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Network Failure and the Evolution of the US Innovation System


>The concept of network failure has great value in making sense of the role that government officials now play in the process of developing and commercializing new technologies. Network failure was rarely an issue in the era that was dominated by giant, multi-divisional firms that controlled all stages of the production process. Today, however, the innovation process as well as the development and production of new products typically require collaborations among multiple entities. Automobile production, for example, now involves complex chains of specialized subcontracting firms. This creates the risk that firms will not be able to find the competent and trustworthy network partners that they need. US policy makers are aware of this issue, and they have been self-conscious about the process of creating new institutions that replicate the strength of the kinds of industrial districts described by Alfred Marshall. Their most recent initiative—the creation of advanced manufacturing institutes—has been structured to help firms find the competent and trustworthy partners that they need.

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  1. The focus here on network failure fits well with the ROAR framework elaborated in this issue by Mazzucato, Kattel, and Ryan-Collins.

  2. To be sure, the US program is considerably smaller than those of Germany and Japan.

  3. So also are principal-agent problems, but they are analytically distinct since they involve delegated authority rather than market relations.

  4. However, as Sabel and Zeitlin (1985) argued industries with small batch production never disappeared and such industries were more likely to rely on industrial districts because of the need to coordinate across multiple firms.

  5. Moreover, some of those firms that maintained industrial laboratories to do research and development had poor results because a focus on proprietary knowledge meant that their scientists and engineers were disconnected from cutting edge research.

  6. Schrank and Whitford (2011) label one type of network failure as involution which occurs when network partners are insufficiently attuned to what potential competitors are doing.

  7. The Department of Energy laboratories are another important site for these collaborations. See Keller et al. 2017.

  8. The scale of the AMI’s is comparable to the Department of Energy’s Energy Innovation Hubs that began in 2010 with a center devoted to studying artificial photosynthesis that was funded at $15 million per year. While the DOE hubs aspire to coordinate networks of researchers, they do not institutionalize the matching funds from industry and state and local government.

  9. While President Trump’s first three proposed budgets called for significant cuts in Federal R&D programs, the first two budgets adopted by the Congress continued funding for the Advanced Manufacturing Institutes. Since eight of the fourteen institutes are operated by the Department of Defense that has seen budget increases, it seems likely that the program will survive.


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We are grateful to Andrew Schrank, Josh Whitford, and the editors of this special issue for incisive comments on earlier drafts of this paper.

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Correspondence to Fred Block.

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Block, F., Keller, M.R. & Negoita, M. Network Failure and the Evolution of the US Innovation System. J Ind Compet Trade 20, 235–247 (2020).

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  • Government policies
  • Network, industrial districts, innovation
  • Research and development


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  • O32
  • O38