The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World

  • Amar Bhidé
Princeton University Press: 2008. 520 pp. $35, £19.95 0691135177 9780691135175 | ISBN: 0-691-13517-7

Written during these times of economic instability and job insecurity, The Venturesome Economy by Amar Bhidé examines innovation and its market in an era of rapid globalization. Bhidé, a professor of business at Columbia University, New York, provides an analysis of the nature and mechanism of innovation.

China's manufacturing power turns innovations from other countries into consumer products. Credit: W. WEN/EPA/CORBIS

He examines the relationships between know-how and products to stress that innovation can materialize only when there is a benefit to the public. Ownership of intellectual-property rights and practical use of innovation dictate the economic return to inventors and to those who financed or participated in its development, regardless of where the innovation originated.

Innovation is divided into three layers: ground-, mid- and high-level. Bhidé clearly lays out the importance of mid-level innovation: the capability to develop products. It bridges high-level creativity and ground-level production, allowing the formation of novel products or services. Outsourcing research and manufacturing activities to poorer countries does not affect this capability, as innovation proves to be a dynamic ecosystem that involves many participants and aspects of society. “The different forms of innovation interact in complicated ways, and it is these interconnected, multilevel advances that create economic value,” he says.

Using many interviews with business executives and reliable statistics, Bhidé points out how venture-capital participation is crucial in pushing innovation into the market. Many discoveries that are later developed to benefit the public are supported in their infancy by venture-capital funds. This mechanism is a key vehicle among Western nations for transforming creative ideas into commercially viable products or services.

The Venturesome Economy also explains that cutting-edge research performed overseas can ultimately help production and consumption for domestic users. Sending research and development (R&D) activities offshore to China and India, for example, is good for the United States and Europe. In a persuasive analysis from historical and scholarly perspectives, Bhidé convinces us that this outward activity frees innovators in the United States and Europe, allowing them to pursue more intellectual endeavours, as long as they retain ownership of the inventions and have a dominant role in sales and marketing — both crucial to realizing the value of innovations.

Bhidé recognizes concerns that outsourcing research activities will challenge the supremacy of the United States and other developed countries in terms of technological innovation, and hence their national interests. In reality, this is unlikely to happen at present. Although the United States is facing huge financial problems, its economy is the largest in the world, around four times larger than China's and almost twelve times that of India, according to World Bank data. The United States has a tradition and culture of innovation and has the largest consumer market, which is very receptive to new products and services. Although China is the largest producer of modern goods for the international market, its capacity for consumption has yet to catch up, providing no immediate competition to US consumers. In addition, lower tolerance to failure, a need for more cohesive teamwork, insufficient development experience — that is, mid-level innovation — and deficient venture-capital mechanisms continuously hinder China's attempts to become a major leader in the global innovation arena.

Bhidé agrees that concerns about China taking over US scientific supremacy are unsubstantiated, and “arise from a failure to appreciate the complex nature of the modern innovation system and its interactions with globalization”. It took more than 50 years to develop California's Silicon Valley, and one cannot expect it to be reproduced overnight in China or India, despite massive infrastructure expansion in both countries and booming outsourcing businesses. An essential spirit of Silicon Valley is respect for entrepreneurship — risk-taking and accepting failure have become part of the unique culture that continues to exalt innovations from generation to generation. It also attracts many immigrants from all over the world, forming a pool of talent that is indispensable to its success and fervour. Innovation is not only about science and technology, but extends to management, finance and culture.

A venturesome economy relies on what Bhidé calls 'venturesome consumption', without which the benefits of innovation cannot be realized: “the willingness and ability of intermediate producers and individual consumers to take a chance on and effectively use new know-how and products is at least as important as, if not more important than, its capacity to undertake high-level research,” he writes. Becoming an innovative nation requires scientific and technological superiority, and mastery of the commercialization of innovation to benefit from it.

However, the current financial climate has caused significant difficulties in raising venture-capital funds. The economic gloom has resulted in dwindling resources for R&D as venturesome business has become less attractive to wary investors. There is also a lack of funding for early-stage research compared with the disproportionate amount being spent on late-stage product development. Without such crucial resources, innovation faces obstacles in getting off the ground.

In The Venturesome Economy, Bhidé provides a thorough discussion of the relationship between venture-backed business and globalization. Asserting the global influence of the United States, he explores the complex synthesis of innovation in an increasingly open international market. He also emphasizes the importance of embracing the ever-changing market and not fearing the false alarms and paranoia that strike an unpredictable economy. Fortune can be invited only by discourse with other countries and by encouraging their advancement and development. The venturesome economy will establish itself on such frankness to innovation in a constantly changing world.