Innovation And Government Assistance

A couple of days ago Michael Mandel wrote an interesting Business Week article titled of “The Failed Promise Of Innovation In America.” It was a good article with some good thoughts and numbers. 

A few bloggers picked up on it including Derek Thompson at The Atlantic. He blog post was short but to the point, however, what caught my eye was the automatic default to “how can the government cure this.”

Where Mandel’s explanation comes up short is: What are these innovators doing wrong? And if we’re failing as innovators, how do you design a macroeconomic policy to unleash ideas? Certainly, Mandel would agree that spending more on science and technology education is one way to encourage more college graduates to go into the scitech innovation world. But what else? We could ease rules on drug trials to roll out more products, but it might not be in the consumers’ interest to have lax FDA policies. We could have government-sponsored contests, like the $300 million prize John McCain offered for a working electric car. We could build in more tax breaks for research in certain preferred medical fields. What else? Open question, really.

Derek had a follow-up post this morning featuring his readers suggestions. You guessed it, there was no shortage of suggestions for government programs to cure the problem. 

When I read his first post it brought to mind something that Holman Jenkins wrote in his opus on the financial crisis:

In the 1980s, America flirted with industrial policy and protectionism to meet what was regarded as a Japanese economic threat. But our entrepreneurial bias prevailed in the end: While the Japanese bureaucracy was directing that country’s technology giants to dominate the manufacture of computer memory chips, perceived as the “strategic” resource of the 21st century, Silicon Valley was mostly left to its own chaotic, mercurial devices — and ended up focusing on microprocessors, software, multimedia, and networking. Given birth were the personal computer industry and, in due course, the internet. Try to imagine Microsoft or Google springing from the plan of a bureaucrat at Japan’s Ministry of International Trade and Industry.

That’s a nonmistake we apparently won’t make again. With its vast ambitions across broad swaths of the economy — from health care to energy to education — look for endless acts of industrial favoritism from Obamanomics. President Obama, with his confident judgment that the future is “green” energy, that government can deliver “affordable” health care, that everyone can and should go to college, has all the hubris of a miti bureaucrat of the mid-1980s and little apparent appreciation that America’s strength is the decentralized economic agenda thrown up by entrepreneurs and inventors and opportunists whose every impulse Washington doesn’t try to corral and control with mandates and incentives.

New products, ideas and innovation come in fits and starts. You can’t program them, they spring forth from minds that might have been working out the problems for years. When they do come it’s often in a torrent as one idea feeds off of another. Like it or not there are cycles, sometimes unproductive like our recent fixation on financial engineering, but the system has a way of self-adjusting. It’s taken care of itself for a long time and there really isn’t any reason to think that it might not be able to continue in that mode.

There are a whole lot of reasons to think that having the government direct it will come to no good.

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