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The Essential Podcast, Episode 43: Silicon Valley is Not Normal — What Innovation Looks Like in the Real World

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Daily Update: September 21, 2021

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The Essential Podcast, Episode 43: Silicon Valley is Not Normal — What Innovation Looks Like in the Real World

About this Episode

Dan Breznitz, Co-Director of the Innovation Policy Lab and Munk Chair of Innovation Studies at the University of Toronto, joins the Essential Podcast for a wide-ranging discussion on what innovation is and what it isn’t, how regions end up chasing the false model of Silicon Valley, and how innovation can be threatened by financialization and intellectual property rights.

The Essential Podcast from S&P Global is dedicated to sharing essential intelligence with those working in and affected by financial markets. Host Nathan Hunt focuses on those issues of immediate importance to global financial markets – macroeconomic trends, the credit cycle, climate risk, energy transition, and global trade – in interviews with subject matter experts from around the world.

Listen and subscribe to this podcast on Apple PodcastsSpotifyGoogle Podcasts, and Deezer.

Show Notes

Transcript

Nathan Hunt: This is The Essential Podcast from S&P Global. My name is Nathan Hunt.

Innovation is hot. Most politicians and community leaders would love to have their region be considered an innovation hub. No sooner was there a Silicon Valley, then someone decided to have a Silicon Alley, a Silicon Prairie, even a Silicon Mountain in Cameroon, but Silicon Valley is not always the best model for innovation in every region. And it certainly is not a model that lends itself to social cohesion. Given a choice between extremes of wealth for a few billionaires and having a large pool of good jobs for everyone. Most people would select for the ladder.

My guest today is Danny Breznitz, co-director of the Innovation Policy Lab and Munk Chair of Innovation Studies at the University of Toronto. Danny's latest book is called Innovation in Real Places: Strategies for Prosperity in an Unforgiving World.

"Innovation is Not Invention" could have been another title for this book. What's wrong with most policies aimed at encouraging innovation.

Dan Breznitz: Yes, it could have. I'm not sure it would have been a great seller, "Innovation is Not Invention." And as you know, the book, as you just said, is aimed at policymakers and actually citizens and leaders of communities who actually want to improve their community, be it the region or a city, life and economic wellbeing.

So the first is the problem with most of our policies is that we do not understand that innovation is not invention. And the second thing is that we no longer understand how innovation can slate to economic growth and wellbeing in the locales, in the place it happens. We now have a global system of production, which we can talk about it later, but what happened is that in many places, the place wherever innovation really happened is no longer a place where most of the economic benefits happen, especially most of the wider economic benefits, those that the whole community should actually care about. Invention is coming up with a completely new idea or new technology. So I'm a university professor. In the past I used to also deal with software. I come up with a wonderful, great idea for a much, much more efficient algorithm for artificial intelligent. That's wonderful. I might get prizes on it. That's an invention.

It becomes an innovation once I put it in reality, I commercialize it. It becomes a product either by itself or by improving or changing other products that people buy and sell. And that's the difference, that's the act of innovation. It's actually putting those ideas into reality and it can be all across the stages of things that we do to products or services. So from coming up with a completely new product or service to the world, to the fact that we are constantly improving our cars, our telephones, basically any product, our refrigerators, if you just think about your refrigerator of 30 years ago and now, to changing the product and also changing in the way we sell it and the way we service it. The whole network or chain of production. And that's where innovation happens. Once you realize that that's where innovation happens and we should care about innovation, not just about invention, because innovation is when the growth of welfare and economic growth actually happen, not in the lab. Then you also understand that a lot of our innovation policies are wrong. They're either a focus on invention. Second, they might be focused on the wrong actors, economic actors, because if you, again, look at innovation, there's only two economic agents that do innovations: individuals, which we tend to call them entrepreneurs, and firms, companies. The rest, VCs, accelerators, science park, whatever, basically things that, if they work well, help those agents, but they're are not the agent themselves, including not universities, like the one I'm working with, but any universities from MIT to Caltech to Berkeley.

