Innovation
Celebrating Richard “Dick” Nelson

Gave me joy to write this nomination

In nominating Richard Nelson, I feel both honored and nervous. He has secured so many glittering accolades and well-deserved tributes that it is difficult to say anything that has not already been said. I will therefore provide a personal perspective; and, what stands out most for me, is the versatility – the range of Nelson’s contributions.

1. The decades over which Nelson has been active provides an obvious, temporal marker of his exceptional range. ‘A Theory of the Low Level Equilibrium Trap in Developing Countries,’ considered his first “landmark” publication, was published in the American Economic Review in 1956. This was a year before Nelson had started his first faculty job at Oberlin College. Three years later, in 1959 another landmark — The Simple Economics of Basic Scientific Research — A Theoretical Analysis, was published in Journal of Political Economy. This paper formalized the externality problem of R&D: Nelson’s model predicted that profit-seeking firms would underinvest in basic science because they would not be able to fully capture the returns from such investment.

 The output never ceased. In every succeeding decade, Nelson published as much significant work as most scholars would hope to produce in their entire careers. More than sixty years later, Nelson now aged 91, is still producing scholarly work. The October 2020 issue of Industrial and Corporate Change has a sole-authored article by Nelson.  

2. Another striking feature of the Nelson range, is the variety of the methodologies he used and promoted. His first “round” of landmark papers elegantly and creatively applied classic theoretical methodologies and equilibrium models. These include, besides the two papers above, Investments in Humans, Technological Diffusion, and Economic Growth, with Edmund S. Phelps, published in the American Economic Review in 1966. The Nobel committee described the significance of this paper (when it awarded the 2006 Prize to Phelps) thus:

“The Nelson-Phelps analysis focuses on the stock – as opposed to the accumulation – of human capital as a key factor behind technology growth in the sense that an educated and knowledgeable workforce is better able to adopt available new technology. In the empirical growth literature, the Nelson-Phelps setting has provided a means of formalizing technological catch-up across countries, whereby technologically less advanced countries adopt the technologies of the more advanced ones, and do so more efficiently, the more educated the workforce in the adopting country. The analysis thus explains why data indicate that output growth is more related to the stock of human capital than to its rate of growth. The model also helps explain why skill premia – the higher wage rates enjoyed by skilled, or educated, workers – tend to be higher in times of rapid technological change: an educated workforce is able to assimilate technological advances more rapidly. Such reasoning has been used to interpret the recent increase in returns to education that has taken place in many countries, in particular the US. To the extent that there are important spillovers (“externalities”) in the adoption of technologies, the returns to education might not be fully reflected in the skill premium. Thus, Nelson and Phelps argued, their model suggests a possible reason for subsidizing education.”

With his reputation as a leading “equilibrium” theorist established in the 1960s, Nelson turned to the “Carnegie school’s” heterodox use of “routines” as a foundation of organizational decision-making. This new direction resulted in the now classic book, written with Sidney Winter, entitled An Evolutionary Theory of Economic Change. The theory in this book provided an “evolutionary” account (rather than an “equilibrium” model) of how firms and industries acquire their capabilities. The account is evolutionary in that it emphasizes the trial-and-error process of development and in the role of markets in selecting out the firms that do not develop the capabilities needed to survive.

The book which was published in 1982 had received approximately 23,000 Google scholar citations by May 2012. Now, nine years later, it has an astounding 47,729 citations. The book and Nelson’s other publications have also made evolutionary economics a serious alternative to the standard model, which is nearly miraculous in my view.

Case histories and studies of specific industries are a third and unusual feature of Nelson’s methodological range. He started these when he was still developing mainstream equilibrium models: In 1962 for example he published the results of his investigations on the development of transistors and other such technologies, and in 1977 Nelson and Winter showed how innovation and its institutional and organizational enablers differed across agriculture, medical, and aircraft sectors. In recent years, Nelson and his collaborators have produced a series of case histories on notable medical innovations.

The combination of producing case-histories as well path-breaking theory is highly unusual for a leading economist. Economic historians, such as Mokyr and Rosenberg apart, most economists avoid case-histories; and those who do work on case histories rarely produce path-breaking theory (be it orthodox or heterodox). And although Nelson’s case histories have not received the same acclaim and citations as his theoretical work, I have personally found them an invaluable resource in writing my own case histories of medical innovation. That a top theorist also produces case histories is an inspiring example, which I hope will be more widely followed in the years to come.

