Businesses get too much credit for technical innovations

Is private business almost solely responsible for the modern technical innovations that have dramatically affected our lives? Many people, including some experts, think so.

I’m here to assert that private business has not done it all.

New technology – the Internet, computer software, air travel, new drugs, improved medical services, and automated factories – has brought benefits to ordinary Americans that even the rich and powerful of previous generations could not, and in fact did not, imagine.

Could England’s King Henry IV have eaten bananas in January? Could Napoleon have traveled from Paris to Moscow in four hours? Could Abraham Lincoln have taken a pill to ease his depression? Could John D. Rockefeller have written a 1,000-word memo and then, with the touch of a key, sent it to hundreds of his employees all over the world?

What makes such progress possible?

Economists and historians of technology agree that scientific and technical innovation is fostered by the rule of law, low inflation and the absence of violent civil strife. These conditions encourage inventors and entrepreneurs to believe that they will reap the fruits of their efforts. All agree, too, that the spread of education to all classes of society helps immensely, as does the easy transfer of knowledge between scholars and entrepreneurs.

Most also believe that our open society has boosted U.S. technology. Our openness has attracted huge numbers of talented foreign students and senior scientists, and some have started companies on the cutting edge of technology.

So far, there is agreement among economists and other analysts. But some go on to attribute our innovations almost exclusively to private business, overlooking the huge contributions of government and nonprofit organizations.

For example, Michael Darby and Lynne Zucker of the University of California-Los Angeles argue that innovation occurs when business leaders discover a path to dramatically increased profits and then follow up by spending funds on research and development and seeking patents for the resulting innovations. Government, they claim, plays almost no role in innovation.

Scholars of medical innovation have shown convincingly that new drugs contribute hugely to patients’ health, but some of these scholars imply that drug companies have developed the drugs all by themselves.

Certainly, the profit motive, bolstered by good patent laws, has stimulated innovation. But the belief that almost all innovation is done by business flies in the face of sound studies and simple well-established facts.

The U.S. government has spent huge amounts on biomedical research. The rate of return on this research has been a dramatic 30 percent per year, according to economists Iain Cockburn and Rebecca Henderson. Cockburn and Henderson also examined the origin of the 21 new drugs deemed to have had the greatest health impacts – and found that only five were developed without public sector input.

Don’t forget the Internet. Neither Al Gore nor private companies invented it. The U.S. Defense Department did in close collaboration with several research universities.

Another important example: In the late 1800s the federal government established our system of state agricultural extension services, backing it up with funds for agricultural research in land-grant state universities. This innovation underlies the rapid growth of our farm output, producing a bounty that is the envy of the world.

Nonprofit institutions have had huge impacts on public health. In the early 1900s, the Rockefeller Foundation devised an innovative and effective public health program to fight malaria in the southern U.S.

In the 1950s and later, the Rockefeller and Ford Foundations played the critical roles in the “Green Revolution” that boosted farm output in the developing world and was followed by dramatic improvements in nutrition.

As we all know, thousands of new software programs are free. Many were developed through the “open source movement” – unpaid volunteers develop software and make it freely available along with its underlying source code.

In all these examples, private business contributed little or nothing. And the prospect of profit was not the motivating factor.

These examples also show that collaboration between government and private institutions has often been remarkably fruitful: Government and university researchers gave rise to the Internet and the efforts of government and businesses have yielded important new drugs.

I would be the first to assert that government initiatives often have been wasteful and motivated by partisan politics. But it is equally true that many government initiatives have led to great benefits.

As for the future, we urgently need to develop alternative sources of energy. As we decide how to do this, we should consider government’s past contributions and the record of fruitful collaboration between public and private institutions.

Edwin Dean, an economist and seasonal resident of Vinalhaven, writes monthly about economic issues.