(Hi! Thanks a lot for having me! Please be nice, commenters.)
Some people in the wonkosphere are arguing about which is the best Star Wars movie. (I've said my piece here; here's Kevin Drum who got the thing started, and here's Dan Drezner.)
While doing this, I got another look at one of my favorite websites on the whole wide Internets, Star Wars Origins, which gots into the deep weeds of the many, many stories and ideas that influenced Star Wars, and the stories that influenced those, as well.
Even if you have only passing interest in Star Wars, I'd encourage you to dive into the site, there's no way you won't learn something about storytelling, mythmaking, history of ideas and more.
This paragraph from the page on Kurosawa films should give some flavor of the thing:
The subtle lesson Lucas learned from Kurosawa is how to translate movie ideas between America and Japan. Kurosawa had become famous partially for telling stories about Japanese samurai using ideas he borrowed from American Westerns and detective stories. Kurosawa's Yojimbo was based on Dashiell Hammett's 1928 book Red Harvest. Hammett had been a real-life detective for the famous Pinkerton Detective Agency, so his crime stories had a ring of authenticity that readers loved. Red Harvest was Hammett's first novel. It told the story of an unnamed gunslinger who cleans up a crooked town mostly by pitting the bad guys against each other, though he wasn't above killing the bad guys himself when the situation demanded it. Kurosawa's remake starred Toshirô Mifune as The Man With No Name. Then in 1964 Italian director Sergio Leone remade Yojimbo as Per un pugno di dollari ("A Fistful of Dollars"), starring Clint Eastwood as The Man With No Name. Leone was probably inspired by John Sturges' The Magnificent Seven (1960), which had just earned a pile of money remaking Kurosawa's Shichinin no samurai ("The Seven Samurai", 1954). Leone's "spaghetti Western" (a Western made in Italy, partially to save production costs) was extremely popular, earned a lot of money, and made Eastwood a star (though it also typecast him in Man With No Name-like roles for the rest of his life). The Coen Brothers borrowed from Red Harvest/Yojimbo again in 1990, combining it with Hammett's The Glass Key (1931) to create the film Miller's Crossing. Yojimbo was finally remade again in 1996, with Bruce Willis playing The Man With No Name character in Last Man Standing.
What we see here about movies and stories is also true everywhere else: every innovation springs not so much from a lone, great visionary, but actually builds upon many previous innovations, and so on, with turtles all the way down. It's not so much that innovators "stand on the shoulders of giants", it's that they stand on the shoulders of dozens of giants, each of whom stands on the shoulders of dozens of giants. (That was your anatomically impossible metaphor of the day.)
When it comes to understanding this thing we all want more of, "innovation," this is a crucial insight.
Now, it has plenty of implications for policy. A couple that spring to mind:
Intellectual property. If your mental model of innovation is the lone-inventor-in-the-shed-whose-invention-springs-fully-formed-in-his-head-in-a-eureka-moment, you're going to tend to favor strong intellectual property protection so that the inventor will get his right due as opposed to followup innovators, who can only be "copycats". By contrast, if you have this (in my view, correct) model of collaborative (or, perhaps, "multi-vector") innovation, you will tend to favor weaker intellectual property protections to encourage ideas to spread and be built-upon. (This is ground that's been well-trod by Timothy Lee, who's forgotten more about this stuff than I know, among others.)
R&D tax credits. Who can be again R&D tax credits? R&D is "innovation", and tax credits sound almost like tax cuts (though they're not)!
Except that this "multi-vector" mode of innovation doesn't just happen between innovators, but when they're groups of people, inside them as well. As Amar Bhidé argued in his excellent book The Venturesome Economy, what you find when you break down the innovation process is that actual R&D is actually a fairly small part of innovation. Every business function plays a role in innovation, and there's no evidence that R&D is more important than any other. It's no use having a great gizmo in the lab if people can't buy it because it's too expensive, or don't want to buy it because it's impossible to use. Even marketing, that afterthought, plays a big role in innovation: no one wants to buy the first version of the product, and marketing has to not just market it, but find out what customer needs it is and isn't solving, and then help the rest of the organization adapt (this is what startups call customer development).
In other words, innovation doesn't come from the R&D department, it comes from the interplay between every department.
Apple, the iconic "innovation" company these days, is a perfect example of this. Few would deny that Apple is one of the most innovative companies in the world. And yet, Apple spends a strikingly low share of revenue on R&D relative to its peers. Between 2006, before Apple introduced the iPhone and the iPad, its two most game-changing products, and now, R&D spending was cut in half on a relative basis, from 4% of revenue to 2%.
And Apple's innovations extend way beyond classic "R&D" stuff. Everyone recognizes Apple's marketing prowess, which doesn't just mean ads (though those are important, too)--marketing is also distribution, and Apple Stores have transformed the retail industry, with I'm pretty sure zero spending on R&D. Apple is also recognized in the industry as having the most advanced supply chain operation in its industry, which allowed it to be alone among its competitors to sell a big-screen tablet at a price affordable to consumers (even though Apple has an image as a "premium pricing" brand). Again, enormously important innovation, but not the "R&D" type of innovation. When you think of everything that made the iPhone such a success, there is certainly "R&D type stuff" involved--gorilla glass, capacitive-touch screen, clever chips and so on--but most of the reasons for its success go way beyond "R&D": the design, the marketing, the distribution, the business model integrating hardware and software, the supply chain, the app store and so on. Which would have been least successful: an iPhone with a plastic screen instead of glass, or an iPhone without an app store? And let's remember the first iPhone shipped without an app store, and that Great Visionary Steve Jobs didn't want an app store in there and had to bend to lobbying from consumers and his own staff. This isn't to say Steve Jobs wasn't a visionary, but that's the point: even when it comes to the great visionary, we still see this process of innovation as iterative, driven by market feedback and many different vectors beyond the Great Man and his Vision.
Circling back to R&D tax credits, then, recognizing this complex reality means recognizing that the R&D tax credit works in practice as a subsidy to Apple's less-innovative peers who spend more on R&D--exactly the opposite of the outcome intended.
This R&D-as-innovation mythos is just not true in the real world of how innovation happens, and it causes us to make mistakes.