# An Institute for Creative Technology - Riffing on ARPA
## Meta
- Could you keep track of a history of sections they looked at so they can easily jump around
- Could you leave stub links to note that these will be filled in later?
- Principle: assume people are jumping around
- Remember to pay attention to :: and <> in final piece
- Could you have an epistemological certainty indicator?
- Questions for editors
	- Where would an illustration or diagram help the point
	- Where do you want more expansion? Where is there too little expansion?
	- Should I used “R+D org” or “Innovation org?”

## Writing
### Preliminaries
- [[Purpose behind ICT Writeup]]
	- [[Creating an organizational structure around a project prematurely can have many downsides]]
- [[Assumptions of the ICT Writeup]]
- [[Who is the ICT Writeup For]]
	- The piece should be able to be read differently depending on who is reading it and what they want to get out of it. 
		- Choose your own adventure but you get to choose one of the premade characters or design your own. 
			- Maybe a colored trace depending on which you choose?
- [[Methodology for ICT Writeup]]
	- [[Thinking about PARPA requires unorthodox ways of thinking about institutions and incentives]]
	- [[Counterfactuals are hard]]
	- [[Incentives are the fundamental forces of peopleland]]
- [[Glossary]]
 
There is a lot of preliminaries or postliminaries that are important to building up the piece. However, it’s important that it stay tightly focused. To that end it’s important to note where there are clear holes and plan for them to be filled. 

- ::separate:: Why is a DARPA Riff Necessary - the full constraints probably want to be a separate thing. Maybe explicitly say that this is *not* to convince you of the thesis - this comes later.  See [[Assumptions of the ICT Writeup]]


- What problems is the ICT addressing (contra many other “research is broken”)
	- [[Overlapping institutional constraints rule out several classes of creative work]] 
		- [[Einstein would have been stuck in a patent office - failures of paradigm-shifting science]]
		- [[We have no flying cars - failures of paradigm-shifting engineering]]
	-  [[In the past, corporate labs filled a particular niche in the innovation ecosystem]]
		-  [[Ideally corporate R&D enables work on a general purpose technology before it’s specialized]]
		- [[Ideally corporate R+D enables targeted dicking around]]
		- [[Corporate labs no longer fill the niche they did in the early-mid twentieth century]]
		-  [[Healthy corporate R+D requires a trifecta of conditions]] 
		- [[AI research is an exception to the decline of corporate R+D]]
		-  [[Why try to emulate DARPA and not Bell Labs]]
		- [[Healthy R&D orgs feel like they have very smooth project rampups with high ceilings]]
AT THIS POINT I think is the correct place to introduce the fact that we’re going to be feeling around the edges for this so-far imaginary organization
		- [[One function of a private ARPA is to fill in the gap once filled by corporate R+D]]
	-  [[Things that are not paper-worthy enough for academia and not product-focused enough for a startup]]
	- NOT [[Einstein would have been stuck in a patent office - failures of paradigm-shifting science]]
	- Going after [[We have no flying cars - failures of paradigm-shifting engineering]]

	- ::Separate:: General Constraints of existing systems
		- [[§Philanthropy and Non-Profit Constraints]]
		- [[§Corporate R+D Constraints]]
		- [[§Academia Constraints]]
- Specific Takeaway around Innovation Orgs. ::Does this want to be a separate section or woven into the different pieces?::
	- On Profit and Value Capture
		- [[tensions]]
		- [[Profit makes organizations auto-catalyzing]]
		- [[There is a significant class of innovations that would create drastically less value for the world if their value had been captured by their creators]].
		- [[Value capture does not always need to happen through IP]] ::Stub::
		- [[It is hard to capture value from research]]
			- [[It is especially hard to capture value from externalized research]]
		- [[Decoupling from market discipline is like cave diving]]
		- [[Someone needs to buy manufactured technology eventually in a monetized economy]]
	- On legal structures
		-  [[Legal structures are intimately tied to the question of how money works in an organization]]
		- [[There are no first principles for legal structures]]
		-  [[The traditional non-profit structure is a bad idea for an organization that requires a significant chunk of capital and produces uncertain results on a long timescale]]
	- On Building Organizations
		- [[It is important for big things to start small]]
		- [[Research orgs don’t scale]]
	- [[Precise visions are more likely to happen]]
	- [[Prototyping needs manufacturing in the room]]
	-  [[Principles for Innovation Orgs]]* This may want to be an appendix 

	- It is important to get people on board not necessarily with the constraints of existing systems but with the constraints that ICT would be heading into - specifically, the nature of profit around research and the nature of fairness around research. 
		- This may want to be a series of separate articles about the nature of the problems. However, it also directly affects how to think about profit. 

