OPENing Up Military Innovation: The Causal Effects of ‘Bottom Up’ Reforms to U.S. Defence Research

By Sabrina Howell Jason Rathje, John Van Reenen, and Jun Wong
Military necessity has been the mother of innovation since antiquity. During the Roman attack on Syracuse in 214 BC, Archimedes created several innovations that successfully defended the city including his famous ‘claw’ – a gigantic crane that dragged enemy ships out of the sea . More recently, Pentagon funding has helped develop jet engines, cryptography, nuclear power, and the Internet (e.g. Mazzucato and Semieniuk 2017). Despite being lauded by policymakers all over the world, US defence R&D seems to have lost its lustre in recent decades. 

Figure 1 shows that in 1976, the major American defence contractors (‘Primes’) produced 15% more innovations (as measured by future citation-weighted patents) than similar non-defence firms. By 2019, they appeared between 15% (if their self-citations were included) and 40% (if we drop self-citations) less innovative. This fall is due to both a relative decline in the number of patents granted to primes (despite no loss of market share) and the degree to which other firms see them as useful.

Senior US defence policymakers have recognised this problem, and see it stemming from both a failure to engage many of the new software-based start-ups and a consolidation among the defence contractors. For example, a tasking memo from the 2019 Under Secretary of Defense tasking memo stated, “The defense industrial base is showing signs of age. The swift emergence of information-based technologies as decisive enablers of advanced military capabilities are largely developed and produced outside of the technologically isolated defense industrial base” (Griffin 2019).

Read the full VoxEU article.
Sabrina Howell is an Assistant Professor of Finance.
Jun Wong is a Junior Research Scientist.