Where will today’s innovation come from?
Many rich investors like Elon Musk have increasingly invested in creating breakthrough technologies. But can these “angel investors” really bring about the technological change we need?
In a recent article in The Observer, Institute for New Economic Thinking co-founder William Janeway argues that it’s not likely. Janeway, author Doing Capitalism in the Innovation Economy, which was one of the Financial Times' best books of 2012, says that the transformation to a new infrastructure powered by clean energy is a massive undertaking and requires a sizable, coordinated effort that can only be initiated by the government. For a historical parallel, Janeway notes that from 1953 to 1978, half of all R&D was funded by the government at a cost of roughly 1% of GDP, which would be more than $150 billion today. So while wealthy individuals have always had an important role in innovation, it is only the state that can jumpstart the process.
In another article in Foreign Affairs, Janeway also noted that private investment often follows the lead of public investments. And even though economic bubbles may emerge, sometimes bubbles can lead to important innovations. Speculation has often occurred around technological innovations, including canals, railroads, electrification, automobiles, aviation, computers, and the Internet. These bubbles eventually burst, causing lots of economic damage in the aftermath. But as Janeway points out, we still had the trains even after the 1893 crash, we still used electricity despite the 1929 crash, and we also still have the Internet, even after the dotcom/telecom bubble burst.
The point is that the U.S. government should do more to promote clean technologies, both directly and indirectly. Even though, this may promote a new bubble, the benefit of advancement in green technology in the long run will outweigh the potential of the bubble burst in the short-run.
But there are still significant institutional and political challenges. There is already an established, profitable, and powerful energy industry in place, and the US is notorious for its political leaders who still deny the existence of climate change.
Even with the right roadmap, creating the coordinated effort we need to kickstart the green revolution will be difficult.