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Driving Economic Evolution
9.23.2014

Ever wonder why innovation policy gets so little attention in Washington? One reason is the manner in which policymakers — and the economists who advise them — conceptualize the economy.

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In the conventional view, the U.S. economy is a static entity, changing principally only in size (growing in normal times and contracting during recessions). In fact, a more accurate way to view the U.S. economy is through the lens of “evolutionary economics.” For in reality, our economy is a constantly evolving complex ecosystem. The U.S. economy of 2014 is different, not just larger, than the economy of 2013. And the goal of economic policy should be to help drive this evolution.

On any given day this year, approximately 620 patents will be issued, 434 new products brought to the market and 439 new production processes adopted. Firms in some industries will get bigger, others will get smaller. Entire industries will expand and contract at significantly different rates, as well. Throughout 2012, output in the oil and gas industry expanded by 0.05 percent per day, while amid the continued shift to e-commerce and “big box” specialty retailers, output from general merchandise stores shrank 0.025 percent per day. And the economy evolves through firm births and deaths.

Evolutionary economics is grounded in the work of mid-20th century economist Joseph Schumpeter. In this view, the U.S. economy is an “organism” that is constantly developing new industries, technologies, organizations, occupations and capabilities, while at the same time shedding older ones that new technologies and other evolutionary changes make redundant (the proverbial “buggy whip” industries). This rate of evolutionary change differs over time and space, depending on a variety of factors — including technological advancement, entrepreneurial effort, domestic policies and the international competitive environment. Indeed, the last factor is critical, for the U.S. economy does not evolve alone, but in competition and cooperation with other national economies.

Economic evolution includes improvements in productivity, innovations that are welfare enhancing (such as the development of new products, services and business models), and increases in global competitiveness. As defined, evolution leads to growth, and indeed is the key driver of growth, especially over the moderate and long term. It is in this context that the central task of economic policy is not managing the business cycle, boosting freedom or spurring economic redistribution — it’s driving robust rates of economic evolution.

Given this paradigm, there are a number of principles for effective economic policy that focus on enhancing economic evolution: support for global economic integration, getting out of the way of natural evolutionary gain and loss, fostering a culture that embraces evolution, and — most importantly — accelerating technological innovation.

To maximize technology-driven evolution, nations need a proactive innovation policy. Successful innovations are based on knowledge about users’ needs and the value of the innovation to users. In this sense, smart innovation policies try to fill what is fundamentally a knowledge gap. Thus, it is difficult, if not impossible, for individuals and firms to make effective decisions under conditions of uncertainty relying only on price signals. This is why, despite what neoclassical economists believe, innovation is not something that falls out of the sky, or as economist Robert Solow once called it, “manna from heaven.” It comes from intentional human and societal action.

This is particularly true given that firms acting alone in response to price signals will not always produce the optimal rate of innovation. This is because economies are evolutionary, complex systems — not just markets. Firms and entrepreneurs cannot capture all the benefits of their own innovative activity, so will produce less innovation activity than society needs.

In addition, because of the complexity of the innovation process, especially today, firms cannot maximize innovation by working in isolation. Instead, they need to interact with suppliers, customers, competitors, universities, research institutes, investment banks and government entities to gain various kinds of technology, knowledge, information, and market access. Such interactions take time, effort, and resources, and in a fast-moving world, the pattern of cooperation between firms and other agents is far from optimal — not the least because of a lack of information about possible useful partners.

Finally, “chicken-or-egg” challenges inhibit development of technology platforms. These challenges must be overcome for innovation to occur around technology platforms such as near field communications-enabled (NFC) contactless mobile payments, intelligent transportation systems, health IT systems, digital signatures, the smart electric grid and the Industrial Internet.

This means that to maximize evolution, the critical issue of the role of the state and market should not be framed, as it is currently in Washington, as the state versus the market. Instead, as Erik Beinhocker suggests, the issue should be framed as, “how to combine states and markets to create an effective evolutionary system.” How to craft an effective evolutionary system that supports organizations in their quest to become more productive and innovative in the most effective way is largely an empirical and practical problem that cannot and should not be guided by broad ideologically sweeping statements, like “government always gets it wrong,” or “corporate profits are antithetical to the public good.”

