Langlois, Economic Institutions Part I
My father and I started a cosmetic cream factory in the late 1940s. At the time, no company could supply us with plastic caps of adequate quality for cream jars, so we had to start a plastics business. Plastic caps alone were not sufficient to run the plastic molding plant, so we added combs, toothbrushes, and soap boxes. This plastics business also led us to manufacture electric fan blades and telephone cases, which in turn led us to manufacture electrical and electronic products and telecommunication equipment. The plastics business also took us into oil refining, which needed a tanker shipping company. The oil refining company alone was paying an insurance premium amounting to more than half the total revenue of the then largest insurance company in Korea. Thus, an insurance company was started. This natural step-by-step evolution through related businesses resulted in the Lucky-Goldstar group as we see it today. (Aguilar and Cho 1985, p. 3.)
Notice that the “natural step-by-step evolution through related businesses” involved both spreading excess resources over similar activities and calling forth dissimilar complementary activities. p. 10The process being described in the LG example is one of "Gap Filling" as is described below.
As Harvey Leibenstein long ago pointed out, economic growth is always a process of “gap-filling,” that is, of supplying the missing links in the evolving chain of complementary inputs to production. Especially in a developed and well functioning economy, one with what I like to call market-supporting institutions (Langlois 2003), such gap-filling can often proceed in important part through the “spontaneous” action of more-or-less anonymous markets. In other times and places, notably in less-developed economies or in sectors of developed economies undergoing systemic change, gap-filling requires other forms of organization — more internalized and centrally coordinated forms. p. 6In the example that I posted on Friday entitled "Transaction Design" it was noted the need to have the producers work with a group of engineers to bring about an innovation to enhance the industries capabilities. How the oil and gas producers, with 100% of the revenues of all industries associated within oil and gas, need to develop and maintain the industries capabilities within the ID's, SKIEs or CISP. This is "Gap Filling" as described in the paper.
Oil and gas is certainly a sector that is undergoing systemic change. And we are witnessing the oil and gas companies expectation that field level innovations will spontaneously exist, yet expend none of the money necessary to bring those innovations to market. In their opinion that is the responsibility of the investment capital groups. Well let me be the first to explain to the oil and gas companies management, the investment capital groups became tired of the thumbs down they received for any and all efforts that they undertook. They have left the industry, and I would suggest will not be back. Expecting others to fulfill your needs when you need them, without financial support, just isn't going to work.
This same issue is the paramount issue that People, Ideas & Objects is facing. With no support from the industry, how and why would anyone get behind this project on a speculative basis? Management have made their opinion known and are clearly uninterested in sponsoring a competitive means to manage the industry. What is clearly necessary in 2010 is not only the ID's, SKIE's and CISP. But also the market supporting software necessary to identify and support the market. Without People, Ideas & Objects any attempt at organizing the development of further capabilities will be futile. And that is why management have refused to fund these developments.
The underlying assumption, normally unspoken, is that relevant background institutions — things like respect for private property, contract law, courts — are all in place. Whatever transaction costs then arise are thus the result of properties inherent in “the market” itself, not of inadequacies in background institutions. There is generally a tacit factual or historical assumption as well: that the relevant markets exist thickly or would come into existence instantaneously if called upon. p. 3In thinking through the points of discussion that have been raised in the past few weeks. I notice that something is missing that is critical to making the ID's et al work. What is the motivation in spending the time and effort necessary to make producers reserves and production more prolific? There has to be something in it for the one that is developing the science or innovation that will sustain them above and beyond the producers desire to have the capabilities. That is the Intellectual Property belongs to the individual or group that developed it. In the example that I provided on Transaction Design, the IP would be the property of the engineers. This is the manner that the Draft Specification in the Knowledge & Learning, Resource Marketplace and Research & Capabilities modules provides.
I have implied this handling of IP in many of the previous posts. I am now stating it explicitly. The only way that the oil and gas industry is going to solve the scientific and engineering problems that it faces is through those with the ideas earning the rights to those ideas. I have consistently argued that the producer firms are focused on their competitive advantages of their oil and gas assets and the necessary earth science and engineering capabilities applied to their assets. This applies to where ever those capabilities are located. How a firm may manufacture drill bits is of absolutely no concern to the producer firm that purchases or rents drill bits. The same can be applied to all aspects of the industry.
This management of Intellectual Property is counter to the attitudes present in the oil and gas industry. Until, and only when, those that do the hard work of solving the problems in oil and gas, earn the rights to their efforts, will we move forward from here. Intellectual Property rights must reside within the firms and individuals who make up the Business Groups, ID's, SKIE's and CISP.
Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are. If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.
Technorati Tags: People's Langlois CISP Community Innovation IP