Definition: Novel products, devices, materials, processes, or techniques, often meant to improve on existing items or to achieve existing goals in a new or superior fashion
Significance: Inventions drive many segments of the American economy, especially the technology sector, in which novelty is a significant driver of demand. Moreover, invented manufacturing techniques and tools, such as the use of assembly lines to facilitate the division of labor, have transformed the nature of the economy and of nearly all American businesses.
Dissatisfaction with existing artifacts or methods is at the core of all inventions and their applications— innovations. Initially, some new knowledge may prompt an idea of doing or building something. When someone with such an idea also has the requisite skills to put it into practice, the result may be an invention. One invention may lead to another. For instance, were it not for the earlier invention of the integrated circuit (IC) by Robert Norton Noyce in 1959, the modern computer would not have been possible.
Conversely, although a new or useful object or method may be developed to fulfill a specific purpose, the original idea may never be fully realized as a working invention, perhaps because the concept is in some way unrealistic or impractical. Nor are inventions necessarily achieved in the most useful sequence. For instance, the design of parachutes was worked out before the invention of powered flight. Other inventions solve problems for which there is no significant economic demand.
Inventors many have various motivations. Some work for economic gain or prestige, to satisfy their curiosity, or to fulfil an urge to create. Often they work to fulfil an evident group need, as in the case of medicines, vaccines, and medical procedures. National military needs may also drive invention.
There is frequently an inherent conflict between the interests of an inventor and those of the market or society as a whole. For instance, the introduction of robots in industry may lead to unemployment— at least in the short term. Many useful products constitute threats to the environment, as in the case of plasma television sets, which use more power and thus generate more greenhouse gases than earlier models.
Inventions require a wide range of skills beyond the creation of novelty. These include developing the invention to be a stable manufactured product or a useful process, adapting the invention to particular contexts, creating demand for the invention, and delivering it to its potential users.
The dividing lines among inventions, innovations, and discoveries are not clearly drawn. Generally, innovation is the application of invention, the realization of a product based on an invention, the bringing of a product to market. Discovery implies the previous existence of something now identified or determined. Thus, it is not always easy, even for the U.S. Patent and Trademark Office, to determine when an invention is truly new and unique, because an invention often represents a combination of dozens of separate technological advances or changes.
Scientific and technological inventions and new methods of production have significant effects on the national level of economic activity. Inventions and innovations are vital to economic growth and provide the incentive that business needs to invest in research and development in the hope of reducing costs and increasing profits. Major inventions and innovations—including railroads, nuclear power, and the transistor—have provided important stimuli to economic activity, resulting in significant increases in investments that, in turn, have led to business cycle upswings.
To the extent that inventions and their innovative applications, which may be either capital or labor saving, provide a competitive edge to American businesses in domestic and international trade, they are important to individuals, firms, the economy, and the government. By generating increased demand for American products and processes, they increase profitability for business and tax revenues for government. Social progress also depends on inventions to boost social capital—that is, the education, skills, discipline, and work attitudes of the labor force that in turn enhance productivity.
Inventions that may be subject to legal protection via patents may be initially created by one individual or organization and subsequently developed for the market by others, or the entire process may be carried out by one organization, especially a corporate research laboratory. There may be a lengthy hiatus between invention and profit-yielding innovation. For example, the Wright brothers invented powered aircraft in 1903, but profitable scheduled intercity flights in the United States began only in 1933.
Economics of Inventions
Especially since the work of economists Joseph A. Schumpeter and Colin Clark, inventions and innovations have been recognized as underlying economic productivity (or efficiency) and growth. Specifically, Austrian economist Schumpeter—who analyzed the role of inventions and innovations most clearly in economic development, business cycles, and the capitalist process—found that the invariant, undisturbed, circular flow of economic activity without innovation would not lead to progress. That unchanging flow may be disrupted by innovation undertaken by a profit-driven entrepreneur. Successful innovations are then imitated by others, driving progress until they become absorbed into a new stable circular-flow pattern.
To Schumpeter and many other economists since, this process forms the essence of economic growth. Standard textbooks on economic principles, most famously those of Paul A. Samuelson, have given increasing space to the role of technological change in economic growth. Indeed, most of them highlight the role that inventions and innovations play in this process by referring to the quality of scientific and engineering knowledge, managerial (organizational) skill, and the rewards for inventions and innovations. Appropriate public policy—say, in protecting the intellectual property of inventors— also plays an important role in encouraging such technological change and thus economic growth.