It is beyond the focus of this post to lay out a detailed innovation agenda, but a few key areas stand out. First, the government has a key role to play in marshaling resources for innovation, particularly in funding scientific and engineering research — not just at agencies like the Department of Defense, National Institutes of Health and National Science Foundation but through incentives like science prizes and the R&D tax credit. It should also do more to support the development and international recruitment of STEM talent. Indeed, knowledge generation is a key to speeding up evolution. If mankind had perfect knowledge we would already have human-like robots, cures for all diseases, low-cost clean energy, space planes, and many other things we can only dream of.

In addition, the federal government should identify a few key challenges — like the development of low-cost, low-carbon energy sources and affordable and effective robotics — and devote significant resources to their attainment, as President Kennedy did with putting a man on the moon. This means doing things like dramatically expanding, rather than cutting, federal support for scientific and engineering research and making the research and experimentation tax credit much more generous.

But to effectively drive evolution, government needs to do more than simply fund factor inputs to organizations. It needs to engage in an active innovation policy. This includes policies to spur technology transfer and commercialization and to support pre-competitive industrial research consortia. Accelerating economic evolution also means focusing on how government and government-related industries (e.g., education, healthcare and transportation) can be transformed by technology. Indeed, these sectors are primary targets for evolution and technological innovation, but evolution will be slow unless the government actively creates policies to support and spur innovation.

Taking these steps will help maximize U.S. economic evolution to dramatically improve the standards of living and quality of life of future generations of Americans.

This post is based on the forthcoming report, “Understanding and Maximizing America’s Evolutionary Economy.”

Robert D. Atkinson is President of the Information Technology and Innovation Foundation (ITIF).

 

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Uncertain Waters Ahead for Unmanned Ships
9.22.2014

Driverless transport seems poised to disrupt.

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Amazon and pizza companies are conducting early tests to use airborne drones for bringing packages to customers’ doors. Google and others are building autonomous cars that don’t take sick days or get paid by the hour. Trucking analysts, meanwhile, anticipate the day when convoys of robotic semis haul freight over highways.

But the biggest fish in the sea for unmanned freight delivery is maritime shipping, which carries more than 9.2 million metric tons of goods worth well over $4 trillion around the world annually, the UN says. Already operating the world’s most efficient mode of powered transportation, some corners of the shipping industry are starting to take the first delicate steps to further streamline the operation of cargo vessels by installing computers in the captain’s chair.

Proponents say putting autonomous systems and remote land-based staff in charge of ships will translate to more efficient and less expensive operations. Getting rid of on-ship crews would certainly simplify ship designs — no need for quarters, kitchens or air conditioning.

Stripping ships of the equipment needed to support crews would lower the vessel’s weight by 5 percent and decrease fuel burn by 15 percent, predicts Oskar Levander, vice president of innovation, engineering and technology of Rolls-Royce.

Worried about pirates? That threat is minimized if there’s no bridge to commandeer, or captain to take hostage.

But this isn’t some far-off, sci-fi world — advocates say most of the necessary technology already exists to put robot ships out to sea. Echoing driverless car proponents, they argue that computers would do a much better job at piloting ships because they don’t get tired, bored or distracted. Such systems can also digest big chunks of data and make decisions much faster than people.

“Is it better to have a crew of 20 sailing in a gale in the North Sea, or say five in a control room on shore?” asks Levander in a report exploring the future of marine transport. “Given that the technology is in place, is now the time to move some operations ashore? Sometimes what was unthinkable yesterday is tomorrow’s reality.”

Rolls-Royce, which is developing a simulator in Norway to test out system designs for unmanned ships, is just one actor in the space. Another, called MUNIN (Maritime Unmanned Navigation through Intelligence in Networks) is a collaborative effort by European research centers and companies that is working get an autonomous and remote-controlled ship system operational. The group is targeting simulated sea trials for a working prototype next year.

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The MUNIN vision of an autonomous and unmanned vessel. Courtesy MUNIN.

Some shipping industry watchers are optimistic. DNV GL, a maritime and oil and gas consultancy, says the first working autonomous ship prototype could be ready by 2015, with unmanned carriers transiting the oceans regularly by 2035.

“Shipping will likely apply these technologies to instrumented machinery first and then gradually to vessel navigation, which will be operated remotely from shore-based centers,” DNV GL senior researcher Knut Erik Knutsen told industry magazine The Motorship.

Yet while technologists say the systems and equipment are already available, there’s no legal framework for autonomous vessels to operate in international waters. Unmanned ships are currently illegal under international conventions that govern the high seas because they wouldn’t meet minimum crew requirements set by those treaties, Simon Bennett, spokesman for the International Chamber of Shipping, an industry association, told Bloomberg. Without meeting those requirements, an unmanned ship wouldn’t be classified as seaworthy and couldn’t get insurance, leaving the project dead in the water unless new regulations are written.