3. The range of audiences Nelson has influenced over his long career is also remarkable. As the Nobel announcement (for Phelps’s 2006 prize) quoted above indicates the early work has had an enduring influence on mainstream economists. The subsequent “evolutionary work” has inspired, as mentioned, research on the “heterodox” side. This two-sided influence alone puts Nelson in a select band of scholars. What is even more exceptional is his influence outside economics departments, heterodox or otherwise.

Nelson’s work has shaped research in strategy departments of business schools at least as much as it has research in economics departments. According to Johann Murmann’s entry in the Palgrave Encyclopedia of Strategic Management, “Nelson’s long-term research on innovation (e.g. Nelson, Mowery and Fagerberg, 2006), intellectual property rights (e.g. Levin et al., 1987) and the larger institutional environment (e.g. Nelson, 1993; Nelson and Sampat, 2001) in which innovative activity takes place has also been very influential in strategic management because his ideas help explain how firms gain and lose competitive advantage.” The influence, continues Murmann “is based in large measure on being able to construct a theoretical explanation for how firms are able to develop the capabilities to organize the often exceedingly complex research, development and production processes that characterize modern economies (Dosi, Nelson and Winter, 2000) where increasingly sophisticated products and services sweep away old ones (Nelson and Winter, 1977).”

Alongside his wide use of methodologies, Nelson has reached – and in some ways created — an audience for methodological writing. He has been a tireless explainer and exponent and not just a producer of evolutionary economics. A little more surprisingly – but in keeping with his own example, he has written about the scholarly advantages for “appreciative case histories.” And as an “evolutionary” critic of the “physics envy” of some economists, he has written about the diversity of approaches seen across the different branches of the natural sciences.

Public policy has been another important arena for Nelson’s long-lived impact. From the very beginning of his career, he has aimed to make a difference to people’s lives, outside the ivory tower. The scholarly research on technological innovation already mentioned above reflects this aim, as does his more recent research on the varied roles of government which emphasize the practical reality, namely that particularly in modern economies the roles of the public and private sector are inevitably intertwined. Nelson has produced thoughtful social commentary alongside more technical policy-oriented work. One celebrated monograph The Moon and the Ghetto, based on the Fels Lectures on Public Policy Analysis first published in 1977 and “revisited” by Nelson in 2011 provides a striking example. Its main thesis pertains to the about the unevenness of progress – why a moon-landing was more easily accomplished than treating the problems of urban ghettos. It also raises important, yet difficult questions such as the role of policy analysts vis-à-vis elected officials. In principle, Nelson’s book points out, analysts merely evaluate alternative means for ends specified by elected officials. In practice, the analyst cannot avoid choices of ends. To me this raises profound questions about legitimacy and governance which are clearly playing out in the current Covid crisis.

Nelson’s social commentary has addressed an intellectual rather than a mass audience. While this has not made his a household name, it has allowed for nuance and sophistication. Notably Nelson has written about the many ways in which the state influences technological development, but he has also criticized what he calls “techno-fetishism” and “techno-nationalism.” And because he is difficult to pigeonhole, Nelson’s voice is all the more respected and effective.

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The wide and multiple ranges of Nelson’s have most emphatically not made him an intellectual dilettante. There is an unusual coherence to his work across these many decades, methodologies, and audiences. Almost everything relates to a lifelong interest in long run economic change enabled by technological advances and the complementary development of economic institutions. This interest provides the thread that connects the theoretical models of the 1959 Journal of Political Economy paper on under-investment in R&D, his 1966 paper with Phelps on the nexus of education and the adoption of new technologies, the role of routines in generating and selecting innovations in his 1982 book with Winter, articles on intellectual property rules, and the social commentary in The Moon and the Ghetto. This coherence makes the Nelson corpus much greater than the sum of its parts.

Similarly, selfless contributions to the work of other scholars and communities makes his life work far greater than the sum of his own publications. These contributions, which have been both public and formal as well as private and informal started early: In 1962, when Nelson was on the staff of the President Kennedy’s Council of Economic Advisors, he helped convene and organize a conference on The Rate and Direction of Inventive Activity. Sixty years later the National Bureau of Economic Research held a conference to commemorate the 1962 conference. Similarly, in 1993, Nelson’s leadership produced another celebrated conference on National Innovation System. Limitations of space make it impossible to list the significant contributions of Nelson’s students and other scholars he has privately influenced. I personally could not be more thankful for Nelson’s diligent reading and constructive suggestions of nearly everything I have written since we first met 21 years ago – and I am one of the many who have thus benefited.