Innovation III: The Entrepreneurial State? Three fallacies.

This is a part of a series running on innovation. Other pieces deal with the need for narrative in innovation policy and the pace of innovation.

So. It has become fashionable to argue that the state has been maligned in the debate about innovation. In fact, some argue, the state is the source of all innovation and the Steve Jobses of the world are but free riders on the State’s mighty intellect and innovation investments. What exactly does this argument look like? One version looks something like this:

(i)             Because some technologies used in later technologies were developed in, say, the military – all the later technologies must be said to have been invented by the state and enabled by it.

Essentially this argument states that the success of an Apple depends on the state because it builds on some innovation once funded by government. This is a simple and often recurring fallacy in the innovation debates – the source fallacy. In short it says that because something once was invented, that thing is the source of all innovation coming after that point. According to this fallacy, Microsoft invented the Tablet, because they had a tablet prior to Apple. They even spoke of the Tablet-PC! So, it must be the case that Microsoft is the real inventor of the tablet, right?

Wrong. Schumpeter states very clearly that innovation is a new combination of existing technologies, business models, service models and the construction of new markets. He says nothing about the ab ovo invention of something. Innovation and invention are different – the latter does not guarantee the former, at all.

So we can debunk the debunkers by pointing to the fact that innovation always was combination not invention, and that any other story suffers from the source fallacy. What about a second variation on this theme then?

(ii)           The state invests in basic research that enables later innovation – the combination of different ideas – by fuelling those combination engines that exist in the private sector.

This is not wrong. But it vastly overstates the importance of inventions and ideas to innovation. As any inventor or entrepreneur is likely to tell you, the hard work is not the idea. It is the execution. It is great to have ideas, and basic research is fantastic – but the existence of basic research does not imply that all innovation should be attributed to the ideas that come out of that research. This is the idea fallacy. The notion that the idea is the source of value in innovation, and he who has the idea should get the credit and the money and the glory. There are more possible versions of the argument, though:

(iii)          The state invests in outlier projects and is able to identify market failures and invest where no other actors – especially venture capitalists – would invest.

Yes. The state has an importan role to play in figuring out long shots and big bets like this. Although, arguably, a few private actors do this as well. And the fact that the government does it does not translate to the government doing it efficiently. There is a huge different between different ways in which the state can engage. The design of an innovation system – basing it on research and innovation prizes rather than beauty contests for example – should be a main task, and creating a negative innovation policy that identifies sclerotic elements in innovation policy is tremendously important as well. To assume that the fact that the state can invest well means that it always invests well in innovation is the design fallacy. Not to believe that the design of innovation systems matter. It does. Tremendously. And the involvement of the private sector in the early stages of designing the system helps.

So. All in all not too impressed by the debunking here. I will make a point of following this debate though, because it is really interesting. These are only preliminary thoughts, and observations, on my part.

One thought on “Innovation III: The Entrepreneurial State? Three fallacies.

  1. Pingback: Innovationspolitik I: Statens roll i innovationsprocessen | Nicklas Noterar

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