One of the most common misconceptions (we will call it that for now) when it comes to innovation is that it would not happen without private capital and investment. This “misconception” is wielded as a weapon by supporters of capitalism in striking down the role of Governments in innovation and job creation.

My view has always been that the Government’s role is to build and develop the infrastructure of a country, or platform, on which citizens of that country can thrive. Infrastructure is not just about roads, railways and telecommunications. It includes healthcare, education, welfare, housing and many other critical resources. It should, in my view, include the Financial System of that country but that is a separate discussion! Investment in infrastructure is absolutely critical and in my view cannot be left in the hands of private interests.

However, the role of Governments in investment in ground breaking, innovative technologies and industries has been overlooked greatly. In some of the world’s most famous innovation hubs, the state has played a key “entrepreneurial” role, envisioning and financing the creation of entire new fields, from information technology to biotech, nanotech, and green tech. Like building the infrastructure of a country, Government investment in new and innovative industries is an essential part of any country’s success. Effectively, the Government is taking an entrepreneurial risk in investing significant sums of money in an area that is unproven and may fail. The Government is taking the burden of risk associated with the investment using public money. That sounds completely different to the narrative shoved down our throats by those that cannot see past the use of private capital.

There are many examples of Government innovation and much of that innovation is subsequently picked up by private companies who then release products that we all hear about and thus the myth of capitalism is propagated even further!

Let’s look at a couple of examples:

The Internet:

Probably the most famous and most utilized Government funded and developed innovation! I stumbled across the article below which was published on TIME.com in 2012 and was written in order to clarify the components of the internet and the worldwide web which were either funded or developed by the State and debunk the arguments that the internet was not a State innovation.

http://techland.time.com/2012/07/25/how-government-did-and-didnt-invent-the-internet/

The impact of the internet was huge and it would be very interesting if it were possible to determine how long it would have taken the private sector to come up with the ideas and to develop the internet. Even if someone came up with the idea, would they have been able to fund the research and development and would private capital have taken the risk? I suspect not!

Apple iPhone :

The picture tells a thousand words and the image below is from The Entrepreneurial State by Mariana Mazzucoto’s showing how most of the differentiating components of the iPhone were in fact funded and developed by the US Government!

Bruce Upbin’s article in Forbes (link below) “Debunking the Narrative of Silicon Valley’s Innovation Might hits the nail on the head when it comes to Apple and the iPhone:

“Each of its core technologies–capacitive sensors, solid-state memory, the click wheel, GPS, internet, cellular communications, Siri, microchips, touchscreen—came from research efforts and funding support of the U.S. government and military. Did the public see an iPhone dividend? Not really. The “stay foolish, stay hungry” geniuses ran away with the gains, says Mazzucato, and now the company is under fire for not paying enough taxes or creating enough high-wage jobs in the U.S. Apple’s five-year R&D spending as a percentage of sales has hovered around 2% to 3%, while companies such as Nokia and Samsung Electronics spend 9% and 8%, respectively. Steve Jobs’ real genius was not in developing new technology but integrating technologies invented somewhere else, often backed by tax dollars.”

(http://www.forbes.com/sites/bruceupbin/2013/06/13/debunking-the-narrative-of-silicon-valleys-innovation-might/#bda0dc2d6e35 )

Biomedical Research :

In the World Economics Forum article “What is Governments Role in Sparking Innovation” (http://www.weforum.org/agenda/2015/04/what-is-governments-role-in-sparking-innovation/), they make reference to the crucial role of Government bodies and investment in the development of some of the most revolutionary drugs in recent decades:

“In 2011, for instance, the US National Institutes of Health (NIH) invested $31 billion in biomedical research. Marcia Angell, a professor at Harvard Medical School, has shown that this financing played a crucial role in the development of some of the most revolutionary new drugs in recent decades.”

Angell notes in her book The Truth about the Drug Companies (2004), only three of the seven high-priority drugs in 2002 came from pharmaceutical companies: the drug Zelnorm was developed by Novartis to treat irritable bowel syndrome, Gilead Sciences created Hepsera to treat hepatitis B, and Eloxatin was created by Sanofi-Synthélabo to treat colon cancer.

Mariana Mazzucato (mentioned earlier) cites research to show that the NIH was responsible for some 75 percent of the major original breakthroughs known as new molecular entities between 1993 and 2004.

The statistics are staggering!

The Impact of False Perception on State Innovation:

The more I read into State innovations and the level of funding various Governments have made in research and development, the more fascinated and intrigued I have become. The main benefit of capitalism, I was told, was all of the great products and innovations we have seen over the past 100 years or so. Until you actually scratch the surface and find the many articles and publications which have been published by people like Mariana Mazzucato, most people will struggle to argue against the myth of Government being bad for innovation.

However, it is not just us regular citizens that are being sold the myth! Mazzucato points out that the U.S. and Europe are slashing budgets for basic and applied science and research while developing nations such as China and Brazil are spending more than $1 trillion for the same. This puts the U.S. and Europe at risk of falling behind in key growth sectors such as renewable energy, nanotech and space exploration. This is even more frustrating when you consider the subsidies that flow from the public to private sectors in the US and the UK. The obsession with capitalism could result in the UK and US being left behind!

One excellent point made by Mazzacuto is that “if the U.S. government had asked for 0.5% from the Internet there would be so much money available…” – it’s difficult to argue with that point and one must wonder whether the U.S. would look completely different if it was receiving some kind of dividend from private companies using its innovations. Would inequality be rife in society? Would there be a free healthcare system? Free education? There would certainly be plenty of funds available!

However, the system is not designed in the interests of the public. In an age of neo-liberalism, we are stuck in the ridiculous position whereby the State will invest heavily and take on the burden of entrepreneurial risk with very little reward. The defenders of capitalism would suggest that taxation is how the Government reaps its rewards but we all know the issues associated with taxation of corporations and the tax revenue would be a drop in the ocean compared to receiving some kind of royalty or dividend from the private sector for the use of State technologies and innovations. Neo-liberalism does not allow a flow of funds from the private to public sector in such a way! It is all one way traffic!

Now imagine if the power over money supply and funding was in public hands rather than the current financial system which drives the neo-liberal agenda. It really is staggering that we have allowed ourselves to be fooled into believing that the private sector is the driver of innovation and must be supported at all costs. It’s time to start thinking differently about the role of the State and how we go about changing our political and economic structures to maximize the value the public get for the money they spend.

One final point I would like to make is the pathetic record of the UK Government in being a world leader and innovator in any industry. This must be addressed soon or the UK will get left behind in a big way.

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AlienInTheAttic via Twitter: @AlienInAttic

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