Technocrats frequently pressure the US government to increase R and D as a strategy to upstage China. The assumption is that public R and D will lead to innovation and economic growth because research generates the science that spurs innovation. Yet the formula is mistaken, for history has shown that science often lags technology. Innovations prior to the advent of modern science in Europe occurred without crucial advancements in scientific knowledge.
But this does not discount the relevance of science since, according to economic historian Joel Mokyr, the industrial revolution in Europe did not phase out like earlier episodes of industrial progress because Europe had developed an epistemic base to fuel scientific and technical advancements. Technology can be developed without science; however, advancements in science propel technological growth.
Such findings help guide modern approaches to innovation by showing that it is not initiated by state-sponsored science or even scientists. Innovation is driven by market demands, so they are created by entrepreneurs or workers in the private sector responding to consumer demands. Economist Nathan Rosenberg in his article “Does Science Shape Economic Progress—or Is It the Other Way Around?” comments that innovations are largely the result of industries’ response to commercial problems.
Similarly, a study by B. Zorina Khan assessing the profiles of inventors during the British industrial revolution contends that scientists were not highly represented as great inventors. Cormac Ó Gráda in a review essay remarks that human capital was essential to the industrial revolution, but it consisted of the skills and dexterity of craftsmen and artisans. Innovations are tested by the market before they can become viable, and workers play an essential role in testing and refining new products to make them market ready.
However, governments fail to appreciate that innovation has to serve the market rather than political ends. Usually, the political directorate is inspired to fund socially prominent rather than economically useful ideas. For instance, across the globe governments are drafting policies to encourage people to purchase electronic vehicles. But doing so is irrelevant because if electronic vehicles are useful, then people will buy them without encouragement.
Another objection to government-sponsored innovation is that the state is not a profit-driven entity. Some proponents of the entrepreneurial state argue that a government program sired the internet, yet the internet was commercialized by the private sector. The state is interested in using innovations to bolster political power and its coffers rather than promoting individual wealth.
Even modern states are influenced by the principle of mercantilism. Power is the ultimate objective of the state, and this quest for power puts the state in conflict with entrepreneurs. Hence, whenever innovations emerge, the first response of the state is to consider regulations. From artificial intelligence to cryptocurrency, politicians earnestly regulate industry. Some politicians even praise Europe for pioneering regulations despite the reality that regulations slow innovation.
The fear is that unbridled innovation must be curbed due to its potential to disrupt society, but disruption is what makes innovation unique. Technology has displaced jobs and has also created jobs that we would never have predicted. In the 1980s people did not envision platforms like YouTube and TikTok minting millionaires.
Interestingly, neither platform was built by the government; rather, they emerged due to the ingenuity of creative minds. Considering the trial-and-error process of innovation and the numerous characters involved, it is impossible for the state to plan or drive this dynamic process. Further, empirical evidence opines that there is a positive link between business expenditure on R and D, but the association between government R and D and innovation is negative.
History should teach the state that innovation is more likely when government technocrats are not involved in the process. The best option for the US government to promote innovation is for it to stay out of the picture.
Source: Mises Institute
Lipton Matthews is a researcher, business analyst, and contributor to Merion West, The Federalist, American Thinker, Intellectual Takeout, mises.org, and Imaginative Conservative. Visit his YouTube channel, with numerous interviews with a variety of scholars, here. He may be contacted at [email protected] or on Twitter (@matthewslipton).
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