Blanchard v. Florida: Why Patents per Capita is a Poor Economic Indicator
I am not the first person to question assumptions Richard Florida made in his path-breaking book Rise of the Creative Class, and I will not be the last. That is how science works. One scholars lays out a theory and his evidence, and others begin testing that theory and that evidence. So this is not an attempt to hammer Professor Florida’s research, which is clearly one of the most important economic development theories of the last decade. What I hope to do here is show that the research has limitations and economic developers using it should be aware of that.
In Rise of the Creative Class Florida uses the oft used indicator “patents per capita” as a proxy for a city’s capacity for innovation. That metric shows that Boise is #1 in the United States in patents per capita, and regional leaders and economic developers make decisions based upon what they THINK that metric means. But “patents per capita” as an indicator isn’t only not useful, it’s not helpful - in fact it’s harmful. Here’s why.
Patents are a negative right.
What does that mean? As my colleague David Gabrieli, the former director of licensing at Amazon.com points out, it means that patents don’t grant the right to commercialize an invention, it grants the patent holder the right to exclude everyone else from commercializing that invention or innovation unless granted a license from the patent holder. That is very different. Many companies simply make tweaks to products and technologies they already control and file for patents to build their “patent portfolio.” For example if ACME technologies has a patent on LED technology it is in the company’s best interest to file as many patents as possible in that field to 1) keep competitors at bay, 2) strengthen its ability to sue suspected infringers, and 3) to maximize the profits available from licensing deals on said patent. A patent is no guarantee that anyone will commercialize anything so if it is economic development or economic potential you are trying to measure, this is the wrong metric.
A current patent report is five year old information.
A patent application takes YEARS to go through the process, so by the time we get the Stoel Rives Patent Report for Idaho, the information we are looking at is for patents that were filed as many as a half-dozen years ago. Is any of that technology even current anymore? We don’t know that. But what we do know for sure is that the even the most recent report showing awarded patents is not a valid indicator of current capacity because it is measuring past activity.
On to the Florida specific critique:
Florida’s analysis doesn’t throw out the outliers.
Let’s say that we accept the idea that ‘patents per capita’ is a valid measure of a City’s ability (although it isn’t). But if it were, we’d still need the numbers to be calculated in a reliable manner and they aren’t. let me illustrate. Let’s say that I am a mortgage broker and I have three men in a room that I want to qualify to purchase homes in a fancy new gated subdivision, and the data I have says that the average (arithmetic mean) income of the three is $366,000. Exciting news! Or is it? What if I told you that one of the men earned $1,000,000 per year, and the other two each earned $50,000 per year. Hmmm. That’s not so good - the only guy that can qualify on anything more than a 1976 single wide is the millionaire. Point of the story is that the “mean” income statistic is almost totally useless. Same with the “patents per capita” statistic. It’s simply patents awarded divided by Boise’s population - an arithmetic mean - and in Boise’s calculation you’ve got a couple millionaires (Micron and HP) and a whole bunch of poor people.
The fact is, Micron and HP account for nearly 70% of all patent activity in Boise. Aside from that there isn’t much going on on the patent front. So if we want a reliable gauge of the overall innovation potential in the Boise Valley we HAVE to throw out the outliers - Micron and HP.
Patents per capita is a bogus way to measure innovation capacity because too many people equate innovation with commercialization - and patents are not a valid measure of commercialization potential. I’d like to see Professor Florida’s crew get rid of that metric in future editions of Rise of the Creative Class, but they probably won’t. But they could spend some time throwing the outliers out and refactoring the analysis to paint at least a reliable picture of a city’s supposed innovation potential. The problem with leaving the analysis as-is, is that people listen to Professor Florida’s ideas, and well they should - Rise is one of the most discussed and implemented pieces of social science to come out in a long time. Because of that it is critical that the numbers reflect actuality and not give cities a false impression of innovation capacity.
For Boise, the message should be clear: read Florida and believe the hype about having more patents per capita than any city in America, or acknowledge that HP and Micron are carrying all the weight around here and get to work developing some new sectors. That hype won’t pay the bills, and patents per capita is no measure of a city’s ability to innovate.
Tags: Patents
David and Goliath, Economic Development, Intellectual Property | admin August 3, 2009
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Patents per capita and Idaho | The Invent Blog® — August 3, 2009 @ 10:32 pm
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By Stephen M. Nipper, August 3, 2009 @ 10:10 pm
While I’m sure that most other metro areas have their own Microns and HPs, I totally agree with you that it is a meaningless statistic (at least for the chest pounding it is typically used for).
One interesting thing…if you filter the data to only include patents issued after Micron’s first patent (1984), Micron/HP account for 75.31% of the patents issued to Idahoans.
By Kathleen, August 5, 2009 @ 7:08 am
Great entry, but then I’d think so since it hits a lot of my perseverations. A jumble of thoughts:
In spite of serving up data in a less than rigorous fashion, I give Florida points for describing engineers as creative. For some inane reason, the general populace considers engineers to be the farthest thing from creativity. Very annoying.
If execution is everything -and it is, anyone can draw a pretty picture- California, which has long been considered to be a hot bed of creativity continues to shed manufacturing jobs. Manufacturing obviously can be interpreted as the practical expression and commercialization of innovation. Rather, CA has lost jobs quite dramatically since 2000, most of which have gone to “less than creative” TX.