Public finance—whether in the form of grants, subsidies, or tax credits—is increasingly being cast as the panacea to either a world of IP and all its foibles, or a world in which innovators have insufficient incentives to undertake risky research. The idea is that, rather than supporting innovation through the gifting of exclusive rights like patents, government can use taxpayer dollars to support research and development activities directly. This article casts doubt on the notion that public finance can ever provide a suitable alternative for incentivizing innovation. It makes this point by examining financial subsidies currently offered by U.S. state governments. Each year, state governments across the U.S. purport to award billions of dollars in public financing for “innovation.” But it turns out these so-called innovation incentives typically have little to do with encouraging novelty or inventiveness. They are in reality designed to promote politically attractive goals: principally, the goal of job creation. This article identifies the phenomenon—essentially, jobs programs dressed up as innovation incentives—and reveals why it could be highly problematic for innovation policy. By diverting investment towards subject matter that is labor-intensive, these incentives may end up encouraging developments that are the opposite of “innovative,” in the ordinary sense of the word. Those who support relying more heavily on public finance as an innovation policy tool need to confront the reality that, when taxpayer money is on the line, political goals may well trump the desire to reward truly innovative endeavors.
David is an Academic Fellow at the University of Pennsylvania Law School’s Center for Technology, Innovation, and Competition. David’s scholarship focuses on the interactions between law and technology in shaping commercial transactions and business forms
Emily Losi is a third-year law student at the University of Pennsylvania and is the Symposium Management Editor for JLI. Emily was drawn to the journal because it enables students and professors to collaboratively explore the intersection of law and technology.