While it's easier to make the case for basic research the governments attempts to sponsor commercial innovation have almost always ended in failure or turned into subsidies for politically connected companies and industries. A good case study was the $600 Flat Panel Display Initative in the 1990s. It's a good bet something similar is currently happening in the various green initiatives.
She is actually correct about these programs socializing risk and privatizing reward. Stanford got the Google shares from research funded by NSF and Continental Illinois got the Apple shares from the SBIC investment guaranteed by SBA.*
However this is the one role government has a unique advantage. And this is a good thing - think NIH, NASA, NSF, etc but also pretty much every social safety net program. Of course she (being quite left) is actually making the case for increase government ownership of public companies or at least greater taxation and license fees.
*-You could argue the U.S. got some this back when that bank failed a few year later in the largest bank failure in US history - until WaMu surpassed it in 2008. Although the $44 million from Apple shares was insignificant compared to the billions in bankruptcy costs. BTW-The Continental Illinois failure is where "too big to fail" was coined.
She does. Just not here. The piece is called "Five minutes with..."; her arguments that government funds commercially viable innovation are easily found.
I suppose the most obvious commercially viable innovation funded by governments (both directly and through various defence department funds) was computing.
I don't think this is her point. Either way, I agree with you.
I also agree that private enterprise is much, much better at commercialising research.
I think her point is that basic research - which the governments are generally pretty good at funding - doesn't provide a good return on investment.
I have some sympathy with this argument, but at the same time I don't think she provides a viable solution for the problem.
As a specific example: DARPA kick-started the entire set driverless car technologies with their well-funded competitions in the early 2000s. This involved both prizes, and direct funding of robotics labs.
One can argue that this was done to seed a solution in the 20-year timeframe, and the fact that we'll probably see a decrease in combat deaths from IEDs in a future war in 10 years as driverless trucks come online is reward enough.
One can also argue that society should see some financial return on that - very risky - seed investment.
Both arguments have merit, and I remain unconvinced either way.
Without disagreeing with your point I have to point out that beyond basic research the government has also successfully provided infrastructure for commercial innovation with things like the Internet, GPS and nuclear power. It tends to accomplish this without really trying.
I agree but not for the same reasons I am sure. This title is an old saw from the socialists and has been around for decades. The implicit conclusion is that to make things "fair" we should socialize risk AND reward. How convenient for the socialists. No. The discussion we should be having is; What is the proper function of government? What is your standard?
> Her argument appears to be that public funds need to be directed into areas that have a chance of "industry transformation", which may create job or new (tax paying) industries in the country that funded them.
The end of this road is fascism or communism, take your pick but it doesn't really matter if you value freedom.
Its worth pointing out that 'the end of the road' is an implication that the extreme end of a political system is a goal. It's not, and it is rare anyone would argue that a hybrid economic system isn't the most sensible.
NB: Socialism is the wider term and means that the individual serves or lives by permission of the society. Communism and fascism are two types of socialist systems, different in form but not function. In a communist society the government owns ALL the property as a matter of law. A fascist society allows private ownership of property but the government has unlimited power to use, direct, control or confiscate private property for the "good" of the society, i.e. private ownership is in name only. Guess which system the USA is moving toward?
> Its worth pointing out that 'the end of the road' is an implication that the extreme end of a political system is a goal.
It is an implication many people refuse to identify, that doesn't make it any less real. Your position is the same as that of a bank robber who refuses to identify that the end of his road is death or jail and then laughs at you when you point it out, that that is not his goal; his is to get rich.
> It's not, and it is rare anyone would argue that a hybrid economic system isn't the most sensible.
Am I suppose to be intimidated by the majority opinion? I am not. A "hybrid" system or the so-called "third way" in politics (a split between socialism and capitalism) are a complete sell out to the socialists and is not sensible but stupid if you value freedom. There are somethings that can't be split down the middle, its either/or, like Solomon and the baby. Some things are all or nothing, like honesty. Can you claim to be an honest man if you only steal on Tuesdays (or only steal from the "rich")? No. Social systems either recognize and protect individual rights or they abrogate them and consume and use individuals for their own ends. You can't have it both ways. Finally, you need to realize that by advocating for a "hybrid" social system, by the logic of it, what you will get is fascism.
Straw man. Fairness means:
public funding -> public benefits
private funding -> private benefits
As I indicated, you need to widen your view. Where does public funding come from? Is it valid for the government to confiscate money from some people to give to other people (poor people, investors, kings; the recipient does not matter)? This is the fairness that I was referring to and the wider question; is government funding of investment a valid function of government? What is your standard?
And stepping back is a shortage of funds really the problem holding back innovation? Seems like there is plenty of seed and VC money for good business ideas.
I think more and better managed basic research is what the government should focus on. One area that seems obvious is basic energy research which seems grossly underfunded.
http://dotearth.blogs.nytimes.com/?s=koizumi+research+energy...
Mazzucato points out how the government is actually good at funding very high risk work, with a low chance of pay off (think DARPA research in the US).
She does say the sentence used in the title, but the context is very important:
What this means is that we have socialized the risk of innovation but privatised the rewards. This dynamic is one of the key drivers of increasing inequality. Because innovation today builds on innovation tomorrow, the ‘capture’ can be very large. This would not be the case if innovation were just a random walk. Policy makers must think very hard how to make value creation activities (done by all the collective actors in the innovation game) rewarded above value extraction activities (in this sense capital gains taxes are way too low). And since the booty from the latter can be very large, redirecting incentives and rewards towards the value creators is essential. The problem is that some of the ‘extractors’ like to sell themselves as the creators.
Her argument appears to be that public funds need to be directed into areas that have a chance of "industry transformation", which may create job or new (tax paying) industries in the country that funded them.
Here argument about public funding of Google and Apple is this:
For every Internet there are many Concordes or Solyndras. Yet this is also true for private venture capital (VC). But while private VC is then able to use the profits from the 1 out of 10 successes to fund the 9 losses, the state has not been allowed to reap a return. Economists think this will happen via tax (from the jobs created, and from the profits of the companies), yet so many of the companies that receive such benefits from state funding, bring their jobs elsewhere, and of course we know they also pay very little tax.
There is possibly a valid point here. Corporate tax minimisation by offshoring profits is a real challenge to the tax system.
I don't think she makes any real suggestion for how to solve the problem, though (Retaining a share of IP rights won't work, because companies can easily disassociate profits from the IP that generated them, meaning that any return-on-profits-generated scheme will fail. See Hollywood Accounting,[1] which does a similar thing in the film world)
[1] http://en.wikipedia.org/wiki/Hollywood_accounting