Innovation isn’t linear. Innovation can’t be planned. Innovation doesn’t come out of government spending or dollars spent for research science. Innovation comes from people executing on ideas.
Matt Ridley wrote what I hope will become a very well read and discussed article. Mr. Ridley is the author of “The Evolution of Everything: How New Ideas Emerge”. He is a member of the British House of Lords. He previously wrote the books The Rational Optimist and Genome. This book is an argument for evolution that definitively dispels a dangerous, widespread myth: that we can command and control our world.
That command and control argument is why there is a schism in economic thought. The Keynesians see people and the economy as puppets, with them and the government as puppet masters. Pull this string, the puppet waves an arm. Pull this one, a leg moves. The classical economists put the power of in the individual. They know that each individual will make a random choice. But in aggregate, all people will make rational choices. People allocate resources better than government bureaucrats.
I was at a HealthTECH conference put on by Steve McPhilliamy and the folks at InsightPD last Thursday. Insight is very active in the early health stage space. There were 15 companies there that night. Any company that wasn’t just a piece of software was blocked from moving forward by the FDA.
The government has poured billions into research. Check out the budgets of any university and a large part of it is made up of grants from the government so scientists can do research. Ridley argues it has contributed almost 0 to the economic growth of our country.
He says, “Most technological breakthroughs come from technologists tinkering, not from researchers chasing hypotheses. Heretical as it may sound, “basic science” isn’t nearly as productive of new inventions as we tend to think.”
We like to think innovation fits nicely into a box. Governments fund science. A scientist does research in the lab. They patent the research and the core science comes through the tech transfer office at the university. They raise some startup capital and build a big company. Society benefits. The truth is innovation doesn’t fit nicely in a box and the linear line I just drew for you is basically a fallacy.
We know that in nature, biological forces self organize. What we are finding is that technological forces are starting to self organize too. That is a startling observation and really changes the way we should view technological innovation.
Assume technology is self organizing. The further we get government away, and the less intervention we have from government, the faster we will innovate. That starts with cutting spending and eliminating a lot of rules and regulations that come with that spending.
It also requires us to look at patent and copyright laws. Too often patents and copyrights are used as defensive measures against innovation. They give too much credit to one person or entity. Instead of sharing, the holders of intellectual property use their power to try and extract monopoly profits. As we saw with the hedge fund manager who bought the drug company, sometimes the government assists them with poor policy. We have to have faith in markets. Capitalism works.
In 2003, the Organization for Economic Cooperation and Development published a paper on the “sources of economic growth in OECD countries” between 1971 and 1998 and found, to its surprise, that whereas privately funded research and development stimulated economic growth, publicly funded research had no economic impact whatsoever. None. This earthshaking result has never been challenged or debunked.
Other research studies have found that that returns from government financed R+D is near zero.
Who will fund the innovation? Who will fund the scientific exploration? Private companies and private individuals will. Why will they do this? Because they want to get a return on investment. That’s the same reason venture capitalists go into business now. Eliminate all the hurdles and government regulation in heavy sciences and a lot more money will flow to it.