Innovation Policy + Deficit Reduction = Politics As Usual?

February 7, 2011 Dennis D. McDonald

Last year my favorite DC-based thinktank, the Information Technology and Innovation Foundation (ITIF), launched a blog titled Innovation Policy Blog, subtitled “Innovation is Not a Partisan Issue.”

Well, innovation may not be a partisan issue, but I learned today that innovation policy certainly can be.

The event, also sponsored by ITIF, was a “debate” titled “Cut or Invest: What’s the Best Way to Grow Our Economy?” Four presentations were made by four speakers around the topic of whether or not increased Federal investment in “innovation” can help reduce the deficit. “For” arguments were presented by representatives of ITIF and the Breakthough Institute. “Against” arguments were presented by representatives of the Cato Institute and the Heritage Foundation.

Mind you, no one came out against innovation per se, but it was clear as the discussions proceeded that the definition of innovation varies widely and this drives the discussion in several different directions.

One idea put forward at the start was that innovation is necessary if the U.S. is to grow its way out of its deficit problems. The question then becomes what the role of government should be in promoting innovation.

If you see innovation policy as being closely related to industrial policy, that takes you down the road to arguing whether it’s realistic to think government agencies can pick “winners” or “losers” in the race for commercialization and profit.
If you see innovation policy as being closely related to R&D policy you have to acknowledge that funding decisions around basic research versus applied research and development are fundamentally different and that definitions of innovation need to be adjusted depending on what type of research you’re discussing.
If you see innovation as being closely related to scientific, technical, engineering, and medical (STEM) education and recruitment policy, that takes you down the road to considering how best to grow or import creative, innovative people.

Partly because of these different innovation themes, the debate bounced around a bit and didn’t really address these fundamental questions:

Can government programs really stimulate innovation that drives employment and profit?
If your answer to question 1 is “yes,” what mechanisms are most appropriate for stimulating innovation?

I’m leaving out addressing the political/religious question of whether or not the Federal Government should be involved in any private sector acivities in the first place. Once you agree that even tax credits can be used to favor certain private sector activities, it seems to me, you’re on the way to having to debate the effectiveness of a wide range of different mechanisms that foster innovation, including establishing special funding programs, sponsoring research institutions, and paying tuitions for graduate students. Arguing against such programs because they have the potential for being “politicized” is not the same as saying that they don’t have an impact on innovation.

Clearly, you can’t answer these two questions in a debate that lasts only 1.5 hours and meanders around what we mean by “innovation.” But I enjoyed the discussions and learned a lot from both “sides.” Once you get beyond the “government programs are inherently worse than private sector programs” mantra, for example, you see that conservative questioning of the effectiveness of government programs is entirely appropriate. We’re talking about taxpayer money here. The more debate on how it’s used, the better. ITIF should therefore be congratulated for sponsoring this type of discussion.

At the same time, even if we do acknowledge the importance of questioning how much “basic research” needs to be funded by the Federal government, we also need to acknowledge that measuring the relationship between R&D funding and any resulting “innovation” that leads to jobs and wealth creation is a very complex undertaking.

While we Americans can be accused that we believe that throwing money at problems can lead to their being solved faster, we also need to recognize that chance and serendipity can play an important role in success as well. Therefore, the direction I would pursue in my own personal research into these topics will be to get a better understanding of what conditions favor desired innovations.