Research Roundup: Companies that Bankroll Campaigns also Lead the Way in Innovation

We here at TechTank read a lot of research. The research roundup is our semi-regular series in which we summarize recent, rigorous, and open access technology policy research.

Political Activism and Firm Innovation

Authors: Alexei V. Ovtchinnikov, Syed Walid Reza, and Yanhui Wu

Previous research on political donations has established a relationship between political activism and firm value. The authors wanted to better understand why political donations seemingly improve stock prices and to investigate any implications for innovation. They used patent citation records from the National Bureau of Economic Research and data from the Federal Election Commission on Political Action Committee contributions to campaigns for the House of Representatives, Senate, and President. The authors found that companies benefit from political donations in at least two different ways: first, by getting valuable information about future policies that reduces uncertainty and; second, by effectively lobbying for legislation that impacts competitors.

Our Takeaways:

• Donations and Innovation- There is a strong and statistically significant relationship between firm patent activity and political activism.
• Supported Candidates and Patents– Companies that donated to greater numbers of candidates tended to produce more patents.  Firms in the 75th percentile in terms of the number of candidates supported produced about one more patent on average over a three-year period than firms in the 25th percentile. This gap is notable considering typical firms applied for about 6 patents on average during those three years.
• 94 Election– The authors used the results of the Republican landslide in 1994 as a natural experiment. As a result of this election, Republicans unexpectedly took control of the House and installed several new committee chairs. The results show that firms that supported these Congressmen prior to 1994 produced more patents than those who did not support the newly minted Chairmen.

Policy Implications:

• There are no explicit recommendations, yet the author’s results suggest that greater transparency in the policymaking process generally reduces uncertainty for private sector businesses. In turn, this lesson could promote innovation throughout entire sectors rather than for specific companies.

Will Video Kill the Classroom Star? The Threat and Opportunity of Massively Open On-Line Courses for Full-Time MBA Programs

Authors: Christian Terwiesch and Karl T. Ulrich

This report analyzes the potential of Massively Open Online Courses (MOOC) to transform business schools and the higher education sector. The authors argue that SuperText or “chunked asynchronous video paired with adaptive testing” offers a number of potential benefits to business schools. They argue SuperText could allow schools to serve students more efficiently, reduce the number of full-time faculty, and replace established business schools with new models.

Our Takeaways:

• Making a MOOC- The authors estimate that the cost of developing a business school MOOC is $70 thousand in total.  This represents a large upfront cost that could save universities money over the long run.
• Demonstrating Quality– MOOCs can help universities showcase the quality of their professors. Journal articles are far more expensive and less accessible. Creating a MOOC costs far less than writing a journal article, which costs about $400 thousand.
• Improving Admissions– The authors argue that MOOCs could serve as a way to improve the rigor of business school admissions. Students could take a MOOC prior to their admittance to a business school.  This would provide the school data on the quality of the candidate. MOOCs might also provide valuable information to prospective students about whether they wanted to attend business school before they enroll and take on debt.

Policy Implications:

• Government should clarify intellectual property policies surrounding MOOCs. A royalty structure for compensating professors for the creation of MOOCs is clear to their success.
• Invest in research and development to support the creation of new and innovative MOOCs.

Foreign STEM Workers and Native Wages and Employment in U.S. Cities

Authors: Giovanni Peri, Kevin Y. Shih, and Chad Sparber

This working paper examines the arrival of foreign workers trained in the science, technology, engineering, and mathematics (STEM) sectors and their impact on the US economy and domestic labor market. Using data from the Bureau of Labor Statistics and the Department of State, the authors were able to identify immigrant workers in the STEM fields. They studied the H-1B visa program that brings skilled immigrants to America that drives the innovation economy and benefits other workers.

Our Takeaways:

• STEM Immigrants Boost Economy– A one percent increase in the share of foreign STEM workers increases the wage growth of American college education workers by 7 to 8 percentage points on average. There is also a corresponding increase for non-college educated working Americans of about 3 to 4 percentage points.
• Increased Housing Costs– There is an association between the arrival of Foreign STEM immigrants and an increase of the rent per room for native college educated workers. This wipes out about half of the benefits from increased wages.
• Productivity Increases– Greater numbers of STEM immigrants increases the total productivity of other workers. The authors estimated that about 30 percent of the growth in total factor productivity, which measures efficiency from labor and capital is attributable to H-1B visa holders.

Policy Implications:

• The results suggest that an expansion of the H-1B visa program is necessary to increase innovation and to grow the economy.
• To offset increased housing costs, officials may also want to consider policies that subsidize the cost of renting or buying a home for those metro areas that see a significant increase in STEM-trained immigrants.

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