The other problem, especially, where we live, you and I, is that we have allowed a myth about a certain kind of innovation. What people called "the Silicon Valley model" to appear as if this is the only way you can have innovation-based growth without understanding that one, it is almost impossible to imitate that, and second, even if a place is successful in imitating Silicon Valley, One of the things that leaders of that place should be aware that it would create unbelievable levels of inequality because of our corner global system of production.

Nathan Hunt: The thing that I kept wondering as I was reading these early chapters in the book on innovation and invention and the distinction there, was that all of us seem to be drawn, for some reason, to the nobility of invention versus innovation. All of us are drawn to the idea of the brilliant inventor who fundamentally remakes market with a sudden invention. And that is manifested in what you call the "Silicon hyphen strategy," that community leaders and government officials, they're always trying to create Silicon Valley, Silicon this Silicon that, why is it? Why is it that we raise invention to such a high level? When an innovation is such a source of economic growth?

Dan Breznitz: So, first it's the allure of that we have in almost anything, right? It's from Thomas Edison to Ford, the men, not the car, Henry Ford, to by the way where we look at history, right? We look at leaders that have changed history, no matter whether we killed 60 million people in the process. There's another reason, however, if we don't want to be so cynical, that until very, very recently, like 20 or 30 years ago, this model, Silicon Valley, actually produced significant economic growth in the locale, in that area of California. And most of the people, not all of the people, but most of the people in that area in California have a much better life, much better jobs. It's in the name. It was called Silicon Valley because they didn't only invent, they actually produced silicon. And if you even read one of what have become sort of cornerstone books about Silicon Valley, which was called a Regional Advantage by AnnaLee Saxenian. And you actually read the book, she talks both in Massachusetts and in Silicon Valley about actual production of everything, from the new, really new ideas to the final system that you sell to the customer, basically computers, in her time, all of that has changed. So if Apple, if it was still some microsystem, that AnnaLee Saxenian liked so much, but there are gone, but Apple used to, every time it would come up with a new product, produce it either in California or in nearby in Colorado.

And in doing so created a significant amount of really good jobs in what we now call advanced manufacturing and therefore all the people, not just Apple's R and D engineers and financers and lawyers became rich, but a vast, significant number of the whole California population. If you will. What you have now in Silicon Valley is concentration, if you will, of activities to mainly just a very, very, very high-end R and D on developing. All the rest, once this is done of how to make this into reality in a product or a service that we buy, is done elsewhere. What that means is that no one, almost no one who is not an R and D engineer, what I call the geek elites, no longer gain anything from the fact that you have Silicon Valley or a Silicon Valley-like, and that change is something that we prefer to disregard. We prefer to look at Google or Facebook and admire them and not realize that it does not really help 85% of the people in California. The fact that they might have even 10 more Facebook's. Those people basically still have a ticket to nowhere while the top end of let's say 15% now have a wonderful life, vast wonderful salaries, which actually make it really expensive for anyone else to live there. So that's one, the second is that you have a financial system, including VCs, which are very, very, very good in selling us stories of how young people within three to five years with just a different idea can become a billionaire. And again, that is a wonderful news story, and we love it. And when regional leaders from somewhere else look at those stories, they also want to have it. And as a matter of fact, you and I want to have it. But the reality is this is a road to nowhere, even if you were successful for almost everyone in your company.

Nathan Hunt: In the book, you distinguish four stages of innovation. Can you share with our listeners, what are these four stages and why is the distinction between the four stages important?

