Why The Government Needs To Invest In Innovation (Forbes)

Eugene Fitzgerald and Andreas Wankerl, instructors for the upcoming MITx MOOC 3.086x Innovation and Commercialization, presented a powerful case for government investment in innovation in this 2011 Forbes column:

Why The Government Needs To Invest In Innovation

by Eugene Fitzgerald and Andreas Wankerl

The United States government faces unprecedented financial debt and slow growth. The country faces a difficult choice: should we cut spending for growth or invest for higher growth?  With President Obama’s State of the Union address emphasizing that investment must occur for future long-term American economic growth, the subsequent national debate has raised this question: Are national expenditures on research and development like other government spending or are they a national investment?

The same question undoubtedly arose 80 years ago as Vannevar Bush and Karl Taylor Compton at MIT foresaw that the use of national resources to fund science and technology research could change the course of warfare. Through a partnership between universities, government and industry, the R&D investments resulted in U.S. defense technology coming of age just in time for World War II.  With an even greater vision at the end of the war, Bush portended that such national expenditures in science and technology would have broad, non-defense implications for a national economy. President Obama summarized the subsequent success by recalling the space-race investments, with which “we unleashed a wave of innovation that created new industries and millions of new jobs.” Today, every nation climbing the global economic ladder has followed the U.S. model.  In fact, national support of longer-term research has evolved to an assumed national responsibility with the side effect that we are not carefully considering what makes these expenditures good investments for high economic returns.

Why must a government invest in long-term research? Isn’t private enterprise motivated to ‘out-innovate’ the competition? President Obama referenced computer chips and the Internet as having been enabled by government investment in basic research. Indeed, fundamental innovations that can result in decades-long economic expansion need research funding for years in order to evolve – and even after a first successful prototype, 10 to 15 more years to enter the marketplace. This time line is inherent to fundamental innovation, even when done optimally, for the process is not linear from research to development to product in the market. Efficient innovation is a highly iterative process, in which innovators repeatedly cycle through many factors in the areas of Technology, Market and Implementation – until the right pieces come together. As technology is shaped and prodded over this timeline, advantages and benefits change; meanwhile, markets change and other new technologies appear.  For corporations in global competition, it is unlikely that a research investment with a 15 or 20 year horizon will result in a return for that specific organization. However, for a government, the exact organization or sector through which the innovation arrives is irrelevant for realizing its economic returns. President Obama captured this when he said: “Our free enterprise system is what drives innovation. But because it’s not always profitable for companies to invest in basic research, throughout our history, our government has provided cutting-edge scientists and inventors with the support that they need.” A healthy national innovation pipeline:

  • Must rely on the nation to invest in early innovative research because free-market actors cannot do so profitably by themselves;
  • Must rely on the free-market to competitively finish the later part of the innovation process because the nation cannot realize its return on research investment otherwise

The two sides of the innovation system are necessarily co-dependent, and such clarity should eliminate the extreme options that are dominating the national discourse. Read more.

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