The private sector is touted as being a font of innovation. The government is derided as being ossified, a lumbering dinosaur unable to comprehend the nimble private sector. This is now taken as being a self evident truth. Which is why it is fair to ask whether this assessment can be considered true or false or perhaps partly true.
First why is innovation important? Innovation introduces new tools, methods and processes. Innovation allows us new ways of communication and new methods of consumption. The process of industrialization has placed a premium on innovation. As consumers, we have become attuned to learning new methods of consumption and production. But where does innovation come from?
The accepted answer is the private sector. If we examine this claim more closely, it becomes evident fairly quickly this is a lazy assertion. As always, the reality is more varied and interesting. Innovation does not occur in a vacuum. It requires a context to operate in. Much of that context is provided for by governments. Consider markets. Unlike what a lot of people think, markets need some essential physical and legal infrastructure to operate in. Only the simplest of markets can operate in the absence of these. Who is best positioned to provide the necessary support? Governments. Another area where governments become important for innovation is education. If the process of innovation is to become a regular part of the economy, we need a minimum mass of educated people to support it. Public education is a service that the private sector by itself will not provide on a sufficiently large scale. To fill in the gap, governments need to step in.
By its very nature, the private sector's primary focus is on the bottom line. As such, nearly all companies tend to have a short term, commercial outlook. A particular process or gadget or widget or whatever is evaluated in terms of returns. As such, the private sector is predisposed towards applied science. Basic science is being done by relatively few companies. But advances in basic science eventually lead to commercial applications. In cases where discoveries are made in applied science, these need to be backed up by some theoretical framework before full advantage can be taken of them and further development is done. Again it is primarily governments that provide much of basic science. Even in applications, there have been many commercial spinoffs of government science and government innovation. The Internet is just one of many technologies developed because of government.
To say that government has no positive role to play in promoting innovation is simply wrong. The market system is very efficient but a big flaw in it is that it is by its nature short term and generally not reliable in introducing new techniques and technologies. For that, a much longer view is required. However this does not mean that all such development can be handed over to governments. While governments often excel in basic research and in long term applied research, they frequently fail to commercialize their discoveries. This is not necessarily because government employees are idiots or evil. Usually its just that their training and experience is non-commercial. They simply do not think in a market minded fashion. For commercializing promising innovations, we often need the private sector. Innovation is the life blood of a modern economy but to make it work both the private sector and the government sector are needed.
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