Dan Breznitz: So, let's think, and the way I like to do it with people I work with, my students, people I consult with is let's think about an industry. We can even think about two industries, one traditional, if you will, one not. But let's start with semiconductors because we've been talking about Silicon for so long. And if you look at the semiconductor industry, and I'll give you a list of countries, let's talk about the U.S., Israel, Korea, Taiwan, and China. All of them have unbelievably successful semiconductor industries. And in most of the countries that I just mentioned, the same companies work. Yet, if we now look at what happens in each of those countries, what you see and try to figure out how, you know, a final product like a smartphone comes to being, you will see that in each of those countries, It's not that we do everything with semiconductors. We do a very, very thin slice of activities. So Silicon Valley and Israel, or the U.S. and Israel, it's where, you know, stage one, developing the new ideas come into production. Korea has decided to focus on very, very critical niches of a very slice set of semiconductors without which you cannot have your system, so memory, if you have a smartphone, the controller of your screens. And as a matter of fact, Samsung makes, because of that, makes the second most profits out of every Apple iPhone that you buy. And then you look at those ideas that have come from Silicon Valley, and you're wondering, how are they made into real silicon? And then you go to Taiwan and you find out that Taiwan has a slice of companies. Some of them are famous enough that people know about them like TSMC, but many others, they take those ideas and make them, fabricate those chips based on the design from Silicon Valley. And then you take all those components, sometimes tens of thousands of them, and you have to figure out how to make them into a product in a very efficient, reliable way, so you can actually sell it for customers in the U.S., sometimes working with completely new materials and constantly changing the products. Sometimes running it in the millions, sometimes running it in the tens of thousands, if it's not successful. And the place where that happens is China. So you could see that in that industry that just described semiconductors, all those countries operate, but they operate in different stages. And the way to think about those stages are the four things would happen where, and you have to innovate, you have to constantly put new ideas and new skills and you capabilities and new ways of doing things in order to stay competitive.

One we already talked about Silicon Valley novelty doesn't have to look black just like Silicon Valley, but it's those stage of activities. The second is making, if you will, figuring out how to make products out of those ideas. The third is the constant improvement and changing of those abilities. So if you think about semiconductors, it is all those companies that are not the first to come with a special silicon chips, but those that come with better silicon chips or more reliable silicon chips, or even more importantly for human welfare and not cheaper silicon chips. And then there's the fourth stage and that's taking all of those things together and figuring out how to make a product, one product that actually works, out of them. And there was over four stages of production and innovation

Nathan Hunt: Are you saying that there are potentially differences in how a country's ownership of a certain stage of innovation will affect things like income inequality in that country?

Dan Breznitz: Absolutely. And it doesn't have to be in conflict. So I gave you the example of Taiwan and Israel, which are small enough, especially Israel, to be considered, you know, as one unit. That's I think the worst myth that we have in the United States and Canada and other big countries is that we are all Silicon Valley. No, the U.S. can have multiple regions of innovation in different stages and it should, and in the past that's what we had, if you just think about the Midwest and how the Midwest became rich versus a coast.

Now, why is that important? Because each one of those stages gives opportunity and incentives. So what you get back for different levels of skills, for people that are trained differently, different kinds of work, and the stages, unlike the myth of Silicon Valley, where I fully admit you can make billions, but very, very few people are involved in it. Stages like the very gray and unassuming stage of, you know, second and third level innovation, so basically the designing of a product that somebody else thought about and making into a product or second generation innovation, making things better actually employs a lot more people as in a multiplication of a number of those people. Not only that, those people are not all a graduate of, you know, Ivy league, MIT, Caltech, Carnegie Mellon in engineering, but are people like most of the population, they're smart, they finished high school, they can finish community college, they can finish a university and they really, really want to work. They're highly creative in their work, but they're just not the people that will sit 14 hours a day writing code, they gain wonderful and good jobs. And when I say good jobs, it's not just, they're getting very well paid, but those jobs are very satisfactory. They're not like working in an Amazon warehouse. You're actually producing stuff, be it services or product. And the end result then that if you own the podium, so to speak, because we have Olympics, in those kinds of maybe slightly more obscure sports of innovation, your community is much more well off. And the other, it is actually much more sustainable.

Nathan Hunt: One of the lovely grace notes of the book you've written is that you begin each chapter in the first two sections with a quote from L. Frank Baum's, The Wonderful Wizard of Oz. Each quote is focused on the scarecrow's, tin woodsman, or the lion's desire for qualities they already appear to possess. I'm going to engage in a literary analysis here, and I want to hear your thoughts. By selecting these quotes, were you suggesting that local governments should select innovation strategies for the strengths that their regions already possess, rather than, forgive me for saying this, pursuing the green tinted glasses of the Silicon Hyphen Strategy.

