Catallaxy Files

Terry Cutler had an op-ed in Crikey the other day. He has a Hayekian insight.

The reality is that innovation, in essence, is about people seizing opportunities arising in the real world to do things differently, and searching for the tools, the inventions and ideas that help them make things happen. With the great wicked problems that confront us?—?whether population health, climate adaptation, food security or resource depletion?—?we need to marshal worldly ingenuity to identify and test possible solutions.

In other words, we need to focus more on a market-pull model of innovation. Innovation and invention are not the same thing.

An innovator is essentially a change agent, challenging the status quo with the uncomfortable notion that we can do things better. For the innovator trying to make things happen on the ground with customers or though endeavouring to reshape market structures, this requires tenacity, drive and passion. Incumbents will always fight hard to protect their turf.

Cutler is telling us that innovation is entrepreneurial. That is exactly correct. The problem is that government can do very little on that front – especially in the area of innovation policy.

Part of the problem is that it is easy and tempting for governments to retreat to a narrow, supply-side focus around innovation. This revolves around traditional science and technology policy and coincidentally the main related policy statement at the last election was on science policy: big science. It is a good thing to fuel or power ideas, but this profits little if there are no paths to impact in the real world.

Big science, big tax concessions, and other subsidies to business do not work well – yet these policies are popular with politicians. Corporate welfare will not drive increased innovation and luckily (for the rest of us) Treasury and Finance officials understand that and work diligently to strangle these notions (only strangle, because they can’t actually shut them down).

Cutler talks about two other things. I agree that increased competition would result in more innovation, but I disagree with the notion that ‘anti-trust’ or so-called ‘competition policy’ is the correct policy response. The notion of competition embedded within the anti-trust philosophy is not rivalry as understood by Hayek (and others) but rather a lack of extry and exit after all super-normal profits have been competed away. In other words, there is no innovation in that framework, all innovative ideas have been exhausted. Entrepreneurship presupposes rivalry. The other point is about a cultural complacency. Again I’m more or less in agreement here – but I’m not convinced that government should be in the business of making the business environment tougher. Quite the opposite – government should be working to reduce the regulatory and tax burdens on business.

So all up I don’t disagree with Cutler’s argument, just with his conclusions, and policy instincts.
(HT: Christopher Joye)