The US turned its back on corporate labs, but Gulf countries don’t have to

The Gulf countries are aware of the need to improve innovation as they prepare for the post-oil world. However, in seeking to emulate the knowledge ecosystem of the world’s most innovative country, the US, they risk repeating American businesses’ erroneous decision to dismantle their corporate labs, something caused by the growth of venture capital. Learning from this mistake is critical to developing a knowledge economy.

When it comes to innovative societies, nothing comes close to the US economy from the end of the 19th century to the present day. The contributions of giants such as Alexander Graham Bell, Henry Ford, Steve Jobs and Elon Musk continue to affect our lives in innumerable ways. By maintaining the best higher-education system in the world, America’s conveyor belt of talent remains strong, confirming its status as the model that emerging economies seek to emulate.

This desire can be seen in many of the Gulf’s economic policies: establishing excellent universities; building knowledge clusters that link inventors with businesses; and offering exceptional expats long-term residency.

But despite its continuing supremacy, cracks have begun to show in America’s innovation ecosystem. It is not just a case of other countries catching up – even taken in isolation, the US does not seem to be producing path-breaking discoveries at the pace seen during the middle of the 20th century. Fortunately, the US has been able to study its weaknesses in real time, and it would be prudent for other countries to monitor these findings.

One such contribution is a fascinating article published in the Issues in Science and Technology journal last year by technology experts John Paschkewitz and Dan Patt. Among the many factors they cited for the recent decline in performance was the gradual extinction of American corporate labs.

Paschkewitz and Patt single out diffusion as being one of the key multipliers of innovation in a vibrant modern economy. Though an invention usually starts off in a narrow silo linking the applied researchers to the associated commercial venture, things really take off when other businesses become aware of the innovation and start emulating and modifying it.

The speed of this diffusion is maximised by two elements. The first is putting lots of applied interdisciplinary researchers in the same place and making them collaborate, helping them break out of the sub-fields that they siloed themselves into at modern universities. The second is to have businesses believe that competitors viewing, modifying and upgrading their innovations is a source of further commercial success for the original innovator, rather than a threat.

This is the mindset that led to the establishment and flourishing of 20th century corporate laboratories such as IBM Research Labs and Bell Labs.

Unfortunately, Paschkewitz and Patt confirm the decline of the corporate lab, despite the continued growth in aggregate R&D expenditure. The increasing importance of venture capital in the financial landscape has led to more myopic corporate decision-making in general. In the case of R&D, this has led to a fixation on projects that yield quick returns (three to five years), with little encouragement for the sort of blue-sky thinking that yielded the transformational innovations of Bell Labs and others. Moreover, the mentality has switched from embracing technological openness as a vehicle for innovation to favouring technologies that create consumer lock-in, and that are fortified by constricting patents designed to limit diffusion.

The US political system has become dysfunctional and introduces reforms at an anaemic pace, in contrast to the remarkable agility demonstrated by Gulf governments of late, most notably Saudi Arabia and the UAE. Accordingly, Gulf countries should not wait for America’s lethargic institutions to work out that they need less venture capital and more dynamic corporate labs. If the

The US political system introduces reforms at an anaemic pace, in contrast to the Gulf’s remarkable agility

Gulf countries want to realise their ambitious targets, they need to absorb the observations of leading experts such as Paschkewitz and Patt and introduce necessary reforms.

The purported design of Neom suggests Saudi Arabia appears to be on the right track, as it seems to emphasise the kind of open innovation that used to be embodied by US corporate labs in the middle of the 20th century.

At the end of the 20th century, when the Gulf economies were still highly reliant on oil and the US was the unquestioned economic hegemon, it would have been unthinkable for the Gulf to learn from America’s errors quicker than the Americans themselves, and potentially leap-frog it technologically. However, times have changed, and that unimaginable opportunity has materialised quicker than anyone expected. Seizing it requires the Gulf countries to pay as much attention to what the US does badly in innovation to what it does well. Or, as the American author Gina Greenlee once quipped: “Experience is a master teacher, even when it’s not our own.”