Privatization of Innovation: Evidence from India's State Owned Laboratories

Abstract

Improving performance of state owned entities (SOEs) can have significant economic impact in countries like India, where SOEs comprise around 30% of aggregate industrial sales. Though the literature on SOE reform is focused on privatization, privatization often has its limits. We suggest an alternative policy prescription based on evidence from 42 Indian state owned labs with 12,500 employees. We posit that monetizing intellectual property (IP) and leveraging the private sector could help reform SOEs that have underutilized IP. From a base of negligible U.S. patents, the Indian labs collectively emerged as a leading emerging market patentee, licensing patents to multinationals. Also, technology commercialization did not adversely affect publication quality and quantity. This followed incentive policy reform and leadership change. We exploit exogeneity of the timing of leadership change (driven by rigid government rules) as the basis for identification. Unlike prior SOE reform studies, mostly focused on China, we document that in the Indian context, collaboration between the state and private sector formed the engine of SOE reform.