Friday, January 23, 2015

The Innovative State

The dominant economic ideology assumes a very narrow role for the state.  The private sector is viewed as the source of wealth and the role of the state is to correct market failures.  This ignores the role that the state has had in providing the basic research that has provided the technologies that underlie many of our innovations.  Unfortunately, government spending on basic research has been cut and we cannot expect the private sector to undertake the high risk investments in basic research that will decrease along with the spending cuts.  Moreover, the venture capital model has a very short term focus.  It looks for a payout within a three year investment horizon.  Large corporations have reduced the R&D spending.  They using 54% of the retained earnings to repurchase their own stock.

This article explains how we can have a more innovative state that not only provides high risk funding for new technologies but rewards taxpayers who funded those investments.  Governments should share in the benefits from the technologies that fund.  Instead they get blamed for the failed investments that they make.  Like VC's they should expect some investments to fail, but unlike VC's taxpayers do not directly benefit from the winners they fund.

No comments:

Post a Comment