Economics - Innovation - Inclusive Growth
  • RETHINKING HEALTH INNOVATION

Rethinking Health innovation

Professor Mazzucato’s work on health focuses on both the rate and the direction of the innovation model itself. For all the large sums of public and private money invested in research and development, there are concerns about the pharmaceutical-focused, private, profit and patent-driven model of innovation that currently dominates. Beyond limited success stories based on particular drugs, the current model still fails to meet critical medical needs, secure sufficient therapeutic advance, or offer good value for money. Mazzucato is interested in whether there are realistic alternatives to this innovation model that could achieve better outcomes.

In 2004, Professor Mazzucato and Professor Dosi edited a book, with Cambridge University Press, Knowledge Accumulation and Industry Evolution: Pharma-Biotech, that explored the relationship between the way that innovation occurs in the pharmaceutical and biotechnology sector and the socio-economic dynamics of access to those products. Particular emphasis was placed on the problematic way in which intellectual property rights are being used, increasingly upstream, to block innovation rather than encourage it. As the Economic Director of the ESRC Institute for Innovation Generation and the Life Sciences (Innogen Centre) from 2006 to 2010, she led work trying to link innovation and access issues in multi-disciplinary contexts. With the team of Professor Sebastiao Loureiro at the University of Bahia in Brazil, she coordinated a project with the main objective of joining an understanding of the construction of capabilities in innovation and manufacturing in pharmaceuticals with the construction of ‘health system capability’ to deliver access to the innovative outputs.

She also organized several events bringing together innovation economists, economic historians and industrial economists to think creatively about the way that innovation and inequality co-evolve—and how this relationship has changed over the course of capitalism. The case of the bio-pharmaceutical industry is of particular significance in this respect because it goes beyond inequality in income and wealth to include other fundamental dimensions of well-being like health and 'access' (to innovations).

Mazzucato's work in the biotech and health sector is concerned with both the system failures that lead to problematic outcomes and the dysfunctional relationship between public and private sector actors. Mapping these relationships is the first stage in understanding the dysfunctions in the current health innovation model and in 2015, she organized a workshop on this topic with the Open Society Foundations (OSF).

Her work has also been looking at the feedback between the type of finance that is received in different parts of the innovation chain, and the effect that this has on the direction of innovation. In particular, her work with Bill Lazonick has looked at the increasing financialization of the pharmaceutical sector, with many companies spending an increasing proportion of their net income on share buybacks (to boost stock prices and stock options). The effect that this financialization has on biotech and pharmaceutical companies’ ability and willingness to invest in long-run innovation has been a central feature of their joint work. A recent special issue of the British Medical Journal, for which Mazzucato wrote an editorial, highlighted the dysfunctions that can arise from an over-financialized health innovation model.

With OSF, she is now developing a new project focused on the need to redefine the purpose of medical innovation, based on a broader conception of public value, and develop an alternative, mission-oriented approach to medical research. Comparisons will be made between the breadth and depth of public policy in areas related to defense and energy, whereby the final products are bought at negotiated prices, based on the public input.

mission-oriented
innovation policy

Mazzucato’s work on health innovation is part of a wider project, which aims to develop the mission-oriented policy approach more systematically as a means to address complex societal challenges, and as an engine of more sustainable and inclusive growth. To meet these challenges, and transform societal problems into economic opportunities, there is an urgent need to expand the range of frameworks and tools policy-makers can draw on with confidence.

Her research is developing a new framework that understands the role of the state as shaping and creating markets, not only fixing them. It asks challenging questions about the ways in which public sector investments are currently envisioned, justified and measured, and considers how to build the type of public sector institutions that can welcome the fundamental uncertainty—and hence risk-taking—inherent in the innovation process. Read more about the project here.

key questions

  • How to transform the current profit-led innovation model to be more long-term and ‘mission-oriented’?
  • How to define the ‘purpose’ of a broader model of health innovation based on public value and human rights?
  • How can mapping relationships between different innovation actors help in understanding system and outcome failures?
  • What implications might alternative models of innovation imply for reimagining the roles of public, private and third sector actors?
  • How do the costs of the current innovation model compare with alternative models?
  • What lessons can be learned for health from the history of innovation in other sectors, such as defense, where downstream prices are negotiated based on upstream public investment?