Each invention or innovation has a different economic significance. The intensity of scientific knowledge cannot be used as a predictor of the economic significance of an invention or innovation. Over time, the most economically successful inventions are generally those that are most useful rather than those that are simply most novel or based on gimmickry. It may be difficult to predict how the benefits of an invention will be distributed among its inventor, users, and imitators.
Science, technology, and invention, linked as they are, all influence overall human progress, including economic advance. At the level of the individual enterprise, invention and innovation are often tantamount to survival if not economic success. For instance, if a pharmaceutical company wants to stay in business, it must bring new drugs or medical procedures to market. Otherwise, when its proprietary products lose their patent protection, generic versions of those products will drastically reduce their value. This explains why the vast majority of inventions have in the past few decades come from industrial research and development laboratories such as those of International Business Machines (IBM). Inventions also tend to cluster in cycles that are often based on technological breakthroughs, such as the integrated circuit microchip.
Patents Issued by the U.S. Patent and Trademark Office, Fiscal Years 1987-2007
Source: Data from U.S. Patent and Trademark Office, U.S. Department of Commerce, “Performance and Accountability Report Fiscal Year 2007”
Inventions may have economic, social, and intellectual impacts. The most iconic inventions—such as methods for creating fire, the wheel, the clock, writing, and methods of power generation—have altered every material circumstance of life, work, and leisure. They have made it possible for human societies to evolve. The United States has progressed from comprising agricultural and mining communities to industrial ones to service-driven postindustrial economies as a result of such revolutionary inventions.
An invention may be labor saving, capital saving, or neutral, depending on whether it tends to lower the relative share of labor, lower the relative share of capital, or leave relative shares unchanged. An example of a labor-saving invention would be automated machines that build robots that can perform a number of the manual and intellectual tasks of wage-earners. An example of a capital-saving invention would be a cheap computer that enables firms to manage their inventories more efficiently, allowing them to avoid investing capital in inventory that sits in warehouses unsold. Any invention, labor or capital saving, that lowers the cost of production can benefit the first competitor who introduces it.
Even though inventions have enabled individuals and entire societies to control their environment and to live healthier and longer lives, there are contrarians who hold that much of the technology underlying inventions, even economically useful ones, is detrimental to humanity. They mention such downsides as the low-level radiation from computers and cell phones, the negative consequences of some chemicals used as drugs, food additives, fertilizers, growth hormones. and so on. They also cite the near-meltdown of Unit 2 of the Three Mile Island nuclear power plant outside Harrisburg, Pennsylvania, in 1979. As elsewhere, the costs and benefits of inventions must be balanced to determine whether the rewards are worth the risks.
Inventors may be inspired to invent through a simple desire to create something new or better—whether out of altruistic, social, or commercial motives. An invention may also result from a combination of these motivations. The entrepreneurial and open spirit of inquiry has thrived in the United States, which embodies a profit-driven, privateownership, capitalist system. Americans, moreover, often demonstrate a widespread belief that something new is necessarily better than something old. These factors have helped create an economic environment that stimulates inventions and innovations to such an extent that at times it lapses into gimmickry. This explains in part why the U.S. government issues some 100,000 new patents annually. Additionally, there are millions of unpatented minor technological or procedural refinements that typify economic progress.
Although many inventors may be driven by the rewards from commercialization of their products, very few will secure the funding and support often needed to develop and launch a novelty in the marketplace, and fewer still will experience lasting commercial success or the economic reward they may have expected. However, organizations such as inventor associations, clubs, business incubators, think tanks, and even some government agencies can provide the boost private inventors often lack. Entrepreneurship and sensitivity to the demands of the marketplace are typical characteristics of successful inventors, but the process may not be easy. Most great inventors go through countless prototypes, changing their designs innumerable times, as was the case when Edison sought the right noncombustible element to use as the filament of his incandescent lamp.
Inventions are an important example of a “positive externality,” that is, a beneficial side-effect enjoyed by those outside a transaction or activity. Unless some of the benefits of these externalities are captured, inventors will be under-rewarded for their creations, and systematic under-rewarding will lead to under-investment in activities that lead to inventions. The latter, together with the other traditional factors of production—natural resources, human resources, physical capital, and social capital— underlie economic growth. However, different societies combine these factors with varying degrees of effectivity. The United States has been particularly effective in its this regard. For example, one important function of the U.S. patent system is to coordinate these factors and ensure that an optimum amount of resources are invested in the process of invention.
