Innovation works best when government does least?

The question of the nature of government’s role in social issues and the market has been debated to an impasse. So too, it seems, has its role in innovation. Does government support foster innovation? Or, does innovation work best when government does least? In 2010, the Economist magazine hosted a debate between the two camps, and fleshed out the arguments for greater or lesser contributions by government to the process of innovation.

Defending the theory that innovation works best when government does least, Amar Bhide of Harvard University and author of The Venturesome Economy argues that too-involved governments inevitably muddle the innovation process; they choose the wrong winner by supporting projects that are politically popular, as opposed to those deserving of investment. He cites for example the successes of Hong Kong’s industries, which enjoy the good fortune of a hands-off government, as opposed to the dilapidated state of Japan’s MITI agency. In the sciences, Darwin, Faraday, Newton, and Albert Einstein all made their paradigm shifting contributions without government assistance. While Bhide concedes that, “[governments] doing the least doesn’t mean doing nothing at all,” he is strict with government’s role in innovation, coming out strongly against large-scale government investment, which he characterizes as a gamble with taxpayers’ money. He concludes competition in the market of ideas will weed out the strong from the weak, and government’s hand in the innovation process will only be misguided and misdirected.

On the side of governments, David Sandalow, a senior official in the US Department of Energy, and author of Freedom from Oil, argues strongly that government support is necessary for researching innovation. Huge and complicated issues, such as climate change and pandemic threats, require governments to do even more to support innovation to meet these challenges. Government also plays an essential role in higher education and fundamental research. Sandalow however takes his argument further by adding that government policies are required to overcome market failures (such as the recent financial crisis) and rectify misaligned incentives that keep back the adoption of new and worthy innovations (such as energy efficient technologies).He further notes that the trend towards ‘open innovation,’ companies being increasingly reliant upon ideas from outside their own research projects, leads to a substantial research vacuum. Open innovation will bring more innovation to the public faster, but at the expense of the fundamental research that underlies these developments that eventually will keep them from growing.

Perhaps tellingly, when asked to vote, readers were divided fifty-fifty between the two camps. As the mediator noted, perhaps John Kao’s statement most clearly sums up the dilemma: “Government has an inevitable role in shaping innovation. At the same time, we would be right not to trust omniscient technocrats.” This debate is far from over, and both governments and private enterprise will continue to shape the landscape of innovation. In what ways, and to what extent, will continue to be subject to the questioning of government officials, private executives, innovative, and citizens alike.

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