- [[Organizations with structures worth learning from]]. Academic papers traditionally do a review of prior work. Since we’re talking about institutions, it’s important to do an institutional review instead of a literature review. It shows that I’ve done my research and gives people frameworks to think about innovation organizations. At the same time I want to avoid couching this idea completely in the context of “what about other organizations?” It’s worthwhile to pay attention to whenever an organization is particularly worth paying attention to it and hyperlinking to the part 
	- [[Venture Research, Bell Labs, and DARPA form non-orthogonal basis vectors over the space of innovation organizations]] ::needs work::
	- [[Comparing and contrasting Bell labs, DARPA, and Venture Research]]
	- Non-academic Research Organizations
		- [[Ink and Switch]]
		- [[OpenAI]]
		- [[Willow Garage]]
	- Corporate R&D Labs
		- [[DeepMind combines bottom-up research work with top-down strike teams]]
		- [[Xerox PARC]]
		- [[Bell Labs]]
		- [[Google X]]
	- Funding Orgs
		- [[Prime Coalition]]
	- Startup Studios
	- ::separate:: Why did Bell Labs Work
	- DARPA obviously
	- ::The full list of these should be an appendix::
		-

- Definitions and core ideas. These are probably worth defining lightly in the piece itself and heavily elsewhere. 
	- Reaper Functions
		- [[Reaper functions beat culture decks]]
		- [[Reaper functions dominate other]]
	- Money factories
		- [[Innovation orgs need a money factory]]
		- [[Innovation orgs need to be aligned with their money factory]]
			- [[Alignment requires existential threats]]
	- Innovation organizations ::needs work::
	- Research
		- [[As a platonic ideal, research is an unscheduled quest for new knowledge and inventions with hard-to-predict outcomes]]
	- Paradigm Shifting Work
		- [[Changing paradigms is hard]]
		- [[DARPA works on programs that go against the established paradigm]]
		- [[We have no flying cars - failures of paradigm-shifting engineering]] ::needs work::
	- Organizational Structures
		-  [[Nobody has any idea what the affordances of human systems are]]
		- 	[[There are a number of experiments that seem like they can only be done in the context of an organization]]
		- [[Running multiple organizational experiments flies in the face of common wisdom]]
	- Innovation Ecosystems
		- [[From the outside the innovation ecosystem looks complete and healthy]]

- Need to establish the **demons** up front - these are the inevitable tradeoffs or intractable places where you will always be able to accuse inconsistency

[[Institutional structures can be analogized to anatomy]]
- Skeleton 
	- 
	- [[It is worthwhile and possible to riff on ARPA]] ::This probably wants to be early as an assertion and then filled in throughout::

	- [[There are DARPA-style ideas that DARPA doesn’t pursue]]
	- [[A private ARPA requires new legal organization structures]]
	-  [[Can the ARPA model exist outside of the government?]] (yes)
	- [[21st century riffs on ARPA should be private]]
	-  [[PARPA should create a replicable institutional model]] 
	-  [[PARPA needs to be obsessed with PMs]]
	- [[A private DARPA riff both can and must do multiple experiments at once]]
	- [[Inverting the normal relationship between an R+D organization and is money factory may enable new classes of activities]]
	- 	Goal: enable more awesome sci fi shit
		- [[Arpa-riff Mission]]
	- Long-term organization that sprouts others
		- Think coral reef or mushroom instead of octopus or slime mold
		- [[PARPA will eventually spin out companies]]
	- Program focused
	- PM centric
	- Trust
	- Important to emphasize what it’s *not*
	- 	- - [[ARPA Model Conclusions]]
		-  [[Anybody attempting to emulate DARPA needs to be willing to sit with a lot of discomfort for a long time]]
		- [[You need to minimize actions that lead to short term glory if you want to emulate DARPA]]
		- [[A private ARPA requires new legal organization structures]]
		- [[It is hard for a private ARPA to capture value without hamstringing impact]]

- Muscles
	- Externalized research
		- [[R&D orgs lie on a spectrum between externalized and internalized execution and benefits]]
	- Hypothesis 
		-  [[You can create a program design discipline that enables better research and development]]::needs splitting::
	- Funding sources
		- [[Could DARPA have a positive return?]]
		- [[How does money work in PARPA?]]
		- [[Is there a minimum effective budget to generate outlier results?]]
	- Structure
		-  [[Focused Program Organization]]::needs splitting::
		- [[An ARPA riff will need at least seven programs to demonstrate viability]]
	
- Skin
	- Focuses
	- Core theses 
	-  [[Employee-ownership could enable PARPA to align long-term incentives]]
	- [[PARPA needs a constitution with checks and balances]]
	-   [[A 1B dollar PARPA budget could come from a 25B dollar endowment at 4 percent interest]]
	-  [[Quantized Heilmeier Catechism]] 
	-  [[An ARPA-Riff could establish sales channels for frontier tech]]
	- [[Workshops could be a way to start small building a private ARPA]]
	- [[Is there room for an expanded TRL framework?]]
	- [[Good Simulations could be the ‘why now’ of roadmapping tools]]
- Clothes 
	- Specific programs

- [[Reasons why an arpa riff would succeed or fail]]

### References
- [[Financing Advanced Manufacturing: Why VCs Aren’t the Answer]]



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Focused Program Organization

DARPA doesn’t do any research in house

# Externalized research is a buffer against B players
If a performer underperforms, it is easy to never work with them again after that specific project. 