Inventions are a public good, in the sense that they can be used by many without being diminished. An addition to a specific innovative inventory does not reduce its productivity, since an individual user will still enjoy its maximum benefits regardless of the number in the market. However, low-quality imitations (“knock-offs”) can undermine the original invention’s value to its inventor as well as the reputation of the entire class of products in the marketplace. Such imitations may be created through reverse engineering—that is, analyzing the product’s component parts to learn how to emulate them or their functions.
Likelihood of Commercialization
There are specific characteristics of inventions that increase the likelihood of their successful commercialization. They relate to individual, firm, and industry characteristics, as well as the nature of the inventions themselves. First, there are advantages to the outside sourcing of new technologies that extend a firm’s technological horizon. Outside sourcing increases a firm’s knowledge base, and knowledge that is broader in scope allows trial and error processes that are essential to new product development. For instance, the discovery of aspirin as a treatment for heart problems came about through experimentation. Second, a broader scope allows several successful applications to emerge from the same discovery— for instance, the graphical user interface found in all modern computers flowed from research conducted by Xerox PARC and Apple Computer.
Past research has supported the relationship between scope of knowledge and its impact on future invention activities. Thus, all other things being equal, the greater the scope of an invention, the greater the likelihood of its commercialization. Since one of the primary reasons for a firm to pursue innovation is to secure a steady stream of profits (economic rents), initial advantages are considered valuable as they can sometimes form the base for sustainable competitive benefits.
Inventions that are more pioneering enhance commercialization efforts for several reasons. First, the firm seeks to obtain learning-curve advantages by focusing on technologies that are different from those of other firms. The greater the similarity between a new invention and existing competitive technologies, the greater the chance that other firms will be able economically to reverse engineer competing products. Thus, the greatest financial advantages may accrue to firms that create the most novel components and production methods as well as the most novel products. Incremental inventions based on prior skills provide patent protection to a narrower base of intellectual property than do pioneering, original inventions. In short, all other things being equal, the more original the invention, the greater the likelihood of successful commercialization.
Sourcing inventions from outside a given firm yields advantages to both the source providing the invention and the firmthat licenses it. However, the rules that allow an innovation to be protected against imitation may have an impact on the likelihood of commercialization. If the sourced invention is also available to other firms or is part of the public domain, it can lead to knowledge spillovers. Thus, all other things being equal, the greater the exclusivity of the product or process, the greater the likelihood of commercialization. Finally, there is an inverse relationship between the likelihood of commercialization and the age of the product. The bottom line is that firms should actively seek to source inventions that are broad in scope and original in nature. It may be useful to wait for these inventions to emerge from the laboratory stage, but firms cannot wait until too far along in the development process when licensing products created outside their organizations.
Barnes, Patrick W., ed. Economic Perspectives on Innovation and Invention. New York: Nova Science, 2007. Collects essays that highlight two of the primary engines of economic progress—inventions and innovations—in the context of adoption and diffusion, funding, tariffs, labor supply, and diversity.
Beane, Thomas L., ed. Economics of Technological Change. New York: Nova Science, 2007. Essay collection discussing technological advances that have stimulated industrial innovation, production efficiency, economic growth, and societal development.
Brockman, John. Greatest Improvements of the Past Two Thousand Years: Today’s Leading Thinkers Choose the Creations That Shaped the World. New York: Simon & Schuster, 2000. Some of the most creative thinkers of the time identify not only familiar inventions such as the computer but also nonmaterial innovations such as capitalism, democracy, social justice, the scientific method, and other nonphysical discoveries.
Cockburn, Iain M., et al. “Untangling the Origins of Competitive Advantage.” Strategic Management Journal 21, nos. 10/11 (2000): 1123-1145. Explains the role of inventions and innovations in providing companies with competitive advantages in the marketplace.
Lander, Jack. All I Need Is Money: How to Finance Your Invention. Berkeley, Calif.: Nolo, 2005. A how-to book for those with inventive or innovative ideas; explains how to find capital from various sources in the private and public sectors to put those ideas into effect.
Schumpeter, Joseph A. Capitalism, Socialism, and Democracy. New York: McGraw-Hill, 1934. Explains the importance of commercial inventions and innovations for the growth of individual firms and of the economy as a whole.
Shane, Scott. “Prior Knowledge and the Discovery of Entrepreneurial Opportunities.” Organization Science 11 (2000): 448-469. Inventions are among the entrepreneurial opportunities detailed here.
See also: Aircraft industry; Automation in factories; Alexander Graham Bell; computer industry; Thomas Alva Edison; Patent law; pharmaceutical industry; steamboats.
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