Innovation prize seems more meritocratic than grant-patent system and since it pays only for results prizes can set radical goals, writes Tim Harford
In 1737, a self-taught clock maker from Yorkshire astonished the great scientists of London by solving the most pressing technological problem of the day: how to determine the longitude of a ship at sea.
The conventional wisdom was that some kind of astronomical method would be needed. Other inventors suggested crackpot schemes that involved casting magic spells or ringing the world with outposts that would mark the time with cannon fire.
John Harrison’s solution — simple in principle, fiendishly hard to execute — was to build an accurate clock, one that despite fluctuating temperatures and ocean swells, could show the time at Greenwich while anywhere in the world. Harrison and other creative minds were focused on the longitude problem by a £20,000 prize for the one who solved it, several million pounds in today’s money.
Why was the prize necessary? Because ideas are hard to develop and easy to imitate. Harrison’s clocks could, with effort, have been reverse-engineered. An astronomical method for finding longitude could have been copied with ease. Inventing something new is for suckers; smart people sit back and rip off the idea later. One way to give nonsuckers an incentive to research new ideas, then, is an innovation prize — a substantial cash reward for solving a well-defined problem.
For decades after Harrison’s triumph, prizes were a well-established approach to encouraging innovation. They fell out of favour, with policy makers instead offering a mix of upfront research grants and patent protection.
Now prizes are making a comeback. The most eye-catching examples have been in the private sector: the $1m Netflix prize for improved personalisation of film recommendations, or the $10m Ansari X prize for private space flight. Last year Nesta, a UK-based charity for the promotion of innovation, launched a “new longitude prize” of £10m for an improved test for bacterial infections, marking the anniversary of the prize’s founding in 1714.
But the big-money potential is in the public sector. In 2007, several governments and the Gates Foundation promised a $1.5bn prize for a vaccine for pneumococcal meningitis. The prize, called an “advanced market commitment”, is structured as a dose-by-dose subsidy rather than one giant cheque. It is being paid out and millions of children have already been vaccinated.
Much bigger commitments are possible: before US senator Bernie Sanders began his run for the presidency, he introduced two Senate bills that would have provided almost $100bn a year as medical innovation prizes.
But why are innovation prizes attractive, when the existing system of grants and patents seems to have served us reasonably well so far? Research grants may be too conservative, favouring establishment figures working on unambitious projects, and rewarding process rather than results. An innovation prize seems more meritocratic and, since it pays only for results, the prizes can set radical goals.
Patents are problematic, since they encourage the development of something anyone can use with the perverse reward of restricting access to it. It is a trade-off that is easily bungled, with patents that last too long, are too broad, too easy to secure and too difficult to challenge. Even a well-crafted patent system depends on there being a ready market for the innovation. Few people will pay much for a malaria vaccine, but it would be socially very valuable, as would a new class of antibiotics. A prize can easily reward long-term social priorities; a patent cannot.
But there is a danger of expecting too much from prizes. If we are to scrap patents, prizes would be far too narrow a replacement. (Who would have sponsored a prize “for inventing the internet”? Not all innovations exist to solve precooked problems such as finding longitude.) If we use patents and prizes in parallel, however, there’s a self-selection problem: inventors with valuable ideas apply for patents, while those with dross apply for prizes. A new working paper from economic historian Zorina Khan points out that Royal Society of Arts prizes in the 19th century suffered from exactly such adverse selection.
Prof Khan also observes that many innovation prizes were mired in controversy, with prizes awarded for unoriginal or ineffective ideas, or denied to the deserving. It is easy to point to a few success stories but there are plenty, too, for patents and grants.
For my money, the patent system urgently needs reform, with patents that are harder to earn and easier to challenge. Innovation prizes have their place, especially where markets for a socially valuable innovation may not exist. But we do a good idea no favours by overselling it.
We should also probably stop going on about the longitude prize or admit what Nesta’s new prize website does not: that Harrison’s invention was rewarded with decades of suspicion. The Board of Longitude, the government body set up to administer the prize, questioned the accuracy of his clocks and whether they could be replicated. Harrison did receive payments for his efforts — but neither he nor anyone else ever won the longitude prize.
Financial Times 2015