Sixty second video

Contact: Caroline Cooper - c.j.cooper@sussex.ac.uk

Health MEDIA ARTICLES

Fair vaccine pricing please, not random acts of charity

Fair vaccine pricing please, not random acts of charity

“The right price for vaccines must take into account the value of their collective creation but also the fact that they are essential goods produced collectively to safeguard the vulnerable—no matter where they live.” Mariana Mazzucato & Els Torreele PDF

Pharmaceutical Executive

Pharmaceutical Executive

What is needed in the pharmaceutical industry is more radical innovation, including radical thinking about the ‘innovation division of labour, writes Mazzucato.

Health Policy Briefs and Impact

Innogen Policy Brief

Innogen Policy Brief

Targets to increase R&D intensity to 3% in the EU is a core part of the EC’s Lisbon Agenda (2005) which aims to achieve innovation led growth across Europe. Fast growing innovative firms are essential drivers of productivity and economic growth. Yet entrepreneurial small innovative firms do not seem to grow fast enough to drive this innovation led growth (NESTA, 2008). Our study investigates the relationship between innovation and firm growth in an R&D intensive industry, the pharmaceutical industry, to better understand the firm level factors that determine whether innovation efforts pay off in terms of higher growth. If innovative firms do not always grow more, which characteristics allow firms to grow most from their innovative efforts? Can this help us understand the ‘productivity paradox’ in this industry in which exponential growth in R&D and patenting has not translated into the discovery of many new drugs?

Health Academic Books and Journal Articles

High-Growth Firms In Changing Competitive Environments: The US Pharmaceutical Industry (1963 to 2002)

High-Growth Firms In Changing Competitive Environments: The US Pharmaceutical Industry (1963 to 2002)

Mazzucato, M. and Parris, S. (2014) “High growth firms in competitive environments: the US pharmaceutical industry (1963 to 2002)” Small Business Economics Journal, 43(1): DOI 10.1007/s11187-014-9583-3

Firms across sectors and regions are highly skewed in their ability to engage with innovation and even more skewed in their ability to translate investments in innovation into higher growth. Recent attention has been placed on the importance of ‘high-growth firms’ (HGF) for innovation policy. Our paper explores under what conditions HGF matter for translating R&D investments into economic growth and how this depends on firm-specific and industry-specific factors. We use quantile regression techniques to study the R&D–growth relationship in HGF compared to low-growth firms. Unlike previous studies, we pay particular attention to whether this relationship depends on the particular period in the industry’s life cycle. We focus on the US pharmaceutical industry from 1963 to 2002 and find that the R&D–growth relationship is sensitive to the changing competitive environment over the industry’s history, which suggests that innovation policy must focus not only on firm attributes but also competitive structures.

The risk-reward nexus in the innovation-inequality relationship: Who takes the risks? Who gets the rewards?

The risk-reward nexus in the innovation-inequality relationship: Who takes the risks? Who gets the rewards?

Lazonick, W. and Mazzucato, M. (2013), in special issue of Industrial and Corporate Change, M. Mazzucato (ed.), 22:4.

We present a framework, called the Risk-Reward Nexus, to study the relationship between innovation and inequality. We ask the following question: What types of economic actors (workers, taxpayers, shareholders) make contributions of effort and money to the innovation process for the sake of future, inherently uncertain, returns? Are these the same types of economic actors who are able to appropriate returns from the innovation process if and when they appear? That is, who takes the risks and who gets the rewards? We argue that it is the collective, cumulative, and uncertain characteristics of the innovation process that make this disconnect between risks and rewards possible. We conclude by sketching out key policy implications of the Risk-Reward Nexus approach.

R&D, Patents and Stock Return Volatility

R&D, Patents and Stock Return Volatility

Mazzucato, M. and Tancioni, M. (2012), “R&D, Patents and Stock Return Volatility”, Journal of Evolutionary Economics, Vol. 22 (4):811-832

Recent finance literature highlights the role of technological change in increasing firm specific (idiosyncratic) and aggregate stock return volatility, yet innovation data is not used in these analyses, leaving the direct relationship between innovation and stock return volatility untested. The paper investigates the relationship between volatility and innovation using firm level patent data. The analysis builds on the empirical work by Mazzucato (2002; 2003) where it is found that stock return volatility is highest during periods in the industry life-cycle when innovation is the most ‘radical’. In this paper we ask whether firms which invest more in innovation (more R&D and more patents) and/or which have more important innovations (patents with more citations) experience more volatility in their returns.  Given that returns should in theory be higher, on average, for higher risk stocks, we also look at the effect of innovation on the level of returns. To take into account the competition between firms within industries, firm returns and volatility are measured relative to the industry average. We focus the analysis on firms in the pharmaceutical industry between 1974 and 1999. Results suggest that there is a positive and significant relationship between volatility, R&D intensity and the various patent related measures—especially when the innovation measures are filtered to distinguish the very innovative firms from the less innovate ones.