By contrast, employees are hard to get rid of. The reason it can be hard to get rid of an employee can be legal (especially in Europe, the US government, etc.) Fuzzier reasons why it’s hard to get rid of an employee can perhaps be bigger than the precise legal reasons. There is an implicit assumption that an employee is going to be around ‘forever’ so they can gain essential knowledge about a critical system. The emotional burden of getting rid of an employee can be high. 

Externalized researchers are ideally uncorrelated except through the person finding them. That is, you can’t get quality contagion (the second part of [[A players hire A players and B players hire C players]])

Externalized research could ideally lead to an asymmetric upside situation. If you really do like working with a contractor and they like working with you, you get most of the lowered [[Transaction costs]] of hiring an employee without the downsides. 

Speculatively, there is reason to believe that an organization made out of temporary people could actually have a *stronger* culture.  See colleges, lab groups, etc.[[Intergenerational culture is like a standing wave]]

### Downsides
Of course, there are downsides to externalized research. 
- It’s hard to have as tight feedback loops with external performers - this makes it crucial to have clear goals and clean interfaces. However, [[Creating legible interfaces is expensive]].
- Some research really just needs the ability to play, which is hard to do when you know you’re on a clock. [[Feedback loops and play are important for breakthroughs]]
- Some great people want the security that comes from a default-alive job. 

### Related
- [[DARPA doesn’t do any research in house]]
- [[It is especially hard to capture value from externalized research]]
- [[R&D orgs lie on a spectrum between externalized and internalized execution and benefits]]
- Employment contracts are a subset of [[What if all entities had expiration dates?]] - in this case the “entity” is the employment term.





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R&D orgs lie on a spectrum between externalized and internalized execution and benefits

It is especially hard to capture value from externalized research

The boundaries between industry government and academia are fuzzy

Xora has unique structural advantages that could allow it to push the technological frontier

# Genentech was started by bringing together several pieces of existing research and subcontracting to university labs
According to [[Science Business - Book]]  this set a precedent for how biotech companies operate.

### Reference
[[VC - An American History]]



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There is a significant class of innovations that would create drastically less value for the world if their value had been captured by their creators

How does money work in PARPA?

It is hard for a private ARPA to capture value without hamstringing impact

Can the ARPA model exist outside of the government?

PARPA will eventually spin out companies

Externalized research is a buffer against B players

There are many important innovations that are just bad investments

An Institute for Creative Technology - Riffing on ARPA

Research Blockchain

# It is especially hard to capture value from externalized research
[[It is hard to capture value from research]] and it is especially hard to capture value from externalized research. 

- The people doing the research might not want to or be equipped to commercialize it and so you need to manage the transfer with an external organization
- There is little incentive for people who do not own the IP to commercialize it - researchers would just want to get their paper out of it and move on. 
- The external organization may expect to own IP or get a huge cut of the value
- When there are several pieces, any single piece may not be that valuable 
	- Imagine creating the mouse in one place, the keyboard in another, and the GUI in another
- If the external organization doesn’t own the IP, there’s a conflict of interest and they may be incentivized to hold back any insights they don’t absolutely need to 

Are there examples of organizations capturing research from external research?
- [[Genentech was started by bringing together several pieces of existing research and subcontracting to university labs]] - this may only have worked because the founders of Genentech were also the professors of the lab. 
- In a way [[Ink and Switch]] tried this, primarily hiring contractors
- [[Deep Science Ventures]]

### Ways that you can capture value from externalized research
	- Patents and licensing 
		- Need to be enforced via litigation
		- Joint ownership is messy and requires a lot of negotiation
	- Invest in an entity that is capturing value from the research
	- Cross fingers and hope the entity that captures the value donates back to you?
	- Have the researchers have a stake in the value capture entity (a la [[Genentech]] )
	- Taxes if you’re a government
	- [[Research Blockchain]] ??? 🤣

### Related
- [[It is hard to capture value from research]] 
- [[It is hard for a private ARPA to capture value without hamstringing impact]]



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Most tech transfer offices are not profitable

Bell Labs was only profitable in conjunction with AT+T

Legal structures are intimately tied to the question of how money works in an organization

