Democratizing Innovation

Those who see open-source software as a new model for economic production will find much to ponder in Democratizing Innovation, a new book by MIT professor Eric von Hippel (MIT Press). The book is a fascinating elaboration of how open-source principles are expanding into many new corners of the industrial economy.

Most companies are intent on locking up their innovations through patents lest someone “steal” them. But my discovery and purchase of von Hippel’s book stems from a behavior that conventional economists regard as stupid – “free revealing.” Free revealing (the disclosure of knowledge) is a powerful driver of economic value in its own right, von Hippel argues. Indeed, when practiced by a user community, it may actually enhance social welfare more than intellectual property law. To make his point, von Hippel convinced MIT Press to allow him to publish the book under a Creative Commons license, and so the book is freely available online.

Von Hippel, a professor and the Head of the Innovation and Entrepreneurship Group at the MIT Sloan School of Management, is an expert on the economics of distributed and open innovation. The most obvious example is open source software, but the most of von Hippel’s book argues that open, distributed innovation can improve product and service development in many other sectors. He opens his book with an example of surfers who developed an experimental surf board with footstraps that enabled them to leverage the energy of waves to make controlled flights. Surfboard manufacturers didn’t discover this innovation; leading-edge surfers did – and it led to the growth of a whole new sport, “high-performance windsurfing.”

There’s a broader lesson here. In the traditional model, “a user’s only role is to have needs, which manufacturers then identify and fill by designing an producing new products.” But in a world in which information commons can be easily created and efficiently sustained, “innovation communities” need to be taken seriously as a highly efficient and creative force in production. As never before, users can now locate each other and collaborate and share knowledge in order to generate shared innovations.

“If the information needed to innovate in important ways is widely distributed,” writes von Hippel, “the traditional pattern of concentrating innovation-support resources on a few individuals is hugely inefficient.” The truth of this claim is precisely why software, music and drug research is experiencing such pain and anguish. They are locked into a hugely inefficient production model.

Historically, the costs of creating public goods has been so complex and expensive that economists saw government as the most logical force to organize and finance public goods. But increasingly, von Hippel points out, it is feasible for users to innovate by themselves and share the results as a public good. (Or they can collaborate with companies that understand the strategic value of such user/producer cooperation.)

The success of “innovation communities” is not something new if you consider that indigenous cultures have been doing it for millennia. The problem affecting them – and kindred open-source communities – is that mainstream economic models don’t recognize the actual value of innovation communities. For example, Big Pharma and other multinationals like to free ride on the cooperative innovation of indigenous peoples by patenting the fruits of an entire culture’s labors – but patent law assigns all property rights to the follow-on innovators. The equity benefits go to the companies and the communities are dispossessed. This highlights the need for new legal mechanisms (such as the General Public License in software) to protect the long-term interests of innovation communities.

Democratizing Innovation is not gripping reading. But it is a welcome, insightful addition to the growing literature that recognizes the heavy lifting that social commons can perform.