn semiconductor fabrication technologies. </li></ul></ul><ul><li>Federal antitrust suit against AT&T influenced corporate decision to disseminate technology and knowhow about transistor. </li></ul><ul><ul><li>AT&T sponsored seminars in 1951 & 1952 on transistor product and process technologies. </li></ul></ul><ul><ul><li>1956 settlement of U.S. v. AT&T mandated low-cost licensing of its large patent portfolio by AT&T. </li></ul></ul><ul><ul><li>With AT&T at center, patent cross-licensing was common. </li></ul></ul>
  4. 4. Semiconductors (2) <ul><li>Early military R&D focused mainly on production engineering. </li></ul><ul><ul><li>By late 1950s, objectives had broadened, and federal funding accounted for almost 25% of industry R&D investment </li></ul></ul><ul><li>DoD R&D in “molecular electronics” supported established firms, produced limited results . </li></ul><ul><ul><li>In 1959, “new firms” received 22% of federal R&D contracts, yet accounted for 63% of industry sales. </li></ul></ul><ul><li>“ Prize” of DoD procurement contracts led Texas Instruments, 1 st producer of silicon junction transistor, to develop the integrated circuit in 1958. </li></ul><ul><li>Procurement policy influenced industry development. </li></ul><ul><ul><li>DoD awarded procurement contracts to new, vertically specialized “merchant” producers, influencing evolution of industry structure. </li></ul></ul><ul><ul><li>DoD orders enabled entrants to exploit learning, reduce costs, and penetrate civilian markets. </li></ul></ul><ul><ul><li>“ Second-sourcing” procurement requirements accelerated interfirm technology flows. </li></ul></ul>
  5. 5. Semiconductors (3) <ul><li>Summary: </li></ul><ul><ul><li>Defense-related R&D funding important, but procurement also influenced innovation and growth of commercial applications. </li></ul></ul><ul><ul><li>Antitrust policy and procurement policy reduced entry barriers & supported substantial interfirm flows of technological knowledge, knowhow. </li></ul></ul><ul><ul><li>Exclusionary effects of IPRs were limited by US v. AT&T consent decree, cross-licensing of patents. </li></ul></ul><ul><ul><li>Potential dominance by AT&T in commercial development of the technology was forestalled at an early point in the industry’s development. </li></ul></ul><ul><ul><li>DoD influence declined as nonmilitary sales expanded </li></ul></ul><ul><ul><ul><li>VHSIC program of 1980s & 1990s had limited influence on trajectory of industry’s technology development. </li></ul></ul></ul>
  6. 6. Computer hardware (1) <ul><li>Computers originated in WWII military demand for ballistics computations, cryptography. </li></ul><ul><ul><li>Universities were important sources of early technological developments in computers (e.g., magnetic memory). </li></ul></ul><ul><ul><li>MIT’s Lincoln Labs managed SAGE strategic air defense project in early 1950s for which IBM supplied computer hardware. </li></ul></ul><ul><li>Federal spending (largely defense-related) supported 59% of computer-related R&D of major U.S. computer firms during 1949-59. </li></ul><ul><ul><li>By early 1980s, federal funds accounted for roughly 15% of industry-wide R&D performance. </li></ul></ul><ul><li>DoD & NSF funded purchase of hardware for US universities that aided development of computer science departments in late 1950s, 1960s. </li></ul><ul><ul><li>Federal agencies funded 75% of math/computer science research performed in universities during 1970s and 1980s. </li></ul></ul><ul><ul><li>PhD-granting CS depts grew from 6 in 1965 to 148 by 1995. </li></ul></ul>
  7. 7. Computer hardware (2) <ul><li>Early DoD-funded R&D programs were relatively open to civilian researchers. </li></ul><ul><ul><li>Summer 1946 seminar for industry at UPenn’s Moore School on “Theory and Techniques for Design of Electronic Digital Computers,” sponsored by military research agencies. </li></ul></ul><ul><li>Military procurement and R&D programs enlisted participation of new as well as established firms. </li></ul><ul><ul><li>Federal procurement policy for much of the 1960s discouraged purchases of nonmilitary equipment from IBM, contrasting with European “national champion” policies. </li></ul></ul><ul><li>1956 settlement of federal antitrust suit against IBM mandated licensing of computer-related patents, further reducing entry barriers. </li></ul><ul><li>Federal share of overall industry sales declined after 1950s, but federal sales remained significant in high-end computers (40% in 1972, 13% in 1980). </li></ul>
