How Important is Government to Innovation?

r&dThe US government must soon begin to make tough decisions about how to most effectively balance the budget. The key to resolving this issue is to figure out how to cut spending responsibly without hindering the government’s capacity to promote growth. A significant question that arises from this debate is whether national expenditures on research and development are useful for fostering innovation.

The conventional belief is that innovation is born through competition in the private sector. However, this may overlook the crucial role that government plays in the development of key technologies. The government provides something that the private sector cannot: cost-is-no-object engineering. With their singular aims and large purse, government programs are not restrained by profit-making like the industries in the private sector. It often takes patient, determined, or plain foolish capital, and a lot of it, to turn high-concept ideas into functional prototypes and a body of knowledge capable of driving private innovation and production. Government support for innovation obviously turns up its share of duds, representing a waste of real resources that could have gone toward some other end. Yet, as history has shown, amazing things happen when government investment succeeds. Take the initiative shown during the formative years of the computing era; the government was an enormous source of demand for all the intermediaries of computing power production and computing power itself. America’s military machine brought brilliant people together, demanded they do work requiring extraordinary computational power, and plied them with the funds to develop and build early computers. That work created expertise, component supply, and even private demand that fueled subsequent private investments.

This of course does not diminish the private sector’s vital role in innovation development. In fact, government investment and free-market improvement are almost symbiotic. Forbes lays out two key points that explains the co-dependent nature of the government and the private sector in innovation advancement.

1.)     Reliance on the government to invest in early innovative research because free-market actors cannot do so profitably by themselves;

2.)     Reliance on the free-market to competitively finish the later part of the innovation process because the government cannot realize its return on research investment otherwise

Therefore, it is vital that Congress adopts a budget plan that does not hamper the government’s ability to invest in innovation. US economic success is firmly rooted in technological innovation and this budget debate is a key moment in determining the future of the US economy.

Posted by: Matthew Goldberg

Sources: The Economist, Forbes

Photo Credit: Army scientists energize battery research courtesy of flickr user RDECOM

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One Response to How Important is Government to Innovation?

  1. vbardhi2 says:

    I think you have a great insight here. While the political rhetoric focuses on privatization, there is something left to be said about government involvement in innovation.

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