Dan Breznitz: First of all, in literature analysis, as I think you know, the original Wizard of Oz was, some claim, and I think they're right, also a political allegory about the first globalization in the United States and the lion, the tin man, and all those are actually representative of different communities as they were back then in the United States. By the way, the evil witches are, of course, the bankers of the two coasts, the Western and the East. Back to your question, yes, and I've done it on purpose. It's a journey, and that's what the book is about. And what I want is to open the eyes of leaders from whatever part of their community, business, or public, to the fact that we have a lot of opportunities. Not all of them are Silicon Valley. They should look at two things. One, they should look at what is the uniqueness or what can be a unique advantage of their region and be open to working in every one of those stages. Even those that are not glamorous. Second, if the situation is dire, as it is in many communities in the U.S., we should not just look at the past and say, 'oh, what we already have.' They should try to figure out where can they excel. But again, the future does not have to look only like Silicon Valley. And then, last but not least, and that's why I find the most, the weirdest when I work, and I work with a lot of regions, when they ask them, 'Okay, so why do you want to have an innovation policy? Let's assume you're really, really, really successful. What will happen in 15 years?' And many of them answer, 'Oh, we'll have 10 nickels or we'll have a lot of big companies.' And I said, 'That's great. I mean, you gave me an outcome of how your industry looks like, but why, how does that impact your community?' And if your aim is actually to create a better future for more of the people in your community, you should be aware of the distributional outcomes of different modes of innovation, and peak, you know, have a feat, have a vision of what does it mean to be successful. And, you know, having 10 VCs is not a good vision, but how does your whole region community looks like in 10 years. And then how innovation or excelling in innovation can lead you to that vision and then decide where you want to work. Instead, people just look at the glitzy things, which I just mentioned, and then try to figure out strategies so various kinds of metrics will appear, without understanding what they're doing to their communities. And I have to say, I've talked with some communities where it was clear that their best scenario would be to look like Silicon Valley. And it is absolutely okay if you made that decision knowingly, because then you also know who are the people that are going to lose if you are successful. And therefore what you might want to do, which might not have to do with innovation policy, but you might want to do so they will also have a future and not 15 years down the road you will have massive civil unrest and unhappiness.

Nathan Hunt: It seems like in the book, you're suggesting that the conditions for successful innovation, including proximity to institutions of higher learning, access to capital and self-supporting community of companies, are necessary but not sufficient. To illustrate that point, I'm wondering if you would talk a little bit about Atlanta's experience as an innovation hub

Dan Breznitz: Full transparency, my first work after finishing MIT was in Georgia Tech. I love Atlanta. I love Georgia Tech. I highly recommend it. But Atlanta is also a wonderful example of how not to try to create Silicon Valley. So Atlanta has everything that any consultant will tell you that you want to have. It has Georgia Tech, it has Emory, it has a CDC, it has unbelievable amount of research money going into it. It has one of the highest percentage of young and highly educated college graduates flocking into the city. Wonderful airport, one of the top concentration of Fortune 500 and Fortune 1000. And yet it does not have a high-tech industry. What it does, is that if you look at the history of ICT, almost every time you had a new sector in the ICT industry that was successful, Atlanta was there. From satellite communication to data communication to cybersecurity. Atlanta companies were sometimes the first, they even went into an IPO, nothing happened out of it and then the whole industry crashes again. And the reason is that Atlanta has become basically what I called a feeder cluster. So much of the wave at Atlanta, leaders have tried to create it, was to bring the VCs and others from Silicon Valley. That instead of creating community and industrial community in Atlanta, those people, the best of the best of the people, became more and more embedded into the network of Silicon Valley or New York. And when the time came, and especially if a good VC came from New York, Boston, or Silicon Valley, and invest in their companies, they would just leave Atlanta. So you had the place, if you want to think about it, Atlanta is has all the perfect ingredients to make a soup, but somehow never managed to put it in a pot, put their right herbs in and spices and make it into a beautiful soup. And the reason is that it has in a sort of a mini version of what happened in the globe created a social pool where the best and the brightest of Atlanta's entrepreneurs and companies, as soon as they have success, either move their company somewhere else or get acquired by a bigger company. And then all the activities are moved elsewhere. And that's a massive risk for a lot of regions in the United States, because what then happens in Atlanta is Atlanta subsidizes and educates and supports all those entrepreneurs in the highest risk stages, spending a huge amount of resources doing it, only for them, as soon as they're successful, to move somewhere else to a community that actually gained all that success without the risk and investment. The problem that we have in the United States, that we now already have Silicon Valley and Boston and New York, and the way to think about it, it's like a massive free magnets. The most successful entrepreneurs elsewhere as they grow and become more successful and embed themselves into those places in order to be successful, we'll feel more of a, more of a, more of a need to move to those places. Lock, stock, and barrel. And then what happens is that a community, at best now, a different region at best can become a feeder cluster, meaning that he doesn't even enjoy the stage wherever companies become big, but it enjoys all the risks of doing it and, again, create jobs, or at least that industry creates jobs only for the geeky leads.

