Mid-sized cities outperform major metros at turning economic growth into patents(governance.fyi)
governance.fyi
Mid-sized cities outperform major metros at turning economic growth into patents
https://www.governance.fyi/p/booms-not-busts-drives-innovation
11 comments
No they are not. I've asked that question to quite a few well-published economists studying innovation and the off-the-record answer is always:
> Patents are an extremely noisy and biased measure of innovation; conflate innovation with a million other variables, etc. but we have all of the patents and patent applications available for free since the beginning of the time, so that's what we'll use. If you find another good measure as comprehensive let us know and we'll use that instead; meanwhile <shrug emoji>
> Patents are an extremely noisy and biased measure of innovation; conflate innovation with a million other variables, etc. but we have all of the patents and patent applications available for free since the beginning of the time, so that's what we'll use. If you find another good measure as comprehensive let us know and we'll use that instead; meanwhile <shrug emoji>
Looking for keys under the streetlight
There are solid economic arguments that they were never the right model, even "back in The Day": http://www.dklevine.com/general/intellectual/againstfinal.ht...
Patents are government granted monopolies on ideas. The case for them is that you need the carrot of a monopoly to incentivize innovators (empirically untrue). The case against them is that government mandated monopolies immediately dampen all subsequent innovation until expiry (empirically true across industries throughout history).
Patents are government granted monopolies on ideas. The case for them is that you need the carrot of a monopoly to incentivize innovators (empirically untrue). The case against them is that government mandated monopolies immediately dampen all subsequent innovation until expiry (empirically true across industries throughout history).
How about the delayed electrification in Britain? It seems that elswhere it began in the late 1870s, but there was no major electrification in Britain before the 20th century. I thought maybe it was also because of some patent obstruction?
Patents are both overprotective and underprotective. Out of a desire to screen out patent litigation that lacks merit, we have made the system unbelievably expensive for all but the most well funded litigants. That, in turn, has helped the biggest companies. Their freedom to infringe with impunity becomes part of the moat that helps preserve their market position.
> Are patents (and trade secrets) the right model for protection?
This probably deserves a more expansive discussion in its own right. I think what has become clear is that the tools we have (patents, trade secrets, copyright) are extraordinarily crude. Nonetheless, they worked pretty well in a time when intrinsic friction and overhead in markets was high.
Now that we’ve eliminated almost all friction in markets, everything has become extremely sensitive to the intrinsic cost and supply chain structure of the IP being protected and the speed at which those supply chains can adapt to competitive opportunities. To make matters worse, these intrinsic cost and supply chain structures tend to vary considerably depending on the particulars of the domain. Consequently, the IP protection tool in any particular case is the one that in practice has highest cost burden (both money and speed) on anyone trying to circumvent it with the lowest cost to both implement and defend. Patents rarely win that argument anymore for many things.
The most robust protection these days is information asymmetry, and trade secrets are good at maximizing that. Unlike patents, it is also extremely cheap to implement, so it is economically favorable. Defending that information asymmetry has become more difficult in some ways (more sophisticated reverse engineering) but easier in others (hello cloud). Unfortunately, we lived in an age of trade secrets in past centuries and it had many downsides; patents were essentially invented to mitigate those downsides.
The entire dynamic has many downsides but trade secrets are essentially winning out. Information asymmetry still has a lot of market power if you are good at exploiting it, much of the benefit isn’t even the secrecy per se in many cases.
This probably deserves a more expansive discussion in its own right. I think what has become clear is that the tools we have (patents, trade secrets, copyright) are extraordinarily crude. Nonetheless, they worked pretty well in a time when intrinsic friction and overhead in markets was high.
Now that we’ve eliminated almost all friction in markets, everything has become extremely sensitive to the intrinsic cost and supply chain structure of the IP being protected and the speed at which those supply chains can adapt to competitive opportunities. To make matters worse, these intrinsic cost and supply chain structures tend to vary considerably depending on the particulars of the domain. Consequently, the IP protection tool in any particular case is the one that in practice has highest cost burden (both money and speed) on anyone trying to circumvent it with the lowest cost to both implement and defend. Patents rarely win that argument anymore for many things.
