[SCMP Column]The Art of Innovation

December 07, 2015

With Hong Kong’s new Innovation Bureau all prepped and ready to go, it is all the vogue to talk about how we best stimulate innovation. Purses are open, and many lobby groups in Hong Kong are calling for funds.

This is of course where the difficulties start. Every up-and-coming entrepreneur is going to argue that his new corkscrew is the most creative new initiative since Einstein stumbled upon E=MC2. But the evidence culled worldwide on the best way to encourage and reward creativity and innovation is far from clear.

Most business chambers – including most in Hong Kong I presume – would be arguing for tax breaks, subsidies and various cash incentives for bright-idea start-ups. But the data worldwide suggest that regardless of what tax breaks or subsidies you provide, 80-90% of start-ups fail. Therefore, lots of money goes down the drain. Many argue that this is an inevitable fact of life, and governments should shower water on a hundred flowers in confidence that a dozen or so will bloom. Measure the gains from the successful dozen they say.
These advocates have a case, and many governments follow that principle - though the rules they then set for how a bright entrepreneur, might qualify for support seem to baffle and frustrate even the keenest and most creative innovator. And there seems to be a very poor correlation between the amount of funding disbursed in a country, and the level of innovation. A recent Economist report claimed the best link with innovation was gross R&D spending: “Innovation-led “smart” growth has occurred mainly in countries with a big group of medium to large companies, and a small group of SMEs that is spun out from (them) or universities.”

I know that Nicholas Yang, our new Innovation and Technology Secretary, is going to come under fierce pressure to disburse taxpayer largesse in various directions. There will be lucky winners. I have a sneaking feeling I would rather see the money spent on strengthening our “innovation infrastructure” – like science and general education funding, low and simple barriers to setting up a company, low taxes. Institutions like the newly-created Hong Kong Academy of Science, to be headed by geneticist Tsui Lap-chee, must be a good thing.
Of course if you are a large pharmaceutical company, or Microsoft, or Disney or Time Warner, you would say the best incentive for innovation is strong intellectual property and patent protection. No-one would invest the resources needed to conceive the next brilliant new wonder-drug without a generous number of years of fierce patent protection that then allowed the innovator to recover long periods of risky investment, plus a generous return.

They are of course right - up to a point. But I have come to hate with a vengeance the lawyer lobbyists baying noisily for tough and lengthy reinforcement of Intellectual Property (IP) laws and patent protections. It is the sanctimonious self-righteousness of them that gets so deeply under my skin. They talk as if decades of IP protection should be a God-given right, and talk of “theft” if someone has the temerity to challenge their claims.

From my worm’s eye view, IP protection is a negotiated and arbitrary right, not something god-given: 20- or 30-years of patent protection for a wonder drug may indeed incentivize some clever scientists to work hard on innovation. But what about the innovation among dozens of other smart pharmaceutical companies that is stifled by that protection? The number of years of protection should be an arbitrated number. Too few and you stifle the investment needed to innovate. Too many, and you gift a company a monopoly franchise that allows them to get fat and lazy on one good idea too many decades ago.

If the degrees of IP protection for drug companies are tough to define, they are even tougher in “softer” areas like writing a novel or making a film or music. Is it really appropriate that Warner/Chappel Music should in 2015 be getting US$2m in royalties from “Happy Birthday to You”, penned in 1893.

Is it right – or even credible – that Disney’s lawyers should be sharpening their quills to protect their copyright protection of Mickey Mouse, which is due to come into the public domain in 2024 unless copyright terms are extended for the umpteenth time. Ask how long someone’s copyright should last, and the current answer is apparently 70 years after the death of the author or creator. Give me any reason why this is a reasonable period during which rewards should be reaped. For most books or films or smartphone apps, surely 10-20 years is more than fair.

Before patents became the preferred reward for innovation, a common practice was to offer prizes, and this seems to be coming back into fashion. The most famous prize of all is possibly the Pounds 20,000 “Longitude Prize”, announced in the UK government’s Board of Longitude in an Act of Parliament in 1714. The challenge was to invent a simple and practical method of determining accurately a ship’s longitudinal location at sea. The problem was resolved, to the shock of Britain’s scientific establishment by the Yorkshire clockmaker John Harrison in 1737 – though Mr Harrison never formally “won” the prize because of controversies and challenges from other contestants.

Prizes seem to work well for encouraging innovators to solve well-defined scientific problems, and it is here that they seem to have made a comeback today. Note the Pounds 10m prize offered by the UK charity Nesta for an improved test for bacterial infections, or the $1.5bn multi-government (including the Gates Foundation) prize for a vaccine for pneumococcal meningitis, or the $10m Ansari X prize for private space flight.

The idea of our Innovation and Technology Bureau issuing a diversity of prizes as rewards for solving defined problems quite appeals to me. No complete solution to the problem of creating an innovation culture, but it would undoubtedly stimulate lots of innovative activity. And it would be fun.
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