Where will innovation come from?

In the early 1980s, I traveled to Berlin and to China forthe first time. To reach Berlin, you flew in a PanAm DC-9 from Frankfurt, youronly choice of airline and departure airport. It was a beautiful day. Crossingthe border to East Germany, many things disappeared: color, highways, modernbuildings and traffic. From low altitudes, it appeared that 30 to 40 years hadjust been lost. Arriving in China in a 747 Combi, the impression was verysimilar. The people hadn't discovered color? The cars appeared to be from theearly 1950s and no private citizen could own one.

I was struck by the possibility that two highly inventivecultures were held back for many decades by autocracy, rules, five-year plansand prohibited debate. During these same two trips, by contrast, West Germany,Taiwan and Hong Kong were highly vibrant, filled with color and excitement forinnovation.

Thirty years later, it is unsettling to note the regularclosure of R&D assets in the United States and the associated reductions inscientific headcount. The chairman of the board at Pfizer Inc. assisted with myhigh school science fair project on antibiotics (circa 1960). I won a greatprize and still feel grateful to Pfizer. More recently, the company announcedthe complete shutdown of a very new R&D headquarters in New London, Conn. Abargain was no doubt possible when the site was sold to engineer nuclearsubmarines.

A decade ago, it was predicted that pharma would submergeunder the weight of patent expirations, and now we're there and heading deeper.The science has gotten harder, and R&D hasn't been able to keep up the paceunder pricing pressure from the previous generation of inventions.

We have a government that many feel is unfriendly tobusiness, focused on what goes wrong versus what goes right and keen onspending (which ultimately means taxing) as government headcount rises. Thereis no doubt that free enterprise provides enough evidence of avarice andmalfeasance to justify the statist and Robin Hood instincts of the left. Withall its faults, it is only free enterprise that has successfully raised theliving standards for all, step by step. It has done so by incentivizinginnovation, most commonly by the small and nimble.

This is the principle of the Chinese miracle that introducedprivate housing, personal cars, digital communications, modernizeduniversities, a rapidly growing middle class and yes, fashion and color. OnceChinese individuals were free to create and be rewarded, they got to work.Their great talent now affords investing in new research laboratories just asour economy forces them to close. This is not to be feared, but embraced andchallenged.

We are beginning to innovate on how we innovate. There isthe concept of open innovation. There is crowd sourcing. There is a renewedinterest on the part of pharma in academic partnerships that are diseasefocused and cover five to 10 years. There is developing government support fortranslational or transformative research involving academic teams. Put theseterms into Google and you can have all sorts of fun and even buy books on thesetopics.

Let's be sure these ideas are new. They are by no means settled, andthere are sure to be rough spots.

For example, academic science was not built on teamworkoutside of an individual professor's research group. We became professors tofollow our passions, not to be organized around an objective set by others.Education is the primary goal, and 99 percent of the intellectual propertywalks across the stage at graduation, as well it should. Turnover of laboratory personnel is notthe problem. It's the goal!

Consortia of pharmaceutical companies are now workingtogether by sharing precompetitive information on topics as diverse as kidneytoxicity, Alzheimer's disease and malaria. They are even investing together, asevidenced by Enlight Biosciences in Boston, which is currently supported by sixleading companies.

Note as well the Critical Path Institute. When will wesimilarly enlighten our immigration policy for science and engineering talent?When will we work harder on R&D tax credits and reduce the grab on capitalgains from development stage companies in high-risk ventures? When will we seemore matching of SBIR grants with private resources to leverage the taxpayerinvestment?

There is also debate about patent system reform and even thelegal definition of innovation. Squabbles between generic and innovative pharmacontinue to consume huge resources. What's new? What's important? What's just anit in the process to allow for delay and a battle of wits? Can I patent my ownunique DNA? Would you like to take a license? Might I suggest 5 percent withminimum annual royalties of $100,000? Clone a curmudgeon today!

There is also debate whether university licensing officesare stimulating or constricting innovation. A good case can be made that theyare doing both. Technologies and personalities differ widely and rules don'toften work. Our Indiana neighbor Eli Lilly & Co. speaks of transformationfrom a fully integrated pharmaceutical company to a fully integratedpharmaceutical network. Their MBAs are as good as the military and systemsbiologists at inventing acronyms. Imagine an organic chemist as CEO of apharmaceutical company. Is this even legal? The Lilly construct does make aserious point.

Everything I've mentioned about the mechanics of innovationinvolves a vertical and horizontal disintegration of organizations into anecosystem that is dynamic and global, with temporary assignments andalignments. It is a system where loyalty is not valued and you've got to stayon your toes and deliver results. Graduate students view these developmentswith some trepidation. Credentialism will surely not protect them. They'dbetter not stop learning at graduation or even think for a moment aboutsettling into a house for 30 years. In California and Boston, there is nothingnew about moving from startup to startup. It's a way to further your education.It does mean that dense clustering of like businesses is a requirement to buildhealthy communities and families. It is interesting that this occurs insections of the country considered to have the most unfriendly businessclimates and the highest costs of living.

Just remember that innovation is very precious and it can bediscouraged when society imposes too many constraining rules. It can even goaway. This is not theory. The 20th century experiments have already given usproof enough. I saw the results in China and East Germany three decades ago.

Peter T. Kissinger is chairman emeritus of BASi, CEO ofProsolia in Indianapolis and a professor of chemistry at Purdue University.