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Originally posted by OnyxCougar
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It seems to me that we better be getting more from selling the patents than we send back in buying the products, or we lose.

Is that right?

Some income comes from selling rights to patents. Some comes from other sources of innovation. For example, let's take that computer.

Intel limits their manufacturing to the more complex parts of a computer - where their superior work in atomic and sub-atomic physics results in massive innovation. Intel once made (and created all the original types of) memory and all the peripheral chips. But there is not enough innovation in memory and peripherals to justify Intel's involvement in that less innovative part of the business. Intel makes the CPU. Intel then tells other companies (ie Tiawan) what is required from memory, chip sets, and peripherals. Intel even defines what must be in the power supply AND how PC traces must be laid out on the computer board.

Other countries make all the computers. They purchase rights and other innovative (and intellectual property) from the US to make computers. They learn how to lay out those PC traces. The more advanced countries learn what is required in those simple chip sets (other ICs that support the Intel computer chip) and make those chip sets per American requirements.

We don't make computers in America. But we earn substancial money by defining what must be in those computers and how to make them work. That is how the American economy has changed and is changing.

But if America is not being so innovative; if Japan, Korea, Tiawan, Germany, France, Britian, etc are now doing more patents; then America's future 4 to 10 years from now will be threatened.

This is exactly why the US suffered so much in the 1970s. The domestic auto industry is a classic example of what happens when innovation dies. Look at history in the 1950s and 1960s. Every year, a new auto innovation would appear - automatic transmission, power steering, safety brakes, McPherson strut suspension, stratefied charge engine, better combustion methods (ie. Chryslers CAP system). American cars were even exported everywhere. But in the 1970s, American innovations were being stifled by those who did not even have driver's licenses - and were therefore top auto executives.

There was no unfair Japanese competition. There were too many American MBA educated executives who followed the concepts of the Harvard Business School and therefore stifled or gave away innovation. Lost profits because they could not measure those innovation on spread sheets. They only understood what spread sheets could report. Innovation appears on no spread sheets until after the innovation appears in products.

Who was making major profits on automobiles sold in America? Japanese and Europeans. Why? Honda was the two best selling American vehicle in 1980s America - because they used innovations pioneered in America and that were kept out of America by Henry Ford. The stratefied charge engine was called the CVCC in Honda. Honda's would start every time, pollute less, got better gas mileage, and required much less platinum because Honda used American innovations that American stifled or gave away.

Japan is famous for the transistor radio. They paid AT&T for transistor rights because AT&T executives had no idea of the value of their invention. Sony is what resulted. When Americans do not understand the value of a technology, then other countries have prospered emmensely from myopic American management. Who created the VCR? Not Japan. But the American company (Ampex) was so technically nieve as to all but give away the VCR to Japan.

Why did the US economy take off starting in the late 1980s? Enough American businesses (startups without MBA domination) understood the value of their innovations as to make profits from those innovations. The most stunning example of those resulting profits are found in the American electonics industry of the greater California region (Intel, HP, Cisco, Seagate, etc).

Cisco does not manufacturer or even touch most of their products. Cisco defines what their product must do and has third party companies manufacturer their products. Most Cisco products are shipped direct from that third party manufacturer to the customer. Cisco does not even touch many of the products they sell. Intellectual value is what Cisco sells. Others make the product.

How did Microsoft make so many profits at the expense of IBM? Microsoft's people were programmers. IBM's were MBAs. Microsoft did the high tech parts of DOS, Windows 9x, OS/2, etc. IBM did the 'third world' programming. When it came to getting paid, IBM ended up paying Microsoft for the important parts of OS/2 because Microsoft did then what America must do today. The smart parts must be innovated in America so as to be manufactured overseas. The dumb programming work must now be done in India. It is a world economy.