Patents Aren't Innovation

A blog about business and economics.
Oct. 3 2012 2:05 PM

Patents Aren't Innovation

A new paper from Michele Boldrin and David K. Levine is being publicized this week by the St. Louis Federal Reserve, making the point that patents don't increase levels of valuable innovation:

The case against patents can be summarized briefly: there is no empirical evidence that they serve to increase innovation and productivity, unless the latter is identified with the number of patents awarded – which, as evidence shows, has no correlation with measured productivity. This is at the root of the “patent puzzle”: in spite of the enormous increase in the number of patents and in the strength of their legal protection we have neither seen a dramatic acceleration in the rate of technological progress nor a major increase in the levels of R&D expenditure – in addition to the discussion in this paper, see Lerner [2009] and literature therein. As we shall see, there is strong evidence, instead, that patents have many negative consequences. Both of these observations, the evidence in support of which has grown steadily over time, are consistent with theories of innovation that emphasize competition and first-mover advantage as the main drivers of innovation and directly contradict “Schumpeterian” theories postulating that government granted monopolies are crucial in order to provide incentives for innovation. The differing predictive and explanatory powers of the two alternative classes of models persist when attention is shifted to the historical evidence on the life-cycle of industries. The initial eruption of small and large innovations leading to the creation of a new industry – from chemicals to cars, from radio and TV to personal computers and investment banking – is seldom, if ever, born out of patent protection and is, instead, the fruits of highly competitive-cooperative environments. It is only after the initial stages of explosive innovation and rampant growth end that mature industries turn toward the legal protection of patents, usually because their internal grow potential diminishes and the industry structure become concentrated.
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Ryan Avent sent this to me on the grounds that it bolstered my position about the use of patent counts as an empirical measure of innovation in economics research though I do think these are somewhat separate issues. The fact that Schumpeterian patent-crazy public policy is a bad idea is an important one, but the problem with patent counts is more fundamental.

Total Factor Productivity is (by definition) unmeasurable. But what often happens is that people use the word "technology" or "innovation" to mean TFP, and then propose some empirical measure of innovation (perhaps patents) and then draw policy conclusions that are based on an ambiguating between ordinary language meanings of the words and the technical definition of TFP. What's wanted is research that moves beyond phlogiston economics and shows that there's some countable empirical quantity that reduces our need to appeal to the mystery residual to explain growth. What Boldrin and Levine are showing is that patents aren't that either. There's no evidence that more patenting leads to more productivity.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.