Grant-seeking behavior diverts resources aways from innovation

Here, a word of caution. As has been repeated several times in this book, there is no simple and straightforward way of evaluating the prospects or outcomes of an effort to innovate, and hence it is also misguided to try to simply judge the usefulness or profitability of an idea or a project based on the level of productivity of a single entrepreneur and the level of governmental subsidies to that same entrepreneur. It might very well be that in the very long run, subsidized innovation is the most beneficial from overall societal point of view. The problem, highlighted by Gustafsson et al. (2020: 459–460), is the seeming risk of emergence of a class of “subsidy entrepreneurs”, who “find it relatively profitable to engage in grant- seeking activities compared to market production”, and hence undertake “an unproductive form of entrepreneurship”. Analogous to “rent- seeking”, