The CP is central planning – the government lacks necessary information to prioritize desirable innovation

But the real question is whether governmental innovation policy aimed at subsidizing innovation, and balancing market failure, really works. In a fundamental sense, the “knowledge problem” famously identified by Austrian economist Friedrich Hayek (1945) makes the endeavor very challenging, as it puts into doubt whether any uniform policy or intervention, in any society with some level of complexity, can be efficient. The knowledge deficit of any centrally placed actor, in relation to the actors on the field, makes prioritizing difficult. Also a state with the greatest corporativist integration of varieties of special interests will have a disadvantage compared to more dynamic systems (like scientific fields and markets) when it comes to problem choice, problem formulation, and evaluation of possible solutions. Put differently, and somewhat exaggeratedly (in order to clarify the basic argument), no state actor can have an overview of all ideas being pursued by innovators out there that is sufficient to make the choices that are necessary to pick the winners (Sandström and Alm 2022). It has been tried, not without (some partial) success, but with disastrous consequences in broader and long-term perspective. The huge investments in R&D in the Soviet Union were, for the most part, centrally planned and were ultimately motivated by military aims. They produced scientific research of high quality—for one thing, quite a few Nobel Prizes were awarded to Soviet researchers, well into the 1970s—and also some innovation, but in both respects this system was clearly inferior to any country in the West that had a more pluralist and dynamic system. As we will return to in the final chapter of this book, innovation is unpredictable and rather disorganized, and can really only be achieved by fostering pluralism and variation. As summarized by Matt Ridley (2020: 280), “to pretend that government is the main actor in this process, let alone one with directed intentionality, is an essentially creationist approach to an essentially evolutionary phenomenon.”

Lavish arguments aside, the problem of choosing what areas to bet on, and what firms and innovation projects should receive subsidies, is a practical problem for any aspiring entrepreneurial state. Corporate R&D suffers from similar challenges when sizing up and reaching higher levels of complexity, but the limited “ownership competence” (Murtinu et al. 2022) of the state is more problematic given that it operates with resources that are the results of the hard labor of others, which makes wasteful spending particularly wasteful.