The most robust protection these days is information asymmetry, and trade secrets are good at maximizing that. Unlike patents, it is also extremely cheap to implement, so it is economically favorable. Defending that information asymmetry has become more difficult in some ways (more sophisticated reverse engineering) but easier in others (hello cloud). Unfortunately, we lived in an age of trade secrets in past centuries and it had many downsides; patents were essentially invented to mitigate those downsides.
The entire dynamic has many downsides but trade secrets are essentially winning out. Information asymmetry still has a lot of market power if you are good at exploiting it, much of the benefit isn’t even the secrecy per se in many cases.
Iverson "open sourced" APL because a professor in ~1950 told him about Edwin Howard Armstrong, the inventor of the FM radio, who lost the 2nd half of his life to litigation, eventually leading to his divorce and possible suicide. His professor told him not to patent things, because enforcement would cost the rest of your life.
Some fields have moved away from patents and almost purely to trade secrets. There are so many practical issues with patents now that in many cases they have negative value.
The downside of this is that companies who are using trade secrets instead of patents are no longer publishing either. Many areas of R&D that are primarily done outside of academia are becoming increasingly opaque because there is no up-to-date literature around the state-of-the-art.
Ironically, the situation that patents were meant to prevent is becoming common again now that patents are often effectively useless.
The downside of this is that companies who are using trade secrets instead of patents are no longer publishing either. Many areas of R&D that are primarily done outside of academia are becoming increasingly opaque because there is no up-to-date literature around the state-of-the-art.
Ironically, the situation that patents were meant to prevent is becoming common again now that patents are often effectively useless.
The US practice of patents helps incentivize inventors to study and innovate so that they see an ROI when they sell to a large company able to handle exploiting a defending a patent. If you wanna try to make a company on your own around your patent, you’re free to try but we don’t build the system around moonshot strategies that are likely to fail (i.e. making the company around your patent).
I’m not defending the system, I’m simply explaining. Likewise, forever copyrights exist to increase the value of artistry so that artists get something back when they sell them. Again, not defending.
I’m not defending the system, I’m simply explaining. Likewise, forever copyrights exist to increase the value of artistry so that artists get something back when they sell them. Again, not defending.
Uncritical acceptance of the premise is a defense. The assumption is that patents "incentivize inventors". This is an empirical claim that is at odds with historical evidence: https://fee.org/articles/do-patents-encourage-or-hinder-inno...
I feel like patents are well beyond their utility.
They are really only useful today to protect companies during their enshittification phase. Is enshittification useful to society? Maybe.
Probably tech patents should have been reformed when IBM went around trying to protect its BIOS. Or when Microsoft started pushing its weight around with FAT.
A large company protecting itself against competition is almost definitionally anti productivity.
Some kind of category protection might be useful. Protect only the latest (or maybe latest x) genuinely novel innovation in a category while open sourcing everything prior. Keeps the incentive to innovate, removes patent trolling and reduces enshittification. Will need a strong hand to ensure that people dont just try and create a bunch of new categories.
They are really only useful today to protect companies during their enshittification phase. Is enshittification useful to society? Maybe.
Probably tech patents should have been reformed when IBM went around trying to protect its BIOS. Or when Microsoft started pushing its weight around with FAT.
A large company protecting itself against competition is almost definitionally anti productivity.
Some kind of category protection might be useful. Protect only the latest (or maybe latest x) genuinely novel innovation in a category while open sourcing everything prior. Keeps the incentive to innovate, removes patent trolling and reduces enshittification. Will need a strong hand to ensure that people dont just try and create a bunch of new categories.
