Government Is a Good Venture Capitalist

Wall Street Journal: “In a knowledge-intensive economy, innovation drives growth. But what drives innovation? In the U.S., most conservatives believe that economically significant new ideas originate in the private sector, through either the research-and-development investments of large firms with deep pockets or the inspiration of obsessive inventors haunting shabby garages. In this view, the role of government is to secure the basic conditions for honest and efficient commerce—and then get out of the way. Anything more is bound to be “wasteful” and “burdensome.”
The real story is more complex and surprising. For more than four decades, R&D magazine has recognized the top innovations—100 each year—that have moved past the conceptual stage into commercial production and sales. Economic sociologists Fred Block and Matthew Keller decided to ask a simple question: Where did these award-winning innovations come from?
The data indicated seven kinds of originating entities: Fortune 500 companies; small and medium enterprises (including startups); collaborations among private entities; government laboratories; universities; spinoffs started by researchers at government labs or universities; and a grab bag of other public and nonprofit agencies.
Messrs. Block and Keller randomly selected three years in each of the past four decades and analyzed the resulting 1,200 innovations. About 10% originated in foreign entities; the sociologists focused on the domestic innovations, more than 1,050.
Two of their findings stand out. First, the number of award winners originating in Fortune 500 companies—either working alone or in collaboration with others—has declined steadily and sharply, from an annual average of 44 in the 1970s to only nine in the first decade of this century.
Second, the number of top innovations originating in federal laboratories, universities or firms formed by former researchers in those entities rose dramatically, from 18 in the 1970s to 37 in the 1980s and 55 in the 1990s before falling slightly to 49 in the 2000s. Without the research conducted in federal labs and universities (much of it federally funded), commercial innovation would have been far less robust…”