Skeptics, meanwhile, don’t buy the argument that computers would do a better job than seasoned mariners. They caution against letting big ships — which can top 1,300 feet long and hold 2 million barrels of crude oil — roam the seas with only an electronic captain at the helm.

Autonomous systems “cannot and will never replace the eyes, ears and thought processes of professional seafarers,” Dave Heindel, chairman of the seafarers’ section of the International Transport Workers’ Federation, told Bloomberg. Calling the captain and crew the first line of defense in a crisis, he warns, “The dangers posed to the environment by unmanned vessels are too easily imagined.”

While all sectors are moving inexorably toward a more robotic world, it remains to be seen whether these first stabs at unmanned ships will stay afloat. There is a pile of money, jobs and other considerations in the balance. And the more the technology behind autonomous shipping proves itself, the more heated the debate will become.

“While the idea of remotely operated vessels remains controversial, the development of such systems will not be limited by technology,” say DNV GL analysts. “Rather, the industry will have to weigh the benefits of remote operation, which include reduced manning costs, increased safety and improved vessel condition, against their perceived risks.”

Top image: Courtesy of Rolls-Royce

 

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Growing your Lemonade Stand: Exporting Drives Sales and Innovation
9.19.2014

Remember how much fun it was opening your own lemonade stand?

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You would go to the supermarket with your parents to buy the ingredients, rush home to the kitchen with your siblings to mix everything up, create your own lemonade stand sign, and then head out to the end of your driveway / sidewalk to offer neighbors a cup of watered-down lemonade for 25 cents. While 25 cents per cup wasn’t the greatest profit margin, you still felt the most successful entrepreneur in the world!

I’m not taking a trip down memory lane for nostalgia purposes. The childhood lemonade stand can actually teach us a lot about manufacturing in today’s global economy, particularly when it comes to exporting and growing your business.

Lemonade for the Street vs. the Neighborhood

Let’s say you live in a neighborhood of 100 houses. However, you live at the end of a private side street where there are only five houses… and cars very rarely come your way. If you just sell lemonade to those five houses, you may cover your costs and make a small profit on your stand. However, it would be hard to grow your business. In order to build a successful lemonade stand, you would have to expand to other streets throughout the neighborhood and get in front of more customers, right?

Now let’s think about today’s business world. Ninety-five percent of the world’s customers live outside the United States. This isn’t an exaggeration – if you aren’t exporting, you are currently only hitting 5 percent of the world’s potential customers. You’re the lemonade stand at the end of a cul-de-sac.

Misconceptions about Exporting

In today’s competitive global market, the status quo is no longer an option. It’s not about sustaining business – it’s all about growth. However, many U.S. manufacturers don’t embrace exporting as a viable business plan to increase sales. According to an International Trade Administration fact sheet, “less than 1 percent of America’s 30 million companies export – a percentage that is significantly lower than other developed countries.”

Why aren’t more manufacturers exporting? Misconceptions lead companies to believe that exporting isn’t right for them.

Many manufacturers think that the market is “big enough here” in the U.S. to maintain business. While our domestic market is in fact huge, we’re also one of the most competitive nations in the world. The Internet and emerging technologies have only accelerated the competition. our target customers can research their competitors and pricing information at the touch of their computers or phones. There is only so much growth potential here in the U.S., especially as only 5 percent of the world’s market resides here

Others avoid exporting because they believe it will be too difficult. Foreign markets have different rules, regulations, currencies, etc. The risk may be too high. This isn’t an entirely unreasonable concern; there are certainly obstacles and logistics to overcome. However, there are many resources available to help companies strategically navigate these challenges It may take a bit of time to gather exporting know how, but the process is not as difficult as many businesses presume.

Finally, companies think that because they’re a small business, they don’t have the ability to export. Exporting is only for large manufacturers, right? The truth is – 97 percent of exporters are actually small or mid-sized businesses according to the National Association of Manufacturers. More than two-third of exporters are estimated to having fewer than 20 employees according to Export.gov. What companies lack in size, they make up with strategy.

The Benefits and Innovation of Exporting

The clearest benefit of embracing exporting is more sales. By entering previously untapped markets, a manufacturer can increase revenue and growth. A study by the Institute for International Economics found that, “U.S. companies that export not only grow faster, but are nearly 8.5 percent less likely to go out of business than non-exporting companies.”

