Dave Pollard's chronicle of civilization's collapse, creative works and essays on our culture.
A trail of crumbs, runes and exclamations along my path in search of a better way to live and make a living, and a better understanding of how the world really works.



December 27, 2004

FUNDING INNOVATION: PULL BEATS PUSH

Filed under: Working Smarter — Dave Pollard @ 13:22
PullInnovationFunding.gifIn the current New Yorker James Surowiecki (author of Wisdom of Crowds) describes a novel approach to funding research to develop vaccines and treatments for third world diseases like malaria, tuberculosis and AIDS. The traditional funding approach is what Surowiecki calls the ‘push’ approach: Government agencies and philanthropic organizations ‘push’ money to research organizations in the hope that they will come up with the answer. But the UK government is funding third-world malaria research using an alternative ‘pull’ approach: They have agreed to buy 300 million doses of a successful vaccine at an attractive pre-set price, if, and only if, a vaccine is found that meets their specifications.

This ‘pull’ approach has two advantages over the ‘push’ approach: It encourages entrepreneurial and innovative companies to focus and collaborate to fast-track the solution to the problem (since if they don’t find the answer, they won’t get paid), and it costs the government or philanthropist nothing if a successful solution is not found (so the money can instead be spent elsewhere).

It has a host of disadvantages as well, most of which are due to the anti-innovative and anti-entrepreneurial nature of most large corporations and the politicians they own. Big corporations are risk averse, and would rather go for the next Viagra or other copycat drug that the rich and powerful will buy no matter what the price. And they don’t want to tell their shareholders that millions were spent on an unsuccessful research project, because investors are short-term focused and don’t appreciate that innovation and quantum-leap successes require risk and patience.

All the more reason why we as citizens should be pressing our politicians to switch most or all research funding of private enterprise to ‘pull’-approach funding. Just consider the $150 billion per year that North American and European governments each throw away in agricultural subsidies, or the even greater amounts that the US government is squandering on so-called ‘defense’ spending for foreign military adventures and absurd unworkable missile defense and Star Wars programs. If these billions were instead invested in ‘pull’-approach, successful-efforts research funding, imagine what could be accomplished!

This is how governments and foundations could encourage development of a true ‘market’ economy, instead of subsidizing the closed, innovation-averse global oligopolies that currently dominate our economy. Rather than being doled out as corporate welfare, with no performance requirement from corporate recipients, our tax money should go to guaranteeing prices and markets for products for which there is a pressing human need, on a successful efforts basis, and setting truly entrepreneurial, innovative and collaborative enterprises loose to chase after these rewards.

With governments in the back pockets of the oligopolies, we should not expect them to take any initiative to do this. But the UK government should be praised for this one brave example of ‘pull’-approach funding, and we as taxpayers and supporters of charities should be pressing our elected officials and the charitable and humanitarian institutions we support to follow this model more often.

The chart I’ve developed above shows how the process might work. Here’s an example of its application:

  1. Suppose the problem is the need for a solar or wind-based technology that will electrolyze water to create the hydrogen needed to power home and automobile fuel cells, and a fuel-cell technology that will efficiently and economically store the energy until it is needed. First we’d set minimum specifications for technologies that will address these needs.
  2. Based on forecast cost increases as we near the End of Oil, and the costs of remedying global warming and other problems hydrocarbon energy produces, compute a Real Value to humanity of a hydrogen-based solution.
  3. Divide this Real Value by the Minimum Volume for the fuel cells and other components of the solution sufficient to meet humanity’s needs and to eliminate the need for non-renewable energy, to compute the Fair Price.
  4. Have the UN, or some other international body, commit governments to guarantee the Fair Price and Minimum Volume to the first consortium of entrepreneurs that meets the minimum specifications.
  5. Once the solution has been found, award the guarantees to the successful consortium. This will ensure they will be able to raise the necessary financing to produce the Minimum Volume of each solution component.
  6. Determine an Affordable Price for each customer, ideally based on some percentage of the customer’s income and accumulated wealth. Distribute the solution to all customers, and use the federal taxation system or some other ability-to-pay mechanism to charge the Affordable Price to each customer.
  7. The difference between the Minimum Price and the Affordable Price would be paid for from a Global Solutions Fund, which would be paid for by world governments apportioned on the basis of their ability to pay.

Yes, I know, it’s a dream, and probably a wildly idealistic one at that. The last two steps, as reasonable as they are in a mixed economy, fly in the face of a fundamental hard-line capitalist principle:  The rich get whatever they want, and the poor do without what they need.

But every new idea starts with a dream.

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