Asymco: The Policymaker’s Dilemma

Scott Francis
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Horace Dediu’s Q&A has an excellent indictment of policy initiatives around innovation:  fundamentally, policies are good at preserving or sustaining than they are at disrupting –

Almost all growth has come from companies that entered the space. Google, Amazon, Apple and Facebook and even Microsoft came into positions of power from outside the industries they entered. Policy tends to offer means of sustaining incumbents or finding “logical” or defensible entrants. I should mention that the problem of industrial policy failing is not unique to Europe. Japan and to a lesser degree Korea are also facing crises of innovation due to policies designed to sustain rather than disrupt.

It’s understandable given the need to justify spending other people’s money. No policy maker wants to spend it recklessly. However, the process of unforeseen growth is, well, unforeseeable. It cannot be predicted and it’s very likely to come from somewhere other than where you expect it.

 

So what is the policymaker to do, in order to foster innovation?  My suggestion would be to focus on the framework and environment, rather than the outcomes.  Make sure funding is available for interesting research regardless of its alleged market-fitness, make sure the tax and intellectual property laws reward innovation, make it easy to incorporate or raise capital around new enterprises and ideas…

One of the policy areas long hypothesized as critical to Silicon Valley’s growth was our relatively generous treatment of bankruptcy.  Going through bankruptcy is a non-criminal, well-understood financial action in today’s economy.  And because it doesn’t carry a stigma or legal penalty, it allows for reforming a company’s assets in a productive fashion, and it allows for recovery from failures.