Value capture does not always need to happen through IP

Things that are not paper-worthy enough for academia and not product-focused enough for a startup

Research requires massive intrinsic motivation

Creations whose impact depends on being public generate uncertain value through not-particularly modular combination with many other things and have a large combinatorial surface area

Pay-it-forward tithing is underrated

The work at Bell Labs that was most valuable to AT+T and the work that was most valuable to the world was fairly disjoint

Profit-maximizing organizational structures can hamstring technologies whose impact depends on them

Enabling technologies must be developed while doing serious work

PARPAs ideal legal structure comprises both a nonprofit and a for profit

ICT Distillation

ICT Outline

Omniscience is not enough

# It is hard to capture value from research
Abstractly, a lot of research tends to resemble a public good. (See [[Scientific Knowledge as a Global Public Good - Contributions to Innovation and the Economy]].)  Technically, knowledge is a non-rivalrous good. Your knowledge of airplane building does not prevent me from knowing how to build an airplane. Once knowledge is no longer secret, it generally becomes non-excludable as well. These properties make the outputs of research look a lot like public goods by default. 

[[Value capture is important for incentivizing and funding research]]. The primary way to capture the value of a public good is to privatize it. [^1] However, privatizing research is tricky. [[Current value capture mechanisms are crude]] - to capture value from research, you need to either patent it *and get paid* or build a product around it. Researchers and research organizations can also indirectly capture some of the value through credit and status that can convert to consulting gigs and speaking fees. Let’s walk through the challenges with each of these mechanisms.

### Patents
 Patents only apply to research that directly goes into a product - often there is a lot of work (and failures) by *different people* that leads to the patentable research. [[We stand on the shoulders of too many giants to give them all credit]] so it’s hard for people who pave the way for research to get a kickback from patents. Large R&D labs amortize some of this work, but the modern system of startups and academia fractionalizes the work and weights the rewards towards the people at the end of the chain, for better or worse.[^2] Research often needs to be combined with *other* research to create something really valuable. Often patenting terms are so rigid that the cost of licensing multiple patents to develop a new product kills it in the cradle. [[Patents inherently prevent a piece of IP from being combined with other knowledge]]. 

 Finally, capturing value with a patent is often widely inefficient. In an ideal situation, someone building a product that incorporates the patented process comes to you, the two of you negotiate a licensing deal, and they send you a check every year. The world is not ideal. Often, you need to *find*people who are violating your patent and threaten to sue them if they don’t pay up. Standard lawyer advice when building something is to *not* look for prior art because it decreases your liability in case you happen to reinvent something. Even if someone *does* come to license your patent, the negotiation over licensing terms can be brutal - there are no standard terms and especially for a startup it can create a drag chute on a product’s profitability that makes an already hard job even harder. Once the licensing agreement is signed, you still need to make sure that the company is paying you the royalties you’re due and sue if they’re skimping you. Many inventors have spent a lot of their lives in court over patents and sometimes wind up dying in the gutter in spite of that. 

### Products
 In order to capture research value through a product, the research needs to make a single product (significantly?) better than its alternatives. If it’s modular enough that it can easily be sold and incorporated into many other products, that’s still just a product. Products rarely succeed on the quality of their new technology alone. 

Additionally, products are coupled to companies so there are many other factors that affect the value captured by the researchers besides the research itself, or even the product. Markets, sales channels, margins, fundraising, perception, etc. all make or break companies independent of their products.  [[The best technologies don’t always win]].  

This is all to say that just as it’s a long and windy road *to* a productizable piece of research, it’s also a long, windy, and narrow road to successfully productizing that research. Arguably, the work to productize the research is equally or more valuable than the research itself. 

A side note: Pharmaceuticals are unique in their productizability. It’s easy to trace new molecules back to the scientists in the lab and those molecules are patentable. Drugs demand is relatively little work to go from research to a product. You don’t need to worry about design, usability or specific use cases when taking a drug to market.  Scaling, manufacturing, and tweaking are of course hard and should not be ignored. If the drug does what it says there is close to zero market risk - people don’t like to die. The intertwined standardized FDA approval process combined with the Pharma-insurance complex means that there is almost no channel risk either. This is all to say that pharmaceuticals might not be the best exemplar for capturing value from research. 

### Indirect Value Capture
 Researchers can also capture value from their research by consulting with companies who could benefit from that research, getting speaking fees, selling books, and just generally acquiring social status. While in ways this can be good because it encourages people to spread knowledge as far and wide as possible, those same forces also incentivize exaggeration, sensationalization, and at worst, falsification (see: replication crisis.) It also pushes research to try to grab all the credit for themselves - instead of trying to create a monopoly on the research itself, researchers can capture monopoly rents on research credit. [[Value capture does not always need to happen through IP]].

