Nicholas, you’re talking about the people who brought us the pink batts fiasco, the BER and NBN.

What reason is there to think that these clowns would know, better than everyone else put together, how to “build” an innovative economy in the first place?

Yes new business must struggle to enter a world dominated by pre-existing businesses grown fat on the udder of big government. But that is not an argument in favour of more privatizing of profits and socializing of losses – it’s an argument against.

Obviously if certain kinds of investment returned 50%, private capital would supply it and should bear the risk. The reason they don’t fund it in any given case, is because they figure it will probably be loss-making.

So you assert that the taxpayer should fund activities that private capitalists assess to be probably loss-making, because “others can see and copy others’ new knowledge”. This has got F-I-S-H-Y written all over it. That way, if it’s loss-making, the taxpayer will be forced to pay. If the project makes a profit, the private capitalist will take it, and if it makes a loss, it will accounted for thus: government will be *assumed* to know that this loss-making activity actually makes net benefits for society as a whole.

But how would you prove that assumption is true?

In particular, how would governmen avoid the problem of knowledge that confronts the private capitalist in picking the winners from the losers beforehand? How would government be any better at predicting the future state of the market when they face all the same problems of uncertainty as the private capitalist, without his incentive to make profit, without his incentive to avoid loss, and without his ability to calculate in terms of profit and loss?

How are Julia Gillard, Wayne Swan and Bob Brown going to “respect the importance of avoiding waste and poor design in assistance programs”? You’re kidding, right?

The honest thing for an economist to do in these circumstances is speak truth to power, not aid and abet their false pretences. The emperor has no clothes.

Nicholas,thats for your wonderful insight into how to improve R&D to gain long term benefits from innovation.

Peter,

Usually my opinions lean towards your own re government spending, but in the field of health R&D for example, or in even basic science, I believe there is role for government spending. Research is terribly inefficient, and private funds are usually elusive unless 95% of the work is already complete.

I don't believe that something such as DNA would have been discovered if left to private entrepreneurs, as there was no commercially viable use for this discovery for many many years. As far as picking the winners and losers, this will always be a problem regardless of the format.

Disclaimer: health researcher who would be happy with 50% returns this week.

WOOOPS... "Quick" response, you were a tad fast there.. and maybe a little thoughtless ?

But consider this.

INNOVATION... ok..

1/ we have a promising idea.. a new 'widget' based on some great technical innovation.

2/ We know that China with it's veritable flood surge of new engineers and industrial espionage operatives is ready to snaffle up any new idea and capitalize on it.

3/ But..WEEEE are already ahead of them.. in fact.. we've lined up the production facility in China for ourSELVES...

and that... my dear Quick is the problem. (for Nicholaus too)

TWO STARK CHOICES for Australia.

1/ Improve our competitiveness on our home ground by 'wage justice equalization' tarrifs, and make the widget here.

2/ Forget 'making' stuff and just go straight to China.

For 1.. we simply could not compete world wide with our labor costs, so.. making the widget here would not bring in export bucks.

For 2.. it's the same.. but we would get some outside income from world wide sales... probably a better option.

CONCLUSION... "we are screwed"... they just haven't booked the funeral parlour yet.

Wage costs are only a small portion of production costs, and high wage costs is the old excuse for lack of innovation in the country.

There are countries with higher wage costs than Australia that carry out much more innovation, and create technology, and not just import technology like Australia.

There are now two opposing forces.

While governments offer some money to stimulate innovation, they also keep telling the public that tariffs would make manufactured items more expensive and of less quality.

This then makes the public believe that Australian made items are more expensive and of less quality.

The education system would also be one of the most stagnant and least innovative systems in the country, and the education system imports nearly everything it uses with taxpayer funding. This then trains students to develop nothing, but to import everything and preferably with taxpayer funding.

So there is no grass-roots or public interest in innovation inside the country, and no fire in the belly.

Those with a desire to develop something usually leave and go to another country.

It still doesn’t make sense. It’s conjuring.

There’s not enough R&D. Relative *to what*?

I think there’s not enough dancing girls. Does that mean government should fund them too?

I once read that a study (no doubt government-funded) found the health benefits of men gazing at women’s breasts for ten minutes is greater than for 30 minutes working out at the gym. So I suppose if the dancing girls were bare-breasted, the public benefits would be even greater!

Therefore couldn’t I emulate your reasoning thus:
o There are not enough dancing girls (no explanation why)
o We can demonstrate that there are benefits to society generally if dancing girls are funded (no explanation of why the benefits would be greater than those foregone from whatever other activities the funding has been withdrawn from)
o Therefore government (no explanation why government) should fund dancing girls.

Also, what if the intended beneficiaries suffer loss from acting on the basis of government’s research officers? For example farmers near me have acted on advice from the local Department of Primary Industry agronomists. Some have lost hundreds of thousands of dollars. That’s just ones I know; but these agronomists are giving advice throughout the district; and of course in other districts and states; and that’s only one section of one branch of one layer of government.

How would you know about these losses?
How would you take account of it in your economic modeling?
What remedy should the wronged parties have against the gumment?
What feedback mechanism would there be against the production of such wrong information?
What remedy should the taxpayers have against…. Who? You?