Governing With A Higher Purpose To Spur Innovation

From the collection Economics of Innovation

The United States’ deep political polarization is blinding the nation from seeing what it takes to create an effective innovation economy.

Simply put, to many figures on the political right the government is simply a source of corruption and inefficiency, and it’s most effective means of handling innovation is to leave markets to their own devices. The political left, on the other hand, typically retorts that state intervention is necessary for economies to generate innovation because the government is the only entity positioned to mobilize national resources for broader public purposes.

But this right-left dichotomy misses the real problem. The fact is government spending often is required to spur innovation. But today’s governments around the globe are rife with crony capitalism, which has embedded corruption into the system. So how can the state manage its central role in the innovation economy if the state itself has become an instrument for facilitating corporate predation?

Professor James Galbraith seeks to address this conundrum. In this interview, Galbraith argues that the real economy has never been entirely free of government support. Indeed, he says, much of the U.S. prosperity dating back to the New Deal was the result of a mix of private enterprise and public institutions. While conservatives have paid lip service to free markets as the solution to everything from health care to global warming, it is clear from the most recent banking crisis and Wall Street upheavals that a lack of federal regulation has led to disaster.

However, government is not always the answer. Indeed, when politicians gain political control of the public sector and use their power in a way that seeks to eviscerate this private-public balance, you end up with the problems that we face today.

The solution is to create a state structure that has a mandate to provide a higher public purpose. When core institutions have been impaired you have to restructure these institutions and change their norms of behavior. If you don’t do this the system ultimately will collapse, contrary to the views of those who worship at the altar of the free market and market fundamentalism.

Galbraith elaborates on these themes in this interview

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