Thinking about ideas and recipes changes how one thinks about economic policy. A traditional explanation for the persistent poverty of many less developed countries is that they lack objects such as natural resources or capital goods. But Taiwan started with little of either and still grew rapidly. Something else must be involved. It is the quality of ideas, not objects, that drives economic growth. In fact, over the last two decades, we have witnessed in

India the kind of growth that can be obtained through innovative methods. Business process outsourcing is one such innovation. There remain immeasurably several such innovations yet to be made. And India remains uniquely positioned to make such innovations. Imagine if we grew in the low double digits, even at say 10%, then our income would double every 7.2 years. At 12%, our income would double every six years! Either of these growth rates would be absolutely phenomenal for the opportunities that it would create.

However, to achieve such double-digit growth, innovation and entrepreneurship need to be the centrepiece of economic policy. Growth-driven economic policy needs to (i) concentrate on investments in both basic and higher education; (ii) ensure that appropriate incentives exist for citizens to acquire ideas from the rest of the world; and (iii) make sure that appropriate incentives exist for citizens to generate ideas themselves.

The potential benefits from the new Protection and Utilisation of Publicly Funded Intellectual Property Bill need to be seen in the light of (ii) and (iii) above i.e., providing adequate incentives for citizens to generate ideas internally as well as to tailor and transport ideas from other parts of the world. The same characteristic that makes an idea so valuable?everybody can use it at the same time?also means that it is hard to earn an appropriate rate of return on investments in ideas. The many people who benefit from a new idea can too easily free ride on the efforts of others. After the transistor was invented at Bell Labs, many applied ideas had to be developed before this basic science discovery yielded any commercial value. By now, private firms have developed improved recipes that have brought the cost of a transistor down to less than a millionth of its former level. Yet most of the benefits from those discoveries have been reaped not by the innovating firms, but by the users of the transistors. In 1985, a consumer paid a $1,000 per million transistors for memory in his computer. In 2005, the consumer paid less than $10 per million and yet he did nothing to deserve or help pay for this windfall.

If the government confiscated most of the oil from major discoveries and gave it to consumers, oil companies would do much less exploration. Some oil would still be found serendipitously but many promising opportunities for exploration would be bypassed. Both oil companies and consumers would be worse off. The leakage of benefits such as those from improvements in the transistor acts just like this kind of confiscatory tax and has the same effect on incentives for exploration. For this reason, most economists support government funding for basic scientific research.

Economists also recognise, however, that basic research grants by themselves will not provide the incentives to discover the many small applied ideas needed to transform basic ideas such as the transistor or Web search into valuable products and services. It takes more than scientists in universities to generate progress and growth. Such seemingly mundane forms of discovery as product and process engineering or the development of new business models can have huge benefits for the society as a whole. Giving firms tighter patents and copyrights over new ideas and giving individual researchers a share of the royalty income would increase their incentives to make a new discovery. Seen in this light, the new Bill is a welcome initiative by the UPA government.

The flip side, however, is that providing such intellectual property protection in the form of patents/ copyrights and the attendant rewards from the same would also make it more expensive for other firms to build on previous discoveries. If tighter intellectual property rights make it very expensive for firms to build on previous discoveries, then intellectual property protection can be counterproductive to the enabling of innovation, which could slow down economic growth. Therefore, apart from providing incentives for new innovation through intellectual property rights, the policy must ensure easy licensing of such intellectual property to firms that intend to build on such innovation.

Furthermore, it has been seen in the US that increasing the returns from ownership of intellectual property has led to patent acquisition races rather than innovation races. Patenting does not equate innovation necessarily since many patents are either quite useless innovations or, are more egregiously, acquired by firms for the strategic reason of blocking their competitors or new entrants from developing innovations that would move the said firm?s business in peril.

There are over 30 million granted patents around the world. With that many, it should not come as a surprise that many are for useless items. Consider, for example, the invention patented by Albert Cohen of Troy, NY for an ?Apparatus for simulating a ?high five??. It is comprised of an artificial hand and an arm that swing forward to perform a congratulatory high five. This innovation is perfect for those quirky people who always miss the other high-fiver?s hand and then grin sheepishly hoping no one, including the other person, noticed. This innovator has the market for high fivers all to him, yet he doesn?t seem to be taking advantage of it since I haven?t seen them in any store. Similar is the case with the patent for the force-sensitive, sound-playing condom. Paul Lyons holds the patent on this ?marvel?, which plays a song during intercourse, the on-off switch being tripped when your bodies meet! This is the perfect thing for those times when the bed doesn?t squeak or the partner equates silence with lack of action. These examples illustrate that increased intellectual property protection may also increase nuisance patents and lead to needless paperwork.

The traditional role of patents is to provide their holder with the power to exclude others from using a particular invention for a certain period of time (18 years). Certain patents, instead, are filed by firms in order to prevent others from obtaining this power. Such patents are called blocking patents. By holding up competitors, blocking patents may help maintain the control over specific technologies and their corresponding markets. Policymakers should keep in mind that providing rewards for innovation should not lead to a process where firms apply either for frivolous patents or attempt to block innovations by others.

In the context of ideas leading to more innovation, perhaps, the most important ideas of all are meta-ideas. These are ideas about how to support the production and transmission of other ideas. The British invented patents and copyrights in the seventeenth-century. North Americans invented the modern research university as the unit of basic research and innovation in the nineteenth-century and peer-reviewed competitive grants for basic research in the twentieth-century. The challenge for us now is, on the one hand, to transplant some of these institutions in India, and on the other hand, invent new institutions that encourage a higher level of applied, commercially relevant research and development in the private sector.

(Concluded)

The author is a visiting scholar at the Indian School of Business, Hyderabad