[p2p-research] Building Alliances

J. Andrew Rogers reality.miner at gmail.com
Fri Nov 6 23:44:47 CET 2009

On Fri, Nov 6, 2009 at 12:44 PM, Michel Bauwens <michelsub2004 at gmail.com> wrote:
> they undoubtedly produce less during this catch-up phase, but that may be
> temporary, as it was with Japan, which was also accused of copying early on,
> and has been highly innovative, where would the U.S. be without Toyotism?

You misunderstood.  The Japanese innovate, indeed they spend quite a
bit of money on it.  However, almost any way you tally up the
innovations and technological advancements they produce for the amount
of money they spend, the *return* on the amount of R&D capital at
their disposal is not particularly high as such things go.

R&D is hopefully about maximizing useful output for the money spent in
aggregate, not R&D theater. Productivity of R&D varies widely by
country and source. China spends less on R&D than Japan, but an
argument can be made that it is rapidly becoming more productive.

> As far as I
> know, for years, VC's want to go green, but are hampered by mainstream
> concentrated financial capital, which supports forces that go against the
> emergence of green capitalism

Eh? There is far too much capital chasing green tech in VC-land. They
are hampered only by the lack of green tech worth investing in.

This is a kind of failure for R&D investment generally, where there is
a glut of funding in a trendy area and a shortage in less socially or
politically sexy areas even if the R&D investment would return better
value. It is worse with government R&D in that it tends to ignore
topics entirely without regard to merit since control of the funding
is not diversified. Politically powerful special interests can kill
R&D funding. Fortunately, private research foundations have been
rapidly growing to fill basic research gaps in government research
that is also not being picked up by private industry. It is a
diversified ecosystem.

> The efficiency of VC is 1 to 100 I believe .. any comparable data on
> government funding?

You are misunderstanding that metric.  R&D productivity has nothing to
do with the riskiness or failure rate, but the aggregate output of
useful results for the amount of money spent. In that regard,
privately funded R&D is extremely productive, primarily because it
does not have the "grant mill" phenomenon that you see with government
funding that spends a lot of money on research activity but produces
relatively little value in many cases. However, the government R&D
funding is valuable insofar as it funds some topics that are unlikely
to see much private research funding. That said, a rapidly growing
phenomenon in the US is private research foundations which take on
"basic science" type research but which are also more results

> well said, we would have no internet and no web and not even a browser with
> commercial funding only, they only piggybacked on those major innovations
> after the fact; and you are correctly pointing out to the massive role the
> military is playing; in fact, I've seen different reports arguing that most
> innovation, like in pharma, is really government funded, and then 'given' to
> the private sector; Business Week recently argued that the privatisation of
> innovation in the U.S. has led to dramatic negative results, with real
> innovation slumpling, because companies only look at short term marketable
> rewards

The truth is more complicated than this. Government R&D funding is
almost entirely captured by large corporate interests, so they have in
effect "out-sourced" their R&D budgets to the taxpayer but still do
the R&D work internally. Since it is not their money per se, they can
afford to be more wasteful with it.

That said, the vast majority of applied R&D is still privately funded
and highly productive. It has to be, since most of the small
innovative companies do not have the ability to obtain government R&D
funding.  Small companies *are* where most of the innovation occurs,
but those companies are forced to use private sources of R&D funding
so it is difficult to make the argument that government R&D is paying
for most real innovation in many market sectors unless only big
corporations innovate.

> furthermore, marc dangeard and others have pointed out the weaknesses of the
> current venture capital model, which leaves many good projects un or
> underfunded

I would agree with the assertion that there are certain classes of
objectively sound venture investments that almost never get made in
the VC market. These are almost universally areas that are extremely
technical such that no one in the finance community can understand
them, but there is little R&D funding for extremely technical topics
generally outside of academic environments or very large companies.

> what you say here flies in the face of the enormous innovation which has
> taken place through web 2. , at precisely the moment where there was capital
> flight and tight venture capital; in fact, most money is needed after the
> success of web 2.0 and internetworked software innovations, less at the
> outset; but even before, and this is documented by Carlota Perez, most early
> innovation takes place without financial capital support ...