So, it's a possibility. I think quite a lot of regions can become Atlanta-like, but Silicon Valley, they won't, and they have to realize that and think whether it's worthwhile.

Nathan Hunt: By way of contrast, in the book, you talk about Hamilton, Ontario, as an innovation hub. This example is particularly close to my heart because 10 years ago, my father was taken from his home in Thorold, Ontario, up to one of the hospitals in Hamilton to deal with a medical emergency. In a sense, I owe a great deal to Hamilton's success in encouraging innovation. Can you talk about Hamilton's approach and strategy?

Dan Breznitz: Most of those cases of it I'm talking about, and I think it's important for people who think about the future, they did not know the future. Okay, so Hamilton did not have a plan of becoming an innovation hub does not look like Silicon Valley. It had the plan to deal differently with the cards it had at hand. What Hamilton did, and especially in health, is first of all, had a medical school, which was created rather late in the game. And because it was created late in the game, allowed for experimentation in two things. One is a way of how to teach medicine, which was based much more on case studies and the people. So the clinicians who deal with the patients, understanding both the research, but also the patient, and then trying to figure out the treatment instead of, you know, what was back then, everywhere else in the U.S. and Canada is rote memorization. And by way of that system, created by McMaster, is more or less the system we now teach medical doctors everywhere in the United States. The second is what ended up, and that is an idea that where they could compete is not in high-end new molecular, either pharma or biotech, but in population studies, right? Their idea was that the clinician needs to understand the research and meet the patients. They developed a system that we now know as evidence-based medicine and evidence-based medicine basically says that what you have to have is not necessarily a clinician that can do the research, but a clinician that can understand the research, but then go to her patients, see what actually happens in the patient, and then some merge both those knowledge to tailor their research.

Out of this came a lot of users in other areas of science we call statistics or demographics or population studies and a different way to think about medicine. So, I don't know if you, or a lot of your friends take a very low dose aspirin once a day or three times a week in order to prevent heart attack. The study that ended up with that recommendation was those kinds of different clinicians studies. Out of this came a way to start thinking about novel ideas. But if you want to think about the medical innovations that come out of Hamilton, they don't come with a cure. They come with a system either for new delivery of cures, in the case of cancer, or a system of how to quickly develop a lot of cures because they can give you analysis.

So, if you want to think about what what we call about stage one innovation, instead of coming up with a healing, one product, they come up with a system that then allows you to do a lot of innovation and tailor them to a lot of different patients and a lot of different diseases because it's come out of population studies and clinical studies instead of R and D labs looking at moleculars.

Now, the problem, all of this was done in a city that again, I don't know how many people know, but Hamilton is basically the Pittsburgh of Canada. It's the steel town of Canada. Where are you have a lot of, on one side, highly unionized workers with very good benefits in a very risky, relatively, profession, which is steel. And therefore you have a lot of an ability to start playing with different products because of accident. So burns, bones breakage, replacement of parts of your body and, of course, dental. And again, because you have those benefits, there's a lot of practitioners that would start to play with different kinds of solution and products to them. And as we're successful, they grow. And that allows what we in the United States would call seed financing, a different kind of seed financing to all of those inventions, which are very, very practical. The problem, and out of which come Hamilton, that as you said, has helped your father and come up with, if you look now in Canada at the number of extremely successful health science companies, a lot of them come from Hamilton very quietly. The problem that Hamilton now has is that it became a place where venture capital liked to play. And as venture capital, likes to play, you can see more and more of the Hamilton companies look more and more like the Atlanta or the Israeli companies, where the only thing that stays in Hamilton is the R and D units and all those wonderful things that I just described where you employ a lot of people with different kinds of skills and grow the whole community, no longer happened in Hamilton. I hope that they still find a different way to finance and grow its companies in Hamilton. But I think that the pool of Silicon Valley and the New York Stock Exchange is just too strong for Hamilton to continue to look like something else. I hope I'm wrong.

