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    Counter-cyclical public venture capital: debt-funding as an anti-austerity innovation strategy

    Etzkowitz, A. and Etzkowitz, Henry (2017) Counter-cyclical public venture capital: debt-funding as an anti-austerity innovation strategy. Social Science Information 56 (3), pp. 477-495. ISSN 0539-0184.

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    Abstract

    This article outlines a counter-cyclical innovation strategy to achieve prosperity, derived from an innovative project, the California Institute for Regenerative Medicine (CIRM). We identify an ‘innovation paradox’ in that the very point in the business cycle, when legislators are tempted to view austerity as a cure for economic downturns and to reduce innovation spend, is when an increase is most needed to create new industries and jobs and innovate out of recession or depression. It is both desirable and possible that policymakers resist the urge to capitulate to the innovation paradox. During periods that exhibit subdued inflation, elevated spare productive capacity, and low government borrowing rates, governments should increase their borrowings and use the proceeds to boost investment targeted towards innovation. We show how the State of California successfully utilized debt financing, traditionally reserved for physical infrastructure projects, to stimulate the development of intellectual infrastructure. Finally, we recommend a halt to European austerity policies and a ‘triple helix’ broadening of narrow ‘smart specialization’ policies that chase a private venture capital chimera. Europe should seize the present macroeconomic opportunity of low interest rates, borrow for innovation and be paid back manifold by ‘picking winners’, similarly to what the USA has been doing through DARPA (Defense Advanced Research Projects Agency) with GPS, as a response to Sputnik, the Internet and artificial intelligence, or the driverless car, formerly known as the ‘autonomous land vehicle’ in its military guise. Proactively targeted macroscopic investments in innovation are needed to solve the productivity/employment puzzle and foster the transition to a knowledge-based society.

    Metadata

    Item Type: Article
    School: Other
    Research Centre: Innovation Management Research, Birkbeck Centre for
    Depositing User: Administrator
    Date Deposited: 17 Aug 2017 12:36
    Last Modified: 17 Aug 2017 12:36
    URI: http://eprints.bbk.ac.uk/id/eprint/19464

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