While it is true that Web 2.0 is not capital intensive, very little of
Web 2.0 is "innovative" by the usual definition of the word.

If any of the Web 2.0 companies had solved one of the major technical
problems underlying many use cases for Web 2.0 infrastructure, they
*would* have been innovative but they also would have been a lot more
capital intensive.

Indeed, Web 2.0 is very limited because of this lack of innovation.
Twitter has not solved the constraint-indexing problem required for
useful, scalable real-time search; FaceBook has not solved the
self-join problem of graph databases; Amazon has not solved the
relational analytics problem of distributed key-value stores; Google
has not solved the problem of indexing spatial data types; etc. These
would be landscape altering innovations because you could build Web
2.0 applications that are impossible today. Web 2.0 is marked by a
complete lack of significant technological innovation, being
essentially slick versions of very old ideas.

Putting a lot of very old social behaviors on the web may be
convenient and even alter the dynamics of society, but that it did not
require any recent innovation to occur, just cheap bandwidth.

> that's your ideological view, but I'll offer the hypothesis that quite a few
> of the peer-funded experiments will prove that money can come from other
> sources that 'concentrated venture capital'f, as it has already proven that
> it can be done with almost no capital; my view is that the best guarantee is
> to have a mix of funding, good public funding for basic research, good
> private funding for risky innovation; and lots of distributed funding for
> socially beneficial innovations through open software/design communities;
> pluralism, in politics, and funding, tends to work better than one size fits
> all, and distributed financing could fund many projects that fall to the
> crack of the present VC system

My view isn't ideological, it is based on years of first-hand
experience in R&D that has dealt with a lot of bleeding edge
technologies.  You are assuming a view that I have not given.  We
*already* have a diverse ecosystem of funding sources for all types of
projects, I was not saying that there was anything wrong with that.

My point, obviously missed, is that in reality funding does not work
the way you think it works. You are assuming that some sources of
funding are less important to innovation than they actually are. Some
types of funding are far more political and prone to fashion than

For example, you missed an important source of funding for extremely
technical startup ventures that is useful: large companies. You can
get paid to simply finish R&D on a product they can buy from you
retail if it solves a problem they care about. (It makes economic
sense for the large companies if that problem is costing them many
millions or they can improve profits by several millions if that
problem is solved. The may take no stake in the venture at all, they
just want to be able to buy the product of it as soon as possible.)

> I think it is too early to say, and I've read research by for example
> Lakhami that says otherwise, pointing out one study for example showing how
> most innovations come from the outside, and that experiments such as
> Innocentive, and the recent Netflix experiment, were quite successfull

I think you are over-generalizing a narrow case. Yes, most innovations
come from the "outside", but that outside is "inside" somewhere else.

> how much million dollars were needed by brin and his friend to develop the
> google algorythm? the Bittorrent software of Bram Cohen?

The PageRank algorithm wasn't innovative; the BigTable design was, but
that took dozens of man-years to produce even the most basic version.
I think you seriously underestimate the difficulty of implementing
genuinely innovative software. The problem with most non-trivial
innovation is that you can reuse relatively little of what you know
because the assumptions are wrong. A fundamentally new architecture or
a new algorithm from a new theoretical basis may force you to
completely redesign all software that might be able to exploit it. R&D
for a new type of algorithm may take a year to successfully complete,
but it may take twice that long to re-engineer all the other software
bits around it that will make it useful for real-world apps.

All of that costs money.  R&D on theoretical computer science seems to
take several months to a year to produce a successful result. A lot of
R&D topics in software are related to massive parallelism and
distribution -- testbeds at that scale don't grow on trees. Turning
that research into a useful piece of software or code a mere mortal
can use often requires many man-years of very boring code work that
you have to pay smart people to do.

> Take movies, according to your logic, only big star, moderately intelligent
> but very expensive movies would make it and be necessary and count as
> innovation, as opposed to the many fine movies that have been produced
> worldwide, often through public funding. Do we really want a world with only
> the Transformers, and without Fellini and the French New Wave.

Again, "my logic"?  What does that even mean? You are assuming things
I never said.

J. Andrew Rogers

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