Nathan Hunt: Danny, there are a lot of books out there that purport to offer strategies that will make companies more innovative, but your book is different. It's primarily aimed at policy makers, community leaders, who wish to encourage innovation in order to achieve local prosperity. Can you describe for our listeners, the three aims of innovation policy that stimulate the growth of innovation?

Dan Breznitz: There's also another, somewhat dangerous, conflation of industrial policy and innovation policy, and those are not necessarily the same thing. Let me explain. In industrial policy, classical industrial policy, you know what is an industry, you know what is a product, you know how to sell it, or at least how it is sold now and how it is made and why. And you are then trying to figure out ways in which to create that industry in your place. A classical example will be the Japanese car industry and how it basically destroyed the American car industry. The Japanese knew what cars are, knew how they're produced, knew how they're sold. And then, based on that, created a different system of making cars, figuring out and differentiating different levels of customers, reconfiguring what a car is and how to sell it. When you're talking about innovation, especially at the first stage, from the point of view of policymakers, you actually do not know what would be the final product or how it should look like. If you do, I highly recommend that you quit your academic, consultant, or government jobs and go open a company because you'll be a billionaire. So instead, what innovation policy is really trying to do is create and stimulate agents that will do things that the community leader cannot really foresee. So what you do, and the way you can think about, it is doing three things.

One is help in the creation and development of those agents of innovation. Be it education, be it mentoring, basically figuring out what capabilities are missing in your regions and letting humans, the people in your regions, your citizens and residents to actually acquire those skills. Second is you need to create an ecosystem that actually allows those agents to excel in employing their innovational capacities. And preferably we can talk about it right in different stages. And the third, and I think the most important with a lot of regions failing, is when stimulating those agents of innovation to action. Because we have a lot of regions in North America where you have spent a huge amount of money to educate people, that when they finished college, are capable of innovating as well as anyone in the world. Canada is an example, has one of the most highly educated, capable labor force in the world. But if those companies and individuals then don't go and innovate, which has an apt description of what happens in Canada in the moment, then all that investment goes down the tube. So the third thing that you have to do is somehow stimulate your agents of innovation to actually start innovating.

Nathan Hunt: Danny, when I was reading your book, I kept being reminded of a book written by David Byrne, who was the lead singer of the Talking Heads and is still a very successful musician. The book that he wrote was called How Music Works. In a chapter he wrote on how to create a music scene, like the downtown Manhattan scene that incubated the Talking Heads and a bunch of other bands, Byrne insists that it's not enough to have talented musicians, it also requires a wide variety of venues, opportunities for creatives to cross-pollinate, and affordable housing. When I was reading about your approaches to encouraging innovation, the innovation strategies, this resonated with me. Do you think that your approach could offer innovation in spheres outside of business?

Dan Breznitz: Yes. I think it does. I think talking about innovation, and again, I didn't come up with this definition of innovation, but innovation is the act, is the human act, of trying to do something new or trying to improve things. If you want to think about it, and that's my belief, that's really what makes us human. What has made us, for better or worse, change our environment and keep on changing our environment. I'm looking at, you know, since World War II, even before. And I'm looking at the overall lot of humanity. And I think we have actually, overall, done a pretty good job for humanity. We should definitely do better and we might ruin meet all, but I have a deep belief in the innovational capacities of humans. And I think that that's really what makes humans unique, unlike any other animal. Therefore, a lot of what is described in the book can help, but remember, I'm not talking about necessarily inside companies, but inside communities or regions of innovation of kinds. What is different is with incentives. I just mentioned that nothing would help if your agent of innovation would not be incentivized to innovate. That's changed. What incentivizes business innovation, which is profits, is very different than what incentivizes our kind of innovation. So we have to think about.

