Criticising myself on innovation

If you’ve been reading the series on Mazzucato, Innovation and so on, you may have found holes in my arguments, or unaddressed reasonable concerns. Rest assured, I’m aware of that. Here I will present some of that objections that can be made to my arguments, but I won’t respond to them yet. To make things extra fun, I will write what follows as if the writer were another person criticising me, with a slightly angry tone.

The Hayekian argument is wrong

So you are one of those market fundamentalists. If so, one of your core dogmas will probably be the Hayekian argument that knowledge is disperse and tacit, and to include that knowledge into an economy you need a free market system. Okay. I am not a defender or central planning, but that argument does not apply to technology and science. For as you said, the laws of physics and thus the set of possible technological innovations is fixed, while what the market demands is everchanging. You don’t need that tacit knowledge to cater to the changing needs of lots of people, you are serving Science, and scientific truths are inchangeable. A government will have it difficult to plan an economy, but in the case of science and technology, it just needs to build and staff labs and universities, and let scientists do research keeping them well funded. Here the market doesn’t have a particular advantage for those innovations that are very long term and with no immediate foreseeable benefit.

GDP growth depends on R&D

You have argued that R&D absolute spending will grow if GDP grows, but you seem to be oblivious to the fact that R&D is one of the main drivers of GDP growth. If we listened to you, we would suffer an innovation stagnation followed by a growth stagnation, which would greatly slow down progress. Sure, your argument is true, but your faith in free markets don’t let you see the magnitude of that problem. It is not a matter of whether innovation will be done or not, but at which rate, and you have not presented us with evidence that a great slowdown will not follow if government R&D were slashed.

GPT were government funded

Moreover, the core technologies on which other technologies built upon, the General Purpose Technologies were all government funded. We are talking about the steam engine, railways, iron steamships, electricity, mass production, the computer or the internet, plus up and coming ones such as nanotechnology. According to a key paragraph from Mazzucato’s book, which you have conveniently ignored:

Not all innovations lead to economy-wide growth. Economy-wide growth is generally caused by new products or processes that have an impact on a wide variety of sectors in the economy, as was the case with the rise with electricity and computers. These are what macroeconomists call general purpose technologies (GPTs). GPTs are characterized by three core qualities:
•  They are pervasive in that they spread into many sectors.
•  They improve over time and should keep lowering the cost to their users.
•  They make it easier to spawn innovation through the invention and production of new products or processes (Helpman 1998).
Ruttan (2006) argues that large-scale and long-term government investment has been the engine behind almost every GPT in the last century. He analysed the development of six different technology complexes (the US ‘mass production’ system, aviation technologies, space technologies, information technology, Internet technologies and nuclear power) and concluded that government investments have been important in bringing these new technologies into being.

Bell Labs, IBM Research, etc were government funded

You claim to be able to debunk Mazzucato with her own sources. But I will now debunk you with your own writing. You point out many innovations came from Bell Labs or IBM Research, or other corporate labs. But that’s just evidence for the Entrepreneurial State! They were massively priviledged by the State, and without that, they wouldn’t have been possible. Surely monopolies can invest in long term innovation without fearing competition, but without a government to protect them, grant them contracts and so on, you wouldn’t have had that. Those innovations would have happened in government labs instead.

Short termism

Mazzucato has evidence that the free market is increasingly short-termist, and that harms long term uncertain innovation. Corporations are slashing R&D spending, and spending on share buybacks and stratospheric CEO pays. Thinking that corporations can make up for a reduced government spending is wishful thinking.

Your burden of proof is too damn high

At times you seem to clearly analyse the History of Technologies, but sometimes your neoliberalism blinds you (!). Don’t you realise you are setting the bar for the Entrepreneurial State too high? You may say that discoveries were serendipitous, that the private sector was already there, or that government funding does not imply government intending for a result to occur. But if you set that standard, who is entrepreneurial? You are debunking the Entrepreneurial State at the cost of debunking every entrepreneurial activity ever. Either entrepreneurship doesn’t exist, or it does and the State has played and plays a role in it. You can’t have your cake and eat it too.

Public Goods

Even if your argument went through, there is an argument you have not replied to, namely that R&D is a public good. Companies won’t invest enough or at all in that if government does not help them somehow. Doesn’t economic efficiency represent a good enough reason to you for governmental action? As you said, most economists recognise this. You have not claimed that there is not a public goods problem, but remember that if you do attempt to say that to counter this objection, you are resorting to pseudoscientific reasoning.

Dubious counterfactual reasoning

You agree governments have played a key role in science and technology. Yet you say that had they not played that key role, we would have had scientific progress anyways. How are you so sure of that? We know History as it happened, not as how it would have happened. We have evidence of what happens when the government is involved in Science. We don’t really know what could happen if government R&D spending were to be slashed except for some wishy washy thought experiments. What if you are wrong? Would you jeopardize Science to please your free market Gods?

Big Science you are not taking into account

You have some examples of Big Science that don’t seem to have been that effective, but you forget other examples you should know well, as an engineer. The commercial aircraft manufacturing sector is basically is a heavily publicly backed duopoly: Airbus and Boeing. Those huge investments they make in research and manufacturing, planning for years ahead wouldn’t be possible without such government planning. Big corporations won’t make risky bets, and small startups, that could make them, don’t have the resources to make them. Venture capital doesn’t let you go that far. Tesla and his pals were able to discover many things with scant resources, but that time is long gone. Now research requires both forward looking thinking and funds, and you won’t get those together without the government.

Failing to take into account Systems of Innovation

Innovation doesn’t just happen, as you’d like us to believe. It’s not just a question of pouring money into Science. Consider a bunch of scientists around the world unable to communicate their results. Now imagine they can. In principle, no extra money has went there, yet it is probably that they will be capable of doing things they weren’t before. Innovation is all about coordination, competition and cooperation amongst different agents: scientists, consumers, corporations, startups, universities and the government. You are trying to take one piece out of the equation, failing to understand its crucial role in the system. Governments enable the basic infraestructure for the research ecosystem. They foster partnerships, sharing results, they build spaces (universities) for scientists to be able to do research without profit considerations, and so on. You need this healthy ecosystem for innovation, and without government you are left with an empoverished one.

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