### Is uncapturable value actually valuable? 

One could make the argument that if a piece of research doesn’t lead to a valuable product or patent then it isn’t valuable itself. While [[Someone needs to buy manufactured technology eventually in a monetized economy]], there are *many* pathways by which research can eventually end up in those products. Some of those pathways might enable researchers to capture value with [[Better value capture mechanisms]](science coin!) I would argue that the value of other pathways are inherently uncapturable.

There are many pieces of research that would make many products a little bit better but not enough to be worth the overhead of a patent and licensing, and they aren’t modular enough to be a product in and of themselves. Imagine a manufacturing tweak that saved thousands of companies $100 over many years. Valuable, but not enough to license on either side. This situation might be remedied by better mechanisms. 

Some impactful research resembles [[Problems where it is easy to know whether an answer is correct but hard to get to that answer]].  This situation applies to a lot of design work and best practices. Arguably you could patent these, but the work to hunt down and sue everybody who used it would require massive resources and perhaps just lead to people taking the hit and not using it in the first place. It’s questionable whether better mechanisms could help here, though you could make an argument that in the same way that the iTunes Store drastically decreased piracy, better mechanisms could make it easier to give kickbacks. 

[[We stand on the shoulders of too many giants to give them all credit]] - research often follows circuitous routes and sometimes it’s not even clear who you’re building on or you are separated though so much time that it’s impossible for them to capture some of the value they create. If you build a product with the help of a fifty year old paper, do you give some royalties to the author’s heirs? 

While it’s not strictly uncapturability, [[There is a significant class of innovations that would create drastically less value for the world if their value had been captured by their creators]]

There’s also just a lot of value that doesn’t turn into money. How would even the most sophisticated IP mechanisms have made [[Norman Borlaug]] a bajillionaire? 

While better value capture mechanisms may help, we also need better social technology ([[Pay-it-forward tithing is underrated]]) to fund and reward research that is truly a public good. 

### Related
- [[Patents have become more BS over time]]
- [[Do patents work better when firms are smaller or more uniform size?]]
- [[Market failures are actually failures of the existing institutions to allow markets to work]]
- [[Market failures are coupled to externalities]]
- [[§PARPA]]
- [[Michael nielsen re david d value of creative work twitter]]
- [[Is it possible that there are just different scales that value capture can happen on?]]
- [[You need a certain scale for technology development to be worthwhile]]

[^1]: [[Value capture is a utilitarian fantasy]], but it does encapsulate a lot of practical concepts around incentivizing and funding things that I (and hopefully many other people) want more of in the world. 
[^2]: [[Research should be treated like infrastructure]]



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DARPA has a mixed record on transitioning

When is externalized research better than internalized research and vice versa?

It’s easy to set out to build a DARPA but end up building a Skunkworks

Startups and Academia are bad at addressing structural constraints

Ways an ARPA-riff could improve on Things about DARPA that can be improved

§Axes for Looking at Funding and Organizations

The higher a TRL the more internalized research should be

Key differences between FROs and different research axes

# R&D orgs lie on a spectrum between externalized and internalized execution and benefits
Externalized research is done by giving grants or contracts to external organizations. Internalized research is done on equipment owned by the organization by employees of that organization. In reality, most organizations do a combination of both.  DARPA is on the extreme externalization end. [[DARPA doesn’t do any research in house]].  [[DOE National Labs]] are probably near the middle - doing a lot of work but then collaborating heavily with university labs.  Corporate R&D are more towards the right end of the spectrum. 

The benefits of the work can be captured externally or internally as well. This creates a nice 2x2:
* Internal execution, internal benefit: most companies and R&D labs
* Internal execution, external benefit: contractors
* External execution, internal benefit: a company hiring contractors
* External execution, external benefit: a coordinating org like DARPA

Internalization involves hiring people you want to work with, while externalization involves contracting or issuing grants. This dichotomy is one way you could conceivably measure degrees of externalization vs internalization - money spent outside vs inside an org. It almost smells like balance of trade calculations for countries. 

### Ways organizations externalize research
1. Rent time on equipment along with skilled operators
2. Get specific things done by cloud labs like [[Emerald Cloud Lab]]
3. Hire contractors to do things like build software, electronics 
4. Hire contractors to do larger parts of a project like “figure out how to do X”
5. ‘Collaborate’ with other organizations (which in reality usually means co-applying for a grant and dividing up the work)
6. Give out grants to do entire research projects
7. Prizes - everything from the [[X-Prize]] to platforms like [[Innocentive]]

Most of these externalization methods work through a price mechanism (1,2,3,~4,~6,7) and some of them do not (5.) Looking at these methods raises another aspect of externalization - the degree to which you’re externalizing conception ([[Conception is the imaginative design of a heuretic]] ) and/or implementation ([[Implementation is the actualization of the heuretic in the real world]].) Roughly, the amount of externalized conception increases with the method number - renting time on equipment involves zero conceiving of new ideas while giving out a prize means you don’t even know what the idea is until you see it in action. 

