A defense of government procurement as a driver of innovation

I have long argued that government procurement is an important tool in spurring innovation. Here is a piece from Steven Hayward of the American Enterprise Institute on energy policy. The article (originally published in the conservative Weekly Standard – which makes it even more interesting) outline a cross-ideology proposal for increasing innovation in the energy sector as a means of attacking our energy problem.
The first two recommendations are straight forward: increase spending on research in the basic sciences related to the energy sector and improve mechanisms for development and diffusion of new technologies in conjunction with the private sector. The third is more intriguing:

Third, driving innovation and price declines requires that the government act directly as a demanding customer to spur the early commercialization and large-scale deployment of cutting edge technologies. Today, firms get subsidies that reward production of more of the same product, instead of innovation that results in lower prices. This framework should be turned on its head. Energy technologies should receive federal deployment funding only to the extent they are becoming cheaper in unsubsidized terms. Either technologies continue to come down in price or they are cut off from future public investment.
The Department of Defense has a long track record of using the power of procurement successfully to drive the commercialization and improvement of everything from radios and microchips to camera lenses and lasers. In contrast, the Department of Energy has never really played this role. Energy Secretary Steven Chu deserves applause for his efforts to make his department a more effective funder of breakthrough research, but the agency has no way to either procure or use energy technologies at commercial scale. The Department of Defense should help fill this void, once again using procurement to advance a range of potential dual-use energy innovations.

I would note that the government can also serve as the “thin opening wedge” for technology development. In many cases, a new technology is not necessarily much better than the technology it replaces. Yet it is better on a few specifics — which may be of specific importance to a governmental activity. Case in point is semiconductors and the space program — where size and power requirements outweighed the costs. Having the government as a early adopter of a new technology provides that first real world utilization test so critical for the refinement and further development of a technology.
Interestingly the piece also contains a defense of greater government involvement in R&D:

No doubt critics will say this level of state involvement in promoting technological innovation doesn’t sound very Reaganite, but they are wrong. Just as Reagan’s Strategic Defense Initiative was intended to be a long-range game changer rather than just another weapons system, this energy strategy is intended to reestablish the United States as the global leader in energy innovation and potentially upend the geopolitics of energy. I share all of the general reservations and skepticism about government-sponsored research and development. Yet for all of the boondoggles one can rightly point to, such as Jimmy Carter’s hapless Synfuels Corporation, there is also a record of government-sponsored technology achievement that it would be churlish to overlook. The lesson is that government investments succeed not when they are blanket subsidies but when they are targeted to specific outcomes, such as developing computers to enable rocket systems, building a communications network to survive a nuclear attack, or creating increasingly efficient and powerful jet engines. These public investments and supporting regulatory changes paid off handsomely in personal computers, the Internet, and both commercial air travel and the gas turbines used in modern natural gas power plants. Government-sponsored research in biochemistry has played a substantial role in the development of new pharmaceuticals.

These are great suggestions — and proof that we can bridge the ideological (and partisan) divides. I hope the policymakers and politicians will take these recommendations to heart.

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One thought on “A defense of government procurement as a driver of innovation”

  1. New National Academy study on innovation

    The Board on Science, Technology, and Economic Policy (of the National Academy of Sciences) has issued a new report on innovation: Rising to the Challenge: U.S. Innovation Policy for Global Economy. The result of a multiyear endeavor, the report brings…

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