What I would also say that I think is very important for both kinds of innovation that I have not mentioned before is you have to have a commitment to process of continuous policy experimentation. You don't know what's going to work and by the way of innovating, things always change, so what used to work five years ago might not work now. And definitely, what work in a different place might not work in yours. So you need to experiment, and therefore your ability to stop policy options that don't work, kill them, is as important to the ability to come up with new ideas. And the one thing that we have not talked about, and I think in music, if you think about David Byrne and when he became very successful and innovated and now is globalization. And anyone, any community, for any kind of innovation that does not realize that in order to be successful in whatever stage, it has to tie itself and become a nod, an important nod into those massive flows of local, global flows of a knowledge demand, inputs and markets is self-delusional.

Nathan Hunt: Danny, there is a third section of the book that is called "The Three Dysfunctionals," namely intellectual property rights, financialization, and data. And this was such a rich section that really we could have another long podcast just talking about these three dysfunctionals that can affect innovation. Final question: Why did you choose to include these three topics in a book about encouraging innovation? Why was it important to you that these three topics be addressed?

Dan Breznitz: Because I think that those topics, what combine them all, and its finance, IPR (intellectual property rights), and data are crucial for a community to being successful in innovation in the way of at the core and global system works. However, the ability of even the richest and most successful region in the world is to actually change them, is almost negligible. So what is then left is that is a must-be for leaders, local leaders, is to really understand how they work. What are the dysfunctional, and again, very dysfunctional from the point of view of local economic growth. If you want, if you're individuals who want to make a huge amount of money, they might work for you, but we are talking about a regional growth. You have to really understand what happened and how the global system of intellectual property rights, which is not just patents. It's patents, technology standards, copyrights, trade secrets, trademarks. Understand what has been happening because most of the money, if you look at the volume of even American companies now versus 30 years ago in what is now called intangibles, which is basically a different way of saying IPR, how those systems work, what are the rules, what are the incentives, and how our system can be manipulated in order to basically buy the incompetents or people like packing trolls to basically stop your entrepreneurs and firms and kill them while they're small, is something that you have to do. And once you know the system, right, it's like a set of games, of rules, you also can start to develop strategy how to gain the system back with the aim of protecting your growth. If you don't know it, you won't be able to. So unlike the rest of the book, if you will, it is one area where a local leader must know, cannot change, but must really known the rules and have an open eyes about how dysfunctional they are. However, chances of changing them are basically zero. And therefore, what can you do in order to still make your community grow? The same thing goes for finance. It's especially bad in the United States. But I'm sure you had very large number of people on your podcast, either lamenting finance or saying why finance is wonderful. Again, from the point of view of a community that wants to have local economic growth based on innovation, our system of finance is disfunctional. You have to understand that. Understand what makes it dysfunctional from a point of view of a community and how you can counter it. And data, as I think you know, my friend, is the new currency of the future. But also, and I think that's why it's important, it is basically the new oil or the new gold or whatever it is, the new commodity, on the basis of which, and by having access to, you can innovate in some of the most important new areas of innovation. For example, artificial intelligence. It is now unbelievably badly mismanaged, and it's not just privacy. And, again, a region that doesn't understand that, local leaders that don't understand that, do not educate their companies and entrepreneurs about how this is going and develop a strategy to mitigate the worst. We've had serious problems of growth. So those three areas are areas that you must have a strategy about, you must really know, you must be, you know, a consummate player in IPR, finance, and data. But you should come to them knowing that your aim is not to change the rules. Your aim is not to optimize the global system of finance because you have zero chance. You aim is to find a game plan in which your team wins.

Nathan Hunt: Danny, I want to thank you so much for appearing on the podcast. This has been fascinating. I wish we had another hour to talk.

Dan Breznitz: You're very welcome, Nathan.

Nathan Hunt: The Essential Podcast is produced by Molly Mintz, with assistance from Kurt Burger. At S&P Global, we accelerate progress in the markets by providing intelligence that is essential for companies, governments, and individuals to make decisions with conviction. I am Nathan Hunt. Thank you for listening.


The Essential Podcast is edited and produced by Molly Mintz.