### Advantage of externalization
- [[There are many pieces of equipment or tacit knowledge that only exist  in one or two places in the world]]
- You don’t have to make long term commitments to someone
- You don’t need to buy equipment you might need for only one project
- Externalization minimizes politics, which allows you to do things like pursue parallel approaches to the same thing. 
- You don’t risk having people with specialized skills around who need to be retrained or let go
	- [[Alex Rider]] pointed out that this happens at [[SRI International]] quite a bit

### Advantages of internalization
- Internalization can reduce [[Transaction costs]]. [[Robert Coase]] goes into more detail but you don’t need to haggle over the price of every piece of work, it’s easier to coordinate because you are in the same building (or at least you were before coronavirus), and you presumably all have an incentive to see the project succeed as a whole instead of just your little part. 
- Its easier to change direction quickly.
- You don’t have to specify interfaces as clearly.
- Tacit knowledge/[[Process Knowledge]] created during the project stays with the organization.
- If you need to maintain something, you keep the people who can do it around. (More [[Process Knowledge]].) 
- Nominally people have more buy-in to an organization, so they are more likely to go above and beyond the call of duty
- Taxes?
- People you’re working with become more known quantities - you need to do less vetting.
	- This becomes more important the smaller the units of work become. 
- You’re effectively playing repeated games with people so there is less incentive for them to screw you over.
- It’s easier to capture value from the research
	- You can immediately start commercializing 
	- You don’t need to police an external entity to see whether they’ve created something valuable 
	- External entities may want to own IP
	- If the value of the research is spread over several organizations it may be difficult to coordinate them. Each one individually may think their contribution is more valuable than an equitable division of value could handle. 
	- IP is usually coupled to tacit knowledge 
	- One upshot from this is [[It is especially hard to capture value from externalized research]]

### Examples
- A famous example of startups doing externalized research [[Genentech was started by bringing together several pieces of existing research and subcontracting to university labs]].
	- Did this only work because the founders of Genentech 
* [[Microsoft Research]]
*  [[Bell Labs didn’t have a unique model]] was primarily internalized but researchers would collaborate with academics and hire them. 
* [[Xerox PARC]] was almost entirely internalized - they would hire people away from 

## Questions
- [[When is externalized research better than internalized research and vice versa?]]

## Related
* [[It’s easy to set out to build a DARPA but end up building a Skunkworks]]
* [[The Nature of the Firm]]
* [[Designed Serendipity]]
* [[The dominant paradigm of R&D is for it to be internalized]]
* [[The higher a TRL the more internalized research should be]]

## References
[[Sam Moleneux Conversation 31/10/2019]]
[[Mark McGranaghan]]



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The market in for-profit organizations is fairly efficient

# There are many important innovations that are just bad investments
Important innovations[^1] can be bad investments in both an absolute sense because they can’t capture much of the value they create and in a relative sense compared to other possible investments. 

Many innovations are bad investments because you just can’t capture that much of their value. These come in two categories. 
1. Innovations whose value is just inherently hard to capture. Research often falls into this category ([[It is hard to capture value from research]]) especially research that is spread between multiple organizations ([[It is especially hard to capture value from externalized research]].)  Innovations that resemble [[Problems where it is easy to know whether an answer is correct but hard to get to that answer]] are especially hard to capture from - these can be design innovations, just-right-recipes, best practices, etc. 
2. Innovations that would be hamstrung by capturing their value. [[There is a significant class of innovations that would create drastically less value for the world if their value had been captured by their creators]]

There are also innovations that are bad investments relative to other options. Low liquidity, high uncertainty, and long time horizons are all undesirable characteristics of investments and also characteristics of investments in potentially-paradigm-shifting innovations. When the stock market is providing >10% year-over-year returns that are very liquid and (perceived as relatively) low risk you need to have a convincing story that you can do *much* better than that with a low-liquidity, high-uncertainty project that won’t pay out for more than a decade. Limiting ourselves just to people to technology venture investments, you’re up against software companies that have incredible margins because they have low capital costs and often have known sales channels and little true technology risk. VC portfolios are already constructed so that any company they invest in needs to have a chance of a near-infinite valuation in order to pay for all the failure. It’s hard to claim a potential payoff higher than the one they already expect, so you’re effectively asking them to accept higher risk for the same potential reward.  [[If you need to have the possibility of near infinite returns on VC investments how is it possible to invest in higher risk things and expect a return?]]Unfortunately, the attractiveness of software as an investment renders many other innovations “bad investments” by comparison.   

Often the situation is a combination of the two situations - uncertain or even good-but-not-mind-blowing captureable value combines with capital costs, margins, liquidity, or timeline to make an innovation a bad investment for rational investors. 

