Innovation is vital to our prosperity. Without trailblazing entrepreneurs and inventors, we would not be able to live the long and comfortable lives that we live today compared to how our ancestors lived. Some economists argue that government direction and funding is the key to innovation. Other economists state that research and development is a public good and the lack of innovation is a market failure, and thus governments should fund more R&D. Perhaps the most prominent proponent of a more muscular government innovation agenda is Mariana Mazzucato in her book, The Entrepreneurial State.
Mazzucato’s thesis is quite straightforward. To promote innovation, the government’s hand is necessary. She argues that through public funding, innovation occurs that otherwise would not happen due to private-sector risk. The level of innovation we see in the United States is due to state funding of research and development. Mazzucato includes the iPhone, Internet, and “green” technologies as examples of innovations primarily stemming from state involvement. In later works, Mazzucato argues that government mission planning and direction of the economy are necessary to solve the “big” issues in society, like climate change and COVID.
Much of Muzzucato’s thesis rests on the idea that through state funding, many innovations were made that became beneficial for public use. While she does not use this example in her work, the story of Velcro would fit her idea. People ‘know’ that NASA invented Velcro. Engineers at NASA recognized that wearing spacesuits and working in a zero-gravity environment is not exactly conducive to tying knots or dealing with tangled rope. This led to engineers designing the hook-and-loop material we now know as Velcro. The public sector creates innovations that eventually benefit all of mankind.
Except that’s not Velcro’s real origin. NASA did not invent Velcro.
Velcro was instead invented by a private innovator, George de Mestral. In 1941 while walking his dog in the Swiss Alps, burrs stuck to his clothes and his dog’s fur. After this, he became curious about how these little seeds could stick to clothing so well. After studying burrs under a microscope, he saw that these seeds contained small hooks that easily attached to fibers. Recognizing the potential, de Mestral spent a decade attempting to make a synthetic hook-and-loop fastener before he managed to mechanize the process, making Velcro. All of this was done by a private actor using private resources without state direction or financial support. While this is only one example of private innovation, there are thousands of other examples, ranging from Carl Benz’s car to Elias Howe’s sewing machine.
One additional example of private sector innovation comes from the lowly Post-it note. Post-it notes were created by Arthur Fry and Spencer Silver at 3M. While attempting to develop a strong glue for aircraft, Silver failed and created a low-tack glue. His colleague Fry eventually recognized the potential use of this glue when papers kept falling out of his church hymnal. After some development, the Post-it note was born. It is crucial to note that this, too, was done without state funding or planning.
One of the most famous inventions of all time, invented by two brothers, was also privately funded. I am, of course, speaking of Orville and Wilber Wright’s airplane. After some failures, the brothers successfully managed to have a manned flight of their Wright Flyer. All of this was done without a penny from the government. It should also be noted that the U.S. government funded Samuel Langley’s Aerodrome project, a different attempt at a flying machine, but it failed with no successful flight occurring.
There are numerous problems in Muzzucato’s work, much of which is addressed in Alberto Mingardi and Deirdre McCloskey’s excellent book The Myth of the Entrepreneurial State. In their work, Mingardi and McCloskey show that innovation can and has worked from the bottom up. Rather than innovation being the result of top-down planning, history shows that some of the most important innovations come from the private, profit-seeking sector. Additionally, many state-sponsored projects reduced standards of living below what they would have been if the state had not funded these projects. They also note that a primary driver of state-sponsored inventions has been war, which led to a loss of life and liberty for millions of people worldwide. Furthermore, Muzzacato’s claim that the government created the Internet is incorrect. Much like other innovations, like Velcro, the automobile, Post-it notes, and the airplane, the Internet is the result of private innovation.
Despite what some politicians and economists may tell you, innovation can, in fact, come from the bottom up. Research does not need to be directed or funded by the state. Proponents of state funding ignore more than just opportunity cost, knowledge problems, and government failures; they ignore economic history, which shows that profit-seeking entrepreneurs, not the state or its cronies, have created the prosperity in the world we see today. The next time there is proposed legislation on the table to fund research and development, think twice about the history and the costs of state-funded innovation.