This week’s Economist describes a study by Columbia University’s Amar Bhidé on the production of scientists and engineers, critical of the ideas of “techno-fetishism and techno-nationalism.’ According to the Economist, if Mr. Bhidé’s views are correct, “then America’s policymakers should worry more about how to keep consumers consuming than about the number of science and engineering graduates, at home or in the East.” The analysis presented by Mr. Bhidé is consistent with some of my critiques of the recent focus by the NAS, Bush Administration, and Congress on the production of more scientists and engineers as a palliative for the U.S. economy.

Here is an excerpt from the Economist article, and after that a link and excerpt from Mr. Bhidé’s paper (PDF).

In a marvellously contrarian new paper, Amar Bhidé, of Columbia University’s business school, argues that these supposed remedies, and the worries that lie behind them, are based on a misconception of how innovation works and of how it contributes to economic growth. Mr Bhidé finds plenty of nice things to say about many of the things that most trouble critics of the American economy: consumption as opposed to thrift; a plentiful supply of consumer credit; Wal-Mart; even the marketing arms of drug companies. He thinks that good managers may be at least as valuable as science and engineering graduates (though given where he works, perhaps he is talking his own book). But he has nothing nice to say about the prophets of technological doom.

Mr Bhidé says that the doomsayers are guilty of the “techno-fetishism and techno-nationalism” described in 1995 by two economists, Sylvia Ostry and Richard Nelson. This consists, first, of paying too much attention to the upstream development of new inventions and technologies by scientists and engineers, and too little to the downstream process of turning these inventions into products that tempt people to part with their money, and, second, of the belief that national leadership in upstream activities is the same thing as leadership in generating economic value from innovation.

But nowadays innovation—a complex, gradual process, often involving many firms making incremental advances over many years—is not much constrained by national borders, argues Mr Bhidé. Indeed, the sort of upstream innovation (the big ideas of those scientists and engineers) most celebrated by those who fear its movement to China and India is the hardest to keep locked up in the domestic market.

The least internationally mobile innovation, on the other hand, is the downstream sort, where big ideas are made suitable for a local market. Mr Bhidé argues that this downstream innovation, which is far more complex and customised than the original upstream invention, is the most valuable kind and what America is best at. Moreover, perhaps the most important fact overlooked by the techno-nationalists, notes Mr Bhidé, is that most of the value of innovations accrues to their users not their creators—and stays in the country where the innovation is consumed. So if China and India do more invention, so much the better for American consumers.

The most important part of innovation may be the willingness of consumers, whether individuals or firms, to try new products and services, says Mr Bhidé. In his view, it is America’s venturesome consumers that drive the country’s leadership in innovation. Particularly important has been the venturesome consumption of new innovations by American firms. Although America has a lowish overall investment rate compared with other rich countries, it has a very high rate of adoption of information technology (IT). Contrast that with Japan (the original technology bogeyman from the East) where, despite an abundance of inventive scientists and engineers, many firms remain primitive in their use of IT.

One reason why American firms are able to be so venturesome is that they have the managers capable of adapting their organisations to embrace innovation, says Mr Bhidé. Pressure to be venturesome may have come from America’s highly competitive markets. And America’s downstream firms are arguably the world’s leaders in finding ways to encourage consumers to try new things, not least through their enormous marketing arms and by ensuring that there is a lavish supply of credit.

And here are the opening paragraphs from Amar Bhidé’s paper:

The “techno-fetishism and techno-nationalism” described by Ostry and Nelson in 1995 has apparently drawn strength over the last decade from concerns in the West about globalization. The mindset incorporates two related tendencies. One is the focus on the upstream development of new products and technologies while glossing over their downstream consumption and use. The other is the belief that national prosperity requires upstream international leadership in upstream activities – “our” scientists, engineers, entrepreneurs, and firms have to better than everyone else’s – they must write more papers, file more patents and successfully launch more products. Otherwise, competition from low-wage countries like China and India will erode living standards in the West especially as they upgrade their economies to engage in more innovative activities.

In this paper I claim that the two tendencies misapprehend the nature and role of innovation as well as the implications of globalization. I argue that the willingness and ability of individuals to acquire and use new products and technologies is as important as – and in small countries more important than – the development of such products and technologies. Moreover nations – unlike many individuals and organizations – don’t have to outperform ‘competitors’ in order to prosper. Notwithstanding the rhetoric about the competitive advantages of nations – a transplant from the domain of inter-firm rivalry that has displaced references to old-fashioned comparative advantages – countries are not locked into zero-sum trade. An innovation originating in one country does not impoverish other countries. Rather it tends to improve standards of living in all countries that have the downstream capacity to acquire and implement the innovation.