How Well Does the Government Pick Winner and Loser Technologies?
If the field of energy is a guide, not very well:
Solyndra, the solar-panel maker that received more than half a billion dollars in federal loans from the Obama administration only to go bankrupt this fall, isn’t the first dud for U.S. government officials trying to play venture capitalist in the energy industry.
The Clinch River Breeder Reactor. The Synthetic Fuels Corporation. The hydrogen car. Clean coal. These are but a few examples spanning several decades — a graveyard of costly and failed projects.
Economic theory suggests that when government plays venture capitalist, the recipients will find it more lucrative to invest funds into lobbying government than invest funds into R&D to become more competitive. In development economics one theory is called import substitution. This discredited theory advocates protecting local firms from global competition until the time comes when domestic industry becomes efficient enough to compete against multinational corporations. But that time never comes because investments made by local firms in lobbying for extended protection pay better returns than investments in becoming more efficient. This is similar to why government cannot pick winners that compete globally. Only well connected firms with government relations divisions can get funds. But these firms (and technologies) aren’t necessarily the ones best suited to invest in.
I’d guess that governments mostly pick loser technologies as they choose by who has political clout and what’s in fashion.
Good points.
I agree with Devon, picking winners and import substitution are killers of competitiveness.
I don’t think it’s going to work any better in health care.