Throwing money

With the world in desperate need of green technology and Europe increasingly getting squeezed between the US and China, the Dutch government needs to step up and really invest in education and innovation.

The other day, Kees van der Lede, former CEO of Akzonobel and figurehead of Dutch business and industry association VNO, urged (link in Dutch) the right-of-center political establishment to be courageous. Governments backing off and leaving things to businesses and markets, he contends, just doesn’t cut it anymore. Hard-working people, stooped in job insecurity, barely reaping the benefits of economic growth, businesses failing to reinvest profits, monopolies cornering markets and many more wrongs – something needs to be done. Just as the left ditched dogma, in the 80s and 90s, to help usher in an era of prosperity, now it’s the turn of the liberal victors to move to the political center, argues Van der Lede.

Van der Lede’s analysis reminded me of some reading I’ve been doing recently. Economist Mariana Mazzucato, too, has been talking up the state, but in a specific policy area: innovation. Her core argument is that primarily the state drives progress, not pioneers pushing through the thicket of government regulation and taxation as is commonly held today.

Take the Iphone, says Mazzucato. Everything that made this phone revolutionary – features like GPS, the touchscreen and Siri – has a long history of government investment, she revealed. Only when technologies had matured and most of the risk had worn off, Apple swooped in and put them together in an – admittedly – very smart product. So why does Steve Jobs get all the credit? Surely, the government deserves some, if not most.

It rarely gets any these days. In fact, governments are much more likely to be vilified. Good things are often considered to happen despite, rather than thanks to, governments. This holds particularly true in Silicon Valley, which ironically owes its success to massive public spending, according to a study by historian Margaret O’Mara. Once Silicon Valley was able to carry its own weight and then some, it turned sour on governments. Only to scurry back to Washington when some foreign threat presented itself, like Japan in the eighties (and, perhaps, China today). It’s all very reminiscent of banks: risk is socialized and reward is privatized.

Nonetheless, it’s obvious that the public investments that led to the Iphone and Silicon Valley have paid off handsomely in the long term. Though, they would have done so even more if big tech wasn’t so averse to paying taxes. Silicon Valley is, therefore, not a triumph of the free market but of public-private collaboration. What got it where it is today wasn’t a government-led effort, nor was it the pioneering companies that didn’t need or care about government support. It was a bit of both.

This insight neatly fits in with Van der Lede’s plea to reconsider and re-appreciate the role of governments. It’s also an excellent source of inspiration for revamping Dutch innovation policy, which since the introduction of the Topsectoren also primarily has been based on free-market mythology. Encouragingly, though, one can already see some of the above insight shine through in recent policy changes, such as the emphasis on key technologies.

Even if we might be on the right track already, however, there’s still going to be a huge obstacle: the money. Getting the Dutch government to invest in education and innovation has been like squeezing blood from a stone lately, and that doesn’t bode well: public largesse was a crucial element in the success of building Silicon Valley.

As the Center for Strategic & International Studies argued recently, throwing money at innovation has become vastly underrated, even if that involves waste in the short term. “We should shift the debate away from whether to throw money at the problem and toward how best to foster the innovation and return on investment that federal money can enable. The crucial element of successful American money-throwing is its decentralized research and innovation model, in which the government provides competition-enhancing regulation, long-term investment and a market to acquire and use the emerging technologies,” wrote the CSIS.

With the world in desperate need of green technology and Europe increasingly getting squeezed between the US and China, let’s take that to heart.