Monday, April 21, 2014

Thinking about the government role in technology development

There is an interesting book review by Jeff Madrick in the New York Review of Books. It deals with two books on innovation. It got me thinking about how the U.S. government promotes technological innovation.

  • It supports fundamental research. Sometimes there are spin-offs from fundamental research projects that have commercial value, as when a research instrument created in a fundamental research project turns out to have a market. Probably more important, sometimes the fundamental research leads to important discoveries that in turn provide the basis for new technologies; thus the study of electricity led to an entire electrical technology, as the study of solid state physics led to semiconductors and the ICT industry, and the study of nuclear physics led not only to nuclear weapons, but nuclear power.
  • It also supports technology development, often in the aerospace industry, required for federal government use. Production of weapons based on government technology is obviously big business. However, there are many spin-offs from military technology development. Think for example of the improvements in trauma medicine that come from military medicine, but are widely applied in civilian life.
  • It supports technology development in areas where there are market failures. The success of the agricultural stations of the Land Grant College system in developing technologies, or in weather prediction technology are notable. Think of the technology developed by government for public goods, such as roads, flood control, etc. These technologies have significant economic value, but that value is seldom appropriated by private firms (with exceptions such as construction firms using government developed technologies in foreign contracts).
  • It sometimes provides direct support for civil technology development. In the R&D programs that I was involved with in the foreign assistance program, we funded development of a diagnostic reagent for Lyme Disease. One of our funded researchers discovered a new class of nitrogen fixing organism that is symbiotic with sugar cane, and which is widely used to reduce the need for fertilizer in sugar cane fields in Brazil.
  • It provides tax financing for private firms investments in technology development. Thus tax breaks for those investments may make them more affordable by firms.
  • Of course, it provides intellectual property protection for technology developed in any source, again facilitating the processes by which technology developers recapture the costs of their R&D, and the profits that provide incentives for technology development and commercialization.
  • It provides funding for academic and governmental partners in R&D programs, notably those in which commercial partners plan to utilize the technology developed.
Some of these approaches are found in developing countries on a small scale. Others will surely be more fully utilized as countries develop manufacturing and modern service industries.

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