### Related
- [[§Startup Constraints]]
- [[Can you get VC-level returns by funding research?]]
- [[Is it possible that base rate growth in the market is actually a bad thing for innovation?]]
- [[The market in for-profit organizations is fairly efficient]]

[^1]: Obviously the definition of an “important innovation” is nebulous. 



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A new structure for scalable research

It is hard to capture value from research

Venture capital doesn’t work for things that only realize their value on long timescales

Regulation drove many of Bell Labs’ actions

Innovation orgs need a money factory

Productive Uncertainty

Could DARPA have a positive return?

A normal for-profit structure would hamstring an ARPA-riff

PARPA could walk the line between profit and non profit

Value capture is a utilitarian fantasy

Profit is important for both practical and ideological reasons

There are many questions and issues with the idea of pay-it-forward tithing

People don’t invest in technology, they invest in businesses

Inverting the normal relationship between an R+D organization and is money factory may enable new classes of activities

The Thiel Fellowship is a good case study of creating value by not trying to capture it

There’s lots of money out there … for good investments

# There is a significant class of innovations that would create drastically less value for the world if their value had been captured by their creators
Even if [[Creations whose impact depends on being public generate uncertain value through not-particularly modular combination with many other things and have a large combinatorial surface area]] we are still left wondering “how common are these creations, actually?” People trying to capture the value from their creations have generated *massive* value in the world, so maybe anything else is a corner case.  

This argument is focused on work that you could *conceivably* privatize and use to drive a for-profit organization. There is also a whole separate class of work whose value is just hard to capture. [[It is hard to capture value from research]].

### Empirical Approach 
*Note*: There are two glaring problems with the empirical approach. First, we cannot go through *every* technology so there will be inevitable cherry-picking. Second, [[Counterfactuals]] are hard. There is no way to ‘prove’ that a technology would have had more or less impact if it were public or private. With these problems in mind, the empirical approach is probably most useful to try to *disprove* the assertion that there is a non-trivial set of heuretics whose impact depends on being public. If the disproof feels weak, that is perhaps the best empirical evidence for the claim. 

One of the strongest pieces of evidence that private innovations alone can carry the torch of progress forward is the innovation ecosystem of the late 19th and early 20th century. It was an age of massive technological change ([[Vulcanized rubber]]! [[Automobiles]]! [[Airplanes]]! [[Electricity]]! [[Telephones]]!) - almost all created by private for-profit companies. 

Arguably, many of these innovations only hit the mainstream when the component technologies became public knowledge. There was an explosion of car patents in the 1880’s and 1890’s and an explosion of car *production* in the 1900’s and 1910’s, roughly tracking a patent’s 20 year lifespan. Of course, this could be completely correlational and the time gap between invention and diffusion is just how much time was needed for learning-by-doing to happen.  Anecdotally, it’s telling that safety glass was patented in 1905 and became standard equipment in 1926.  

None of these technologies were complex enough that you couldn’t basically figure out how it works by taking it apart nor did they require up-front capital costs inaccessible to individuals without institutional backing. That means that almost by default the technologies became public knowledge as soon as it was sold. The sufficiently low cost and complexity combined with the cost of acquiring and enforcing patents in multiple countries at once meant that while private, for-profit organizations were creating the technology, it was virtually impossible for a single organization to blunt its impact across the whole world. 

Each of the ‘charismatic’ technologies we think about from the late 20th century were “final goods” with relatively small functional surface area. Additionally, these technologies could become good enough to have *some* market with relatively low-complexity component parts that could be created in-house. In situations where those component parts were artificially private thanks to patents (like the Wright brothers’ patent on coupled wing-warping/rudder control for airplanes) the invention’s impact was (arguably) heavily suppressed until it was made public. [[Arguably patents held back the airplane industry]]. 

The upshot is that almost no Industrial Age technologies meet the criteria that we would predict should lead to being hamstrung by being private.  Strictly enforced patents on the technologies that approach the criteria (like airplane control) did hamstring impact in the US where the patent was in effect. 

So which technologies would meet our criteria and were they public or private? The age of chemical engineering, especially process innovations, that began in the early 20th century seems like good hunting ground. Chemicals and the scalable processes to make them are rarely a final product and can be tuned for many different purposes. 

