A few weeks ago, the Brookings Institution released a study that looks in detail at patenting activity in the US from 1980 to 2012 - Patenting Prosperity: Invention and Economic Performance in the United States and its Metropolitan Areas. The study examines whether patent activity is a good concrete indicator of innovation, economic growth and productivity by looking at historical data going all the way back to 1790. It includes a number of important findings, chief among them that the rate of patenting in the US stands at historically high levels.
This is a timely report given recent concerns that the US might be losing its innovation edge. For example, in 2011 George Mason University economist Tyler Cowen published The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better. According to Cowen, over the past two centuries the US economy has enjoyed lots of low-hanging fruit, including a vast, resource rich land, waves of immigrant labor, access to education and the technological advances of the Industrial Revolution, e.g., railroads, cars, electricity, telephones, chemicals, steel, and so on. But, Cowen believes that we are at a technological plateau, and wonders whether long term growth is still possible because the supply of low-hanging economic fruit is nearly exhausted.
Then last year, in a provocative paper, Is US economic growth over?, Northwestern University economist Robert Gordon questioned the generally accepted assumption that economic growth is a continuous process that will persist forever. Perhaps the slow growth we are experiencing in the US and other advanced economies is not cyclical, but rather evidence that long-term economic growth may be grinding to a halt. The rapid growth and rising per-capita incomes we experienced during the Industrial Revolution of the past two centuries might have been a unique episode in human history. There was little growth before 1800, and there might conceivably be little growth again for the rest of this century.
Given the close link between innovation and economic growth, it’s not surprising that questions are being raised whether our current slow growth is evidence that the innovation engine is now stalled. The Economist took a look at these innovation pessimism concerns in its January 12 issue. “With the pace of technological change making heads spin, we tend to think of our age as the most innovative ever,” it points out. But, Has the Ideas Machine Broken Down?, asks the lead article in its title. “The idea that innovation and new technology have stopped driving growth is getting increasing attention.” In the end, The Economist concluded that the fears that innovation is slowing are exaggerated and not well founded, a conclusions similar to that reached by the Brookings report.
I learned about the Brokings study in a very good blog on the subject by professor and author Richard Florida. Florida calls the Brookings study eye-opening because detailed evidence from which to evaluate America’s innovation system has been hard to find. The study’s rigorous analysis, graphs and charts help us better understand the current state of innovation in the US. By looking in detail at the patent rate per capita from 1790 to the present, it shows that periods of high patent activity do indeed correspond to major cycles of innovation:
“From 1790 to 1853, the rate of invention was very low, but it exploded in the Industrial Revolution starting in the mid-19th century and lasting all the way until the Great Depression. Scholars have characterized this period of U.S. history as the golden age of invention when industries such as textiles, garments, household utensils, and farming implements experienced tremendous innovation. With the onset of the Great Depression, the rate of invention plummeted from the 1930s to 1955, but there was a noticeable post-war rebound from 1956 to 1973, when the major research breakthroughs in modern information technology were first made. The decade from 1974 to 1984 saw a precipitous decline in inventive activity, but since, then, and starting in 1985, a post-industrial era of invention has begun and patent rates have steadily increased and remained high.”
Its principal finding is thus reason for optimism given the recent innovation concerns. “The rate of patenting in the United States has been increasing in recent decades and stands at historically high levels.” In fact, despite the fact that the US is still recovering from the worst financial crisis since the Great Depression, the US Patent Office granted the highest number of patents ever in 2011. The report adds:
“ . . . some economists and scholars have argued that invention is harder today than ever before because the low-hanging fruit has already been plucked. Yet, even if this is true, there are more scientists working today than ever before and research and development (R&D) spending is at an all time high. Science professors, engineers, and scientists comprised less than 1 out of every 1000 U.S. workers in 1910, but 25 out of every 1000 in 2010. Perhaps, that is why the rate of patenting is nearly as high today as any point in U.S. history.”
The report takes a close look at patent quality, and in particular, whether the strong growth in patenting over the past two decades has been achieved at the expense of quality. A number of people have argued that quality has indeed gone down especially given the changes to the law that allow for software patents.
The Brookings study examined the quality of patents over the past 20 years by looking at the claims and citations per patent. Patent claims precisely define its legally enforceable invention. A patent with multiple such inventions includes multiple claims and is considered a stronger patent. Patent citations are similar to academic paper citations, but they are added not just by the patent applicant(s) but also by the patent examiner. Both these measure are widely acknowledged in the academic literature as indicating the value of the patent.
Claims and citations increased steadily since 1975, reached a high point in 2005, declined slightly for the next couple of years and started growing again in 2010. “No recent decade has seen as many claims per patent as the 2000s.”
The study further analyzed patenting levels and economic growth across 360 US metropolitan areas, which led to its next major finding: “Most U.S. patents - 63 percent - are developed by people living in just 20 metro areas, which are home to 34 percent of the U.S. population.”
This is not surprising given that large metropolitan areas account for a disproportionate share of GDP and educated workers. “The 100 largest metro areas are home to 65 percent of the U.S population in 2010, but they are home to 80 percent of all U.S. inventors of granted patents since 1976 and 82 percent since 2005. Few patents are invented outside of metro areas.” In fact, the 10 most inventive metro areas account for almost half of all patents.
In conclusion, the comprehensive Brookings Institution study uncovered no evidence that the ideas machine is breaking down.
“Despite the Great Recession, the intensity of invention in the United States is high compared to both the rest of the world and its own history - propelling the growth and development the nation’s great metropolitan areas. High quality inventions across a number of industries are transforming regions and creating spectacular wealth. . . Given the growing size and geographic diversity of global markets, the rewards for successful invention have never been greater. If living standards in the United States are to progress at historic rates, the effort must rise to the occasion.”