I highly doubt patent numbers are very correlated with anything we care about. For example, its harder to get software patents, so what this might say is that mid sized metros have worse tech industries. O would expect relative economic or productivity growth to be much more in tune with a cities importance.
I'd also be curious, why the cutoff at 2012. Do the results change if they go to 2020? 2024? Whenever I see a cutoff like that it makes me suspicious that that date was chosen because another date would not product the results they wanted.
People in big cities have already figured out that patents are a time suck.
Was there an expectation that economic busts drove innovation? Am I naive to think booms not busts would be the engine for innovation?
It seems obvious to me, too, when considered in terms of available capital providing means for experimenting with unproven ideas.
But I think the opposite may legitimately be the intuition for people of generations before ZIRP and the notion of inventiveness when resources are scarce or you're simply out of work. You can see it in the themes of many movies and other media in the 80s and early 90s, too, the hero arc of the inventor down on their luck. I think the idea carried forward for people in their formative years then.
But I think the opposite may legitimately be the intuition for people of generations before ZIRP and the notion of inventiveness when resources are scarce or you're simply out of work. You can see it in the themes of many movies and other media in the 80s and early 90s, too, the hero arc of the inventor down on their luck. I think the idea carried forward for people in their formative years then.
This analysis is about the oil industry, what's true about the oil industry may or not be true about some other industry.
Other industries don't have the same boom bust cycle. You could argue that tech does, but there it is always a different tech each time that is driving it. Without O/G it is always the same basic reason behind it - a massive time lag between demand changes and supply responses.
The narrative I've heard is that it's all about the people. During booms, the smart people are employed and treated well, so stay stuck in the corporate grind. Then their employer goes bankrupt and start their own company.
If you read beyond the headline, the article explicitly addresses this.
The hypothesis was that firms invest in innovation in busts, when the opportunity cost is lower.
The study finds that it’s nuanced and it depends on the industry. Too close to a boom, like an oil firm, and you face high opportunity costs, and innovate less during the boom. There is a sweet spot where you are near enough to benefit from higher capital but not too close to be crippled by opportunity costs
The hypothesis was that firms invest in innovation in busts, when the opportunity cost is lower.
The study finds that it’s nuanced and it depends on the industry. Too close to a boom, like an oil firm, and you face high opportunity costs, and innovate less during the boom. There is a sweet spot where you are near enough to benefit from higher capital but not too close to be crippled by opportunity costs
Bordain first book have a great argument on bust driving culinary Innovation.
A big reason that people say intrest rate hikes or cost cutting is good because it makes people "work smarter with less" or some other BS or have the economy focus on what matters
"The beatings will continue until morale improves", as they say.
Sure. War and hardship drives innovation.
Between patent trolls, and a few friends who had patents - I have extreme doubts about using patents as a metric for judging the success of Federal R&D spending policies.
Hear, hear! Especially in software, patents are an indication of stagnation, resistance to innovation, and rent-seeking, monopolistic behavior. Using their number as a proxy for innovation is backwards.
I don't know, this just seems like a sectoral analysis among o&g? We have pretty strong evidence that density leads to higher productivity, I'd be keen to see it replicated more broadly (one such study of many: https://www.newyorkfed.org/medialibrary/media/research/staff...).
It uses Oil & Gas shocks, rather than a sectoral analysis among o&g. I think it is because big firms are in big cities, who seem to be able to handle shocks better than other companies in other cities
Aren't patent lawyers, and thus patents, cheaper in mid-sized cities vs larger metros? If so, it would stand to reason more patents are filed in a cheaper city that suddenly receives extra disposable income via a boom. Those ideas were always there, they just lacked funding.
I don't know about patent lawyers, but a surprising amount of law work can get done remotely. If you want a good patent lawyer do you hire in your city? I wouldn't, its a federal law, and highly specialized. I would hire whoever is best regardless of location
I would imagine that some of the best patent lawyers in the whole country are actually in little nothing towns in East Texas since that district is where much of the patent suits for the nation get filed. For a variety of reasons, most patent law is litigated in Texas. Texas handles more federal patent suits than any other state by a margin of ~2x.
