States are no entrepreneurs – Sandström, Wennberg & Karlson in Research Europe
Government efforts to steer innovation waste money and distort markets, Christian Sandström, Karl Wennberg and Nils Karlson argues in an article in Research Europe.
Enhancing innovation is crucial to keeping Europe’s economies competitive and to addressing challenges such as sustainability and security. In recent years, efforts to boost innovation have increasingly taken the form of active industrial policies, where policymakers create ambitious development plans and support programmes targeting specific technologies, industries or companies. But they may be problematic, the Ratio researchers write:
”As a result, politically expedient policies with limited benefits but strong proponents may prevail in the long term. Innovation economics points to the most important conditions for an innovative and growth-oriented economy being the rule of law, strong antitrust policy, lowered barriers to entry, moderate taxes and limited red tape. But with such reforms being contentious to enact, many politicians settle for steering plans and subsidies instead. We expect unproductive policies built on subsidies and attempts at picking winners to remain popular until stagnation and crises mean that more systematic reforms become unavoidable.”