There are other benefits. For instance, when companies enter different markets, they’re exposed to new cultures and buyer personas. These experiences enable an organization to develop a broader understanding of different types of consumers. This knowledge can influence how manufacturers sell domestically to their own target audiences.

Innovation is important for any manufacturer in today’s economy. Innovation is a common “buzzword,” but being innovative means solving a problem in a unique way or trying something new to improve your business. If your company wanted to try a new internal process, technology, product enhancement or even an entirely new product line, you could use the foreign market as a test. This leads to innovations you can offer to your domestic customers. 

Get Hands-On Help withExporTech™

So now you are interested in exporting and probably have a lot of questions such as, “How do I start?” “How do I select the right countries and business partners?” and “How do I overcome the logistics and make sure I get paid?”ExporTech™will help you answer these questions and more!

The ExporTech™program helps U.S. manufacturers systemically and strategically enter foreign markets. The program is geared towards C-level executives and key decision makers and is backed by the NIST Manufacturing Extension Partnership, U.S. Export Assistance Centers, FedEx and numerous legal and logistic experts.

In ExporTech™, exporting experts actively engage with participants and provide hands-on coaching to help U.S. manufacturers develop their strategic exporting plans. Participants attend three workshops over the course of three months and all classes and lessons are based on proven exporting methodologies, research and success stories.

Manufacturers leave the program with a specific exporting plan to drive sales; it is also the only national program where organizations develop a written exporting plan that is reviewed by experts. This accelerated program is also designed so that companies can start exporting right away.

Nearly 575 companies have participated in 105 ExporTech™ programs across the country. Since 2007, the total program resulted in $400 million in increased or retained sales for participants and the average participant realized:

  • $770,000 in new export sales
  • New sales from exporting within six months of completing the program
  • $50,000 in cost and investment savings

More than 30 small manufacturers relay their ExporTech™ success stories on the MEP website.

Resources for Exporting

For more information about ExporTech™, see a list of state MEP centers providing the program.

The U.S. Commercial Service also offers a “Gold Key Matching Service” which helps companies find potential overseas customers, distributors and business partners. Trade counseling is also available. And there are also various international trade fairs in the near future where companies can start introducing their products to foreign customers.

Put your “lemonade stand” in front of more thirsty customers. Exporting can help a good company grow its business and secure its future.

This piece first appeared in Manufacturing Innovation Blog.

Kari Reidy is Acting Manager, Communications at Manufacturing Extension Partnership, National Institute of Standards and Technology.

 

 

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When Shale Gas Met Software
9.17.2014

Getting shale gas out of the ground is one thing. But taking it to customers is quite another.

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American pipeline operators are investing as much as $40 billion every year to maintain, modernize and expand their networks. The shale gas boom is putting operators under pressure to move more gas to marketfaster and more safely, and many U.S. pipelines have been in service for at least two decades.

“We need an agile and comprehensive pipeline solution that could be delivered quickly and allows for a more real-time view of pipeline integrity across our interstate natural gas pipelines,” says Shawn Patterson, president of operations and project delivery at Columbia Pipeline Group.

Columbia runs a 15,000-mile gas pipeline network linking the Gulf Coast to the mid-Atlantic region and the Northeast. It will soon start using GE software and big data to monitor its network in almost real time, and streamline its operations and planning.

The technology, called Intelligent Pipeline Solution, combines GE software and hardware with Accenture’s data integration expertise. It runs on Predix, GE’s industrial software platform, and links pipelines to the Industrial Internet for the first time.

The Intelligent Pipeline Solution is the first commercial product GE and Accenture have offered up since they formed their software and big data partnership in 2013. The companies expect the system to be operational in the first half on 2015.

The world’s pipelines stretch for some 2 million miles, enough to wrap themselves 80 times around the equator. GE estimates every 150,000 miles of pipeline generates an amount of data equal the entire printed collection of the Library of Congress, or 10 terabytes.

Brian Palmer, chief executive of GE’s Measurement & Control unit, says that the new system will help customers like Columbia make the right decisions at the right time to keep their assets safe. It will help them send repair machinery and crews where they are needed most, and speed up response time to problems.

The system is designed to harvest data from sensors installed along the pipes and equipment, sync it with external data sources and deliver to customers detailed analytics and risk assessment from key points of the network. “The goal is to help pipeline operators make proactive, rather than reactive decisions,” Palmer says.

The piece first appeared in GE Reports.