Innovation and Firm Growth: Is R&D Worth It?

Innovation and Firm Growth: Is R&D Worth It?

Demirel, P. and Mazzucato, M. (2012), “Innovation and Firm Growth: Is R&D Worth It?”, Industry and Innovation, Volume 19, Issue 2.

The paper contributes to an emerging literature that critically questions the degree to which R&D, at the centre of national and transnational innovation policies, results in firm growth. The differences in how innovation affects firm growth is explored for small and large publicly quoted US pharmaceutical firms between 1950 and 2008. We observe that the positive impact of R&D on firm growth is highly conditional upon a combination of firm-specific characteristics such as firm size, patenting and persistence in patenting. For small firms, R&D boosts growth for only a subset of firms: namely, those that patent persistently for a minimum of five years. For large pharmaceutical firms, on the other hand, R&D may have a negative impact on growth; potentially resulting from the low R&D productivity these firms have suffered from since the mid-1990s. These results raise important issues around the R&D and firm growth relationship for small and large firms as well the role of persistence in innovation for boosting firm performance.

Knowledge Accumulation and Industry Evolution: Pharma-Biotech

Knowledge Accumulation and Industry Evolution: Pharma-Biotech

Mazzucato, M. and G. Dosi (Eds. 2006) “Knowledge Accumulation and Industry Evolution: Pharma-Biotech”, Cambridge University Press, Cambridge UK ISBN 0-521-85822-4 446 pages

Written by internationally acclaimed experts in the economics of innovation, this volume examines how the biotechnology and pharmaceutical sector is affected by the dynamics of innovation, institutions, and public policy. It contributes both theoretically and empirically to the increasingly influential Schumpetarian framework in industrial economics, which places innovation at the centre of the analysis of competition. Both quantitative and qualitative studies are included, and this varied perspective adds to the richness of the volume’s insights. The contributors explore different ideas regarding the historical evolution of technology in the sector, and how firms and industry structure have co-evolved with innovation dynamics. Important policy questions are considered regarding the future of innovation in this sector and its impact on the economy.

Health innovation events and workshops

Workshop with the Open Society Foundations: Rethinking the Economics of Pharmaceutical Innovation

Workshop with the Open Society Foundations: Rethinking the Economics of Pharmaceutical Innovation

Professor Mazzucato organized this workshop jointly with the OSF, bringing together leading academics to explore the problems with the current profit–not health–driven pharmaceutical model and to ask what a new model could look like. It explored questions such as: How we can define and measure pharmaceutical innovation to capture health impact (including access issues) and incentivize public-interest and needs-based innovation? And what are the key economic arguments, incentives for innovation, and research questions needed to articulate and help justify an alternative scenario of pharmaceutical innovation that maximizes societal benefit (in particular, health impact)?

Innovation in Pharma and Equity in Health Systems

Innovation in Pharma and Equity in Health Systems

This IKD project, with collaborators in Italy, India, Tanzania and Brazil, was launched in 2008 to research the connections between innovation and equity. It focuses on health care as this represents a crucial issue and “example” in the analysis of the interrelations between innovation and inequality. The aim is to tackle the issue by bringing together an understanding of the construction of capabilities in innovation and manufacturing in pharmaceuticals and the construction of ‘health system capability’ to deliver access to the innovative outputs.

Innovation & Inequality: New Indicators from Pharma and Beyond

Innovation & Inequality: New Indicators from Pharma and Beyond

Pisa, Italy – Professor Mazzucato organized this workshop as Economics Director for Innogen while based at the Open University. The workshop brought together innovation economists, economic historians and industrial economists to think creatively about the way that innovation and inequality co-evolve- and how this relationship has changed over the course of capitalism. Event website