Saturday, December 08, 2012

A thought about innovation and government

When one sees discussions of innovation they seem usually to be focused on those which will lead to increases in GDP. Sometimes these days innovation is proposed as creating industries that will increase employment. This is true even though many of the innovations in U.S. manufacturing have been those which increase labor productivity, keeping industry internationally competitive but reducing the workforce.

My previous post however focused on innovations that tended actually to both reduce GDP and to reduce employment. Thus, innovations which prevent illness, and thus the demand on palliative and curative health services, tend to reduce health service expenditures and thus the demand for doctors, nurses and other health workers. Similarly, the innovations that increased agricultural productivity often result in lower prices for agricultural products and have seen a great reduction in agricultural employment.

We can suggest simply that the benefits from a technological innovation may be appropriated by the suppliers of capital, by workers, or by consumers. Not surprisingly there is a considerable political interest in funding the National Institutes of Health, not only because its research is likely eventually to benefit the pharmaceutical industry, but because it is likely to benefit patients. Indeed, were we to make the argument that NIH funding would be justified because they would increase the size of our health service industry and create more demand for doctors and nurses, we would be likely to see Congress quite concerned.

In a larger sense, government investment in the fundamental research that is likely to produce future technological innovations should be considered in terms of the benefits to all three -- consumers, workers and investors. Indeed, there might be a larger role for government in promoting innovations that benefit people while reducing labor and GDP.

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