  8. 8. Computer hardware (3) <ul><li>Summary of federal policy: </li></ul><ul><ul><li>As in semiconductors, federal antitrust policy encouraged interfirm competition, entry of new firms, interfirm flows of knowledge. </li></ul></ul><ul><ul><li>Federal R&D spending was motivated largely by national security needs, but military programs were relatively accessible to civilian researchers and firms </li></ul></ul><ul><ul><li>R&D funding supported creation of a large, university-based research infrastructure that combined research and training. </li></ul></ul><ul><ul><li>Procurement supported entry and discriminated against dominant domestic supplier (IBM) in nondefense applications through the 1960s, the antithesis of European “national champion” policy. </li></ul></ul>
  9. 9. Computer software (1) <ul><li>Although federal R&D investment and procurement were less significant, the US computer software industry emerged from foundations laid by federal policy in computer hardware: </li></ul><ul><ul><li>SW production for SAGE during 1950s was managed by RAND (later, the Systems Development Corp.), and served as a “trade school” for SW developers. </li></ul></ul><ul><ul><li>DoD HW procurement influenced development of some “standard” SW languages, e.g., COBOL in late 1950s. </li></ul></ul><ul><li>Federal antitrust and procurement policies influenced growth of independent SW industry in late 1960s. </li></ul><ul><ul><li>DC-based federal computer services firms began to develop SW. </li></ul></ul><ul><ul><li>IBM “unbundling” of SW & HW pricing under antitrust pressure in 1968 facilitated entry by independent SW developers. </li></ul></ul>
  10. 10. Computer software (2) <ul><li>IBM 650 and 360 mainframe computers formed platforms for SW user-developers and independent developers. </li></ul><ul><li>In the PC era, rapid adoption created a large domestic installed base and market for “shrinkwrap” SW that spurred user-driven innovation and “co-invention.” </li></ul><ul><li>Federal funding of academic computer science provided people & ideas for SW industry. </li></ul><ul><li>IPRs remained relatively weak/uncertain until the 1980s, prior to Diamond v. Diehr . </li></ul><ul><li>Failure of “Ada” SW development program of the 1980s illustrates declining DoD influence on SW industry, contrasting with COBOL in 1950s. </li></ul>
  11. 11. Conclusions (1) <ul><li>Structure of US public R&D programs in IT was nearly as important as their scale: </li></ul><ul><ul><li>Competition among research performers and would-be commercializers. </li></ul></ul><ul><ul><li>Pluralism and competition among sources of R&D support. </li></ul></ul><ul><ul><li>Reliance by federal agencies on extramural R&D performers rather than public laboratories. </li></ul></ul><ul><li>Federal policy extended beyond support for R&D. </li></ul><ul><ul><li>Policies encouraging adoption, entry, interfirm technology flows enhanced impact of R&D funding on competition, innovation. </li></ul></ul><ul><li>Federal R&D investments supported growth of infrastructure for training scientists & engineers in IT-related fields. </li></ul>
  12. 12. Conclusions (2) <ul><li>Defense-related procurement in semiconductors, computers complemented R&D spending and affected the development of industry structure. </li></ul><ul><ul><li>Contracts with new firms aided entry. </li></ul></ul><ul><ul><li>Large gov’t “buys” of new products acted like “prizes.” </li></ul></ul><ul><li>During the early period of IT industry’s development (circa 1950-80), relatively weak IPRs were associated with considerable new-firm entry. </li></ul><ul><li>Roles of industry & universities in innovation contrast among these 3 sectors and change over time. </li></ul><ul><li>DoD influence was critical in the early development of IT, but declined in all 3 sectors with growth of nonmilitary sources of demand and R&D funding. </li></ul>
  13. 13. Is energy different? <ul><li>IT history highlights importance of demand-side policy for adoption & industry development. </li></ul><ul><ul><li>In some energy technologies, larger installed base may accelerate technical progress through user innovation. </li></ul></ul><ul><li>Energy demand-side policy has been erratic. </li></ul><ul><ul><li>Absence of consistent demand-side policy exacerbated by wide swings in fossil-fuel prices. </li></ul></ul><ul><ul><li>Public R&D funding has tended to track price swings, exacerbating instability. </li></ul></ul><ul><li>In IT, early-stage gov’t (military) demand focused on performance more than price. </li></ul><ul><ul><li>Energy technologies often have to meet a more complex set of performance criteria, and compete with mature technologies in many applications. </li></ul></ul>