I would imagine that some of the best patent lawyers in the whole country are actually in little nothing towns in East Texas since that district is where much of the patent suits for the nation get filed. For a variety of reasons, most patent law is litigated in Texas. Texas handles more federal patent suits than any other state by a margin of ~2x.
There are so many was to accidentally create a mislabeled population density map.
There are a lot of research institutions churning out patents in mid-sized cities…
It seems like a lot of patents come out of university research labs. And for a given mid size city often built around a state flagship university, that may very well be the major employer.
I’ve long suspected that there’s an inverse correlation between novelty and population density (to a point).
I remember reading a story about the early days of transistors (Walter Brattain, is described as being a "farm boy and a born tinkerer”), and first having this thought.
My (probably wrong) tl;dr is that cities are great for spreading/growing products and technology, but that the monotony of suburbs is better suited for the exploration of unknown territory.
I’d love to be wrong about this (building in SF atm), but it’s been a nagging thought in the back of my brain (move to Silicon Valley proper).
What am I missing?
I remember reading a story about the early days of transistors (Walter Brattain, is described as being a "farm boy and a born tinkerer”), and first having this thought.
My (probably wrong) tl;dr is that cities are great for spreading/growing products and technology, but that the monotony of suburbs is better suited for the exploration of unknown territory.
I’d love to be wrong about this (building in SF atm), but it’s been a nagging thought in the back of my brain (move to Silicon Valley proper).
What am I missing?
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I've noticed this too, I think its becoming more apparent in recent times as the allure SV and other large cities once had begin to fade, with hackers and innovators moving elsewhere (or simply not actively experiencing the same level of brain-drain)
Related post I came across recently that highlights some of the effect quite well:
https://goetzman.com/2025/01/07/small-town-hacker-culture/
Related post I came across recently that highlights some of the effect quite well:
https://goetzman.com/2025/01/07/small-town-hacker-culture/
I wouldn't expect to see too many garage startups in places where almost nobody has a garage.
I keep repeating that the modern urbanism ("war on cars", "bikes or gtfo", "a microapartment is good enough") is going to lead to the downfall of democracy.
Smaller sparse cities are way more human-friendly compared to monstrosities like Manhattan. Childcare becomes easier (sorry, but "walkable neighborhoods" are children-hostile), commutes are much faster, and you don't have to deal with transit.
Smaller sparse cities are way more human-friendly compared to monstrosities like Manhattan. Childcare becomes easier (sorry, but "walkable neighborhoods" are children-hostile), commutes are much faster, and you don't have to deal with transit.
I've been wondering this. It seems that, they were the right model, back in The Day. Back then, what you had (in my model) was a few inventors, cash-strapped or with wealthy benefactors, and they wanted to protect their inventions. Poor inventors, in other words.
I imagine that, back in the day, with smaller government and regulations, and everything 'cheaper' even 'litigating' the case would have been achievable for such poor inventors. In such a scenario, the patent could be a tool of the tiny against the behemoth exploiter (ye olde robbere barron). Ie, true protection.
These days however? Not so much. To litigate takes years and millions, effectively denying the protection to those who could most benefit from it. The "high bar" to protect your protection creates an incentive where you see conglomerates emerge that use that cost to coerce settlements, and make a business out of it by purchasing many such supposedly 'protective amulets'.
It's also a good model for the 'protective amulet forging guilt' (ie, lawyers). Who will often tell you, "Have you considered a patent? We can help if you choose to go that route."
But is the patent, once so lauded, useful and genuine - really the right model for protection today? Could it be reformed? Or should it be relegated to the past? Like mint coin collections of yesteryear - now without real value, except for collectors and traders (ye olde patent trollus).
I don't know. Thoughts, anyone? Especially valuable I think would be personal experience and the thoughts gained from that, as well as any big picture reflections.