The [[Haber—Bosch Process]] is one of the most charismatic chemical processes. It also turns out to have been made public through a non-exclusive license at gunpoint. From [[Enriching the Earth]]:
`The first transfer of the Haber–Bosch process abroad was a result of the Versailles Treaty, which the defeated Germany had to sign in 1919. By its terms, BASF was obliged to license construction of an ammonia plant with an annual capacity of 100,000 t in France. `

It would be an entire (worthy!) research project to discern the licensing practices around other chemical processes. However, skimming through the history of the heavy hitters, there seem to be repeated references to multiple companies bringing them to market. ([[Not Counting Chemistry: How We Misread the History of 20th-Century Science and Technology]].) Additionally, a significant chunk of the work still ended up in academic papers instead of patents, whether it was being done in universities or industrial labs. (See [[The decline of science in corporate R&D]]) The number of corporate-lab published papers suggests that at least more of the steps leading up to an innovation were public than today.

Another piece of anecdotal evidence is that before  [[The relationship of government, academia, and technology fundamentally changed in 1980 with the Bayh-Dole act]], it was hard to have exclusive license rights on federally funded research. The default flipped after 1980 to a default state where research institutions by default had exclusive rights to the output of federally funded research. 

The computer age is littered with confirmational anecdotes. [[Alan Kay]] argues that the technologies created in [[Xerox PARC]] have created trillions of dollars in value. Imagine a world where Xerox sued the living daylights out of any product that used a mouse or a GUI. I suspect the mouse and GUI would have created much less value in that world. 

Counterfactually, what would have happened if AT&T were not required to license for free all of the non-telephone patents at Bell Labs? Two plausible scenarios could have happened: Either AT&T would have had a monopoly on the semiconductor market or  [[William Shockley]] would have had an exclusive license to the technology. In the former situation, it’s likely that semiconductors would have been treated the same way as most technologies tangential to a core line of business historically have been: marginalized and deprived of the chance to live up to  its promise. An eternally expensive piece of military equipment. Considering the latter scenario, consider that Shockley was a notoriously terrible manager and Shockley Semiconductor went out of business in 1968. The traitorous eight would never have left, so Shockley Semiconductor might have persisted, but would the innovations that came out of Fairchild have happened? Would [[￼Hoerni’s Planar Process]] have been created and adopted in either situation? Poor management is great at killing weird paradigm-shifting ideas. 

How much value has Linux created? If Linus Torvald were trying to capture the value it created, how would Linux have been anything other than a shitty version of windows?

### Conclusion
Many ideas have massive impact *because* people can copy them without paying their creator.  Any mechanism for capturing value has more or less built-in friction. This friction can limit the diffusion of innovations. 

The strong argument in favor of trying to capture value is that value capture is what incentivizes and funds innovations in the first place.  Value capture is not a binary “either you capture all of the value or none of it” but a question of how much of it you capture and how you capture it. Arguably Google (and many other companies) have created much more value than they have captured and may have created *less* value if its creators hadn’t tried to capture that value. [[tensions]]. However, these companies generally are not making their money off of innovations with large surface area that generate uncertain a priori value through not-particularly modular mechanisms. [^1][[Creations whose impact depends on being public generate uncertain value through not-particularly modular combination with many other things and have a large combinatorial surface area]].

 [[Current value capture mechanisms are crude]] - patents are legal monopolies and create limits by definition. [[Better value capture mechanisms]] could create a world where any innovation could create as much value as possible *and* its creators could be rewarded. 

I don’t disagree that we need better value capture mechanisms, and perhaps its a failure of imagination but I don’t know how you can’t have value capture without introducing *some* friction into the system in order to track contributions and forcibly extract money from people who are keeping more than fair share (the equivalent of suing someone who isn’t paying the licensing fees on a patent.) 

Given these considerations and the fact that this class of innovations seems to become more prevalent as the complexity of technology and its dependence on research pipelines increases, it seems clear that there is an unfortunate tradeoff between impact/value created for the world and value capture at the technological frontier. 

## Big List O’ Case Studies
### Public things where the counterfactual is probably less impact
- The semiconductor
- ARPA net
- GUI
- GPS

### Private things where the counterfactual is probably more impact
- CRISPR
- SABER engine
- APM
- GPT3

### Public things where the counterfactual is probably more impact
- Rockets (?) 
- OpenBCI

### Private things where the counterfactual is probably less impact
- Li-Ion batteries
- Google Algorithm
- Xerox copier

### Related
- [[It is especially hard to capture value from externalized research]]
- [[It is hard to capture value from research]]
- [[It is hard for a private ARPA to capture value without hamstringing impact]]
- [[Value capture does not always need to happen through IP]]
- [[We stand on the shoulders of too many giants to give them all credit]]
- - [[Venture capital doesn’t work for things that only realize their value on long timescales]]
- [[Technology increases the number of externalities in the world]]
- [[Profit-maximizing organizational structures can hamstring technologies whose impact depends on them]]
- I bet [[Anton Howes]] has opinions about this 

[^1]: Ironically, Google may be an outlier here because of billions of eyeballs + ads.



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Ben's working notes

It is especially hard to capture value from externalized research

Ways that you can capture value from externalized research

Related

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