Science and Tech Policy Memo
Science and Technology Policy Analysis Seminar
Professor Nicholas S. Vonortas
Carl Mackensen
Policy Memorandum
“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” – Adam Smith
Executive Summary
Industrial Research (hereafter IR) describes the technical activities used within industry in support of making products which make a company money. Putting the user and generator of IR inside the funding and administration of a company is part of what makes IR unique. Another unique aspect is the way it answers four core questions, including what should be selected, how much resources it should have, how it interacts with other components, and how results can be made available to others. Lastly, a key take away for policy makers is that companies seek to make money, and create advances as a side effect. This impacts every layer of the company, and should be kept in mind when considering how to motivate, control, or change them. IR is an important sector of the economy, and should be treated with respect.
Key Findings
IR can be described by the activities it undertakes, and can be measured by how much personnel and expenditure is used towards these activities. (Fusfeld, page 1). What truly makes IR unique is the way in which it is structured. “Three aspects…activities, measures, and structure – are needed for the complete picture (of what industrial research is).” (Fusfeld, page 3)
The term IR is used to describe, “all technical activities conducted within industry that are required to support existing businesses; develop and introduce new products, processes, and services, and provide the basis for new businesses.” (Fusfeld, page 3). It includes basic research, development, design, prototype building, and pilot activities. This is not limited to the hard sciences, abut also includes economics, market research, studies, and analyses within political science, sociology, and psychology.
Technical activities include the person or people generating technical change, the source of funds, and the likely user of the output (Fusfeld, page 1). Before its current inception starting in the late 19th century, these three components were all independent. IR puts all of these components together, usually in a private organization. Putting the user and generator of technical change inside of the funding and administrative processes is what separates industrial research from other forms of R&D.
Another aspect which makes IR separate from government or universities is the size and international footprint, which results from a specific combination of processes. There are four core questions to be answered, including, “Selection – What specific research programs should be selected? Priority – How should available resources be allocated to the selected programs? Feedback – What interactions are required with activities outside the research organization? Transfer – How can the results of the research be made available to those who can expand or apply them?” (Fusfeld, page 3).
The main aspect that separates IR from other forms of R&D is the requirement that economic value be created. Government and universities do not need to consider this when answering any of the four components, whereas industrial research does. These are the principal functions and operating features and how they differ from other sectors.
Industry, being unique due to the components described above, answers these four components in a particular way. In selection, they should be a conceivable outcome or story in which the result can be used by the company. Deciding how much money to put towards a specific program of study or research area, as well as for the duration of time for doing so, has as its foundation the expectation of what returns can be expected when. Communication between the R&D wing and other components of the company is vital. At the end of the process, the results should be expected. There should be no possibility of incompatibility, nor surprises around any component of the product such as “costs, manufacture, or marketing” (Fusfeld, page 4). Lastly, there is essentially always at a minimum one user for the product inside of the existing company structure. Said user is, by virtue of the strengths of the industrial research process, known early on in the starting of all of this.
There are a number of additional issues. The primary is that industry is driven by profit, and not by any desire to further knowledge. That knowledge is furthered is a nice side benefit for society, but it is not the original aim of the company. The aim of the company is profit, and the aim of the modern company is profit for its shareholders, and should this be forgotten, it will be remedied by new management.
As such, those in the world of the ‘for profit’ organization or company are motivated by a different calculus than school officials or students, government workers or managers, or any other sector or dynamic we can imagine. The managers of companies have estimates of ‘return on investment’ on hand for any given product they are pursuing, and they abhor uncertainty. Risk is a key factor when managers consider what they should do, and how they should go about doing it. Today, risk can be mitigated through having a diversified portfolio of products being pursued, being a mix of short, medium, and long term. Going from longest to shortest, the smallest number are ‘blockbusters’, with great returns but high risk, then a greater number of medium returns with reasonable chances, then a large number of lower returns, but near certain.
That a company can generate its own funds for R&D through growth makes companies dynamic. The sector’s success, however, is due to factors beyond this. Firstly, there is constructive duplication, which is, “concerned with both the generation of technical change and its conversion to use.” (Fusfeld, page 5) and includes “Conducting R&D, designing and engineering the resulting product, process, or service, making a prototype or running a pilot plant, and operating a full-scale plant or service” (Fusfeld, page 5). Each progressive step is more expensive than the last, putting stress on workers for the best approach. As a result, several approaches can be pursued at the same time. Most duplication takes place early on, and this remains accurate both within a company, and between companies. This is the core aspect missing in a non Capitalistic system. Lastly, IR is interdisciplinary, and pursuing products in one field often results in the progress of others, though this is unintentional.
Conclusion
IR is a unique and particular component of society. It generates great products and wealth, with advances coming as a by product. This should be kept in mind when attempting to govern the sector. There are distinct advantages of the Capitalistic approach compared to a planned economy, and moving the sector away from what defines it should be viewed with skepticism. With IR set to drive economic expansion for the foreseeable future, it is a vital sector that is vibrant and ever growing. Treat it with respect. Scientific development underpins economic growth, and knowledge is growing at an exponential rate. As such, continued development of the sector, guided by a knowing hand, is proposed. The for profit approach characterized here is the most advantageous, and should be promulgated.
References
Fusfeld, Herbert I. Industry’s Future, Chapters One and Two, “The Nature of Industrial Research” and “Fruits of Industrial Research.” (1994)
Nicholas Vonortas Class Meeting 3, 2/3/2025, ‘Nature of Industrial Research I_Fusfield”
https://blackboard.gwu.edu/bbcswebdav/pid-14556470-dt-content-rid-136879583_2/xid-136879583_2