 

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Global Health Innovation at Work: A New Approach to Cancer Screening
9.16.2014

Innovation is the buzzword of the decade. Touted by government officials, corporate and civic leaders and entrepreneurs, the word has become a stand-in for anything cutting edge or trend setting.

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But for those of us working in the field of global health, innovation is the driving force behind transformational change that can propel the most promising solutions to the world’s relentless health challenges.

Innovation in global health is more than scientific breakthroughs and engineering feats, and shiny new technology — it means offering health providers in impoverished and remote communities the opportunity to save lives with safe, effective and affordable healthcare interventions.

That’s the essence of the innovation behind the “single visit approach” (SVA), a strategy for cervical cancer prevention pioneered by Jhpiego, a global health affiliate of Johns Hopkins University.

For most women in the developing world, screening for cervical cancer is rare, resulting in over 270,000 women needlessly dying every year from what is a preventable and treatable disease. The SVA is a low-cost method that uses simple vinegar to screen and offers same-day cryotherapy treatment, all at a fraction of the cost of the traditional PAP smear and saving the time and expense of making another trip to the clinic.

SVA is saving lives in 22 countries around the world where Jhpiego has supported cervical cancer prevention programs. In Tanzania, Julietha Makyala, a 37-year-old mother of three children, decided to take advantage of a free cervical cancer screening. She and 13 other women screened that day at a health facility in Njombe tested positive for precancerous lesions and were able to receive treatment quickly and safely during the same visit.

That kind of impact is exciting and energizing, but what about the millions of women who aren’t as lucky as Makyala? The success of the cervical cancer “screen and treat” programs in preventing women like Makyala and others from dying unnecessarily from cervical cancer depends on something quite simple: cryotherapy equipment that works, is affordable and empowers the healthcare workers in the outer corners of health systems worldwide to treat the women whom they screen and among whom they identify pre-cancerous lesions.

Yet in many countries, cryotherapy equipment that is cost-effective, robust and efficient for the single visit approach remains a bottleneck. It was this reality that prompted a team from Jhpiego and Johns Hopkins University Center for Bioengineering Innovation and Design to develop CryoPop — a new, inexpensive cryotherapy device that is portable and cost-effective.

Let’s take a moment to walk in the shoes of a nurse in rural Tanzania, Antonia Masinga. Like most healthcare workers in developing countries, Masinga’s job is demanding; and like the rest of us, she takes pride and ownership in the ability to do her job well and deliver life-saving healthcare to her community.

Her health clinic would like to start its own SVA cervical cancer program in her district, but the one piece of cryotherapy equipment they have cost a lot, so they could only buy one or two. One of them is now broken, and the cost and complexity to get it fixed has rendered it a dust collector in the corner of her clinic.

Now, when women come in to get screened, if Masinga detects a pre-cancerous lesion, she often has to refer the women elsewhere to get treated. As they walk out the door, Masinga worries that the woman will go home and her lesion will progress without getting treated, a missed opportunity and a tragic reality.

CryoPop is designed for people like Masinga, but costs a fraction of existing cryotherapy devices. It is also more robust and uses CO2 more efficiently — a gas that’s available wherever anyone drinks Coca-Cola. That means we will be able to see and treat more women at a lower cost to the health system.

In advanced product development stage, the CryoPop team has spent extensive time with users and clinical experts from all over the world. In addition to empowering healthcare workers like Masinga and making successful cervical cancer prevention and treatment programs a reality for women and families regardless of where they live, it turns out that CryoPop could also be an attractive alternative for clinical providers in developed or emerging markets in Asia, Europe, and Latin America. CryoPop has the potential to close the gap in cervical cancer prevention and treatment.

Developing technology for global health is not easy, with —even the simplest technologies facing a challenging course to move from idea to impact. CryoPop is simple, but transformational — empowering frontline health workers who are committed to providing quality, life-saving care to the women who need it most. And with the help of partners like the GE Foundation, we are closer to bringing this change about.

It is up to us to find the intersection of innovation, global health need, and engineering and scientific breakthroughs to deliver on the promise of global health technology.

Brinnon Garrett Mandel is the Director of the Innovations Program at Jhpiego, an affiliate of Johns Hopkins University, managing a portfolio of global health technology innovations and a team of bright engineers and public health clinicians, researchers, and practitioners. With a background in both public health and business, Mandel has worked in various roles at Jhpiego and in the private sector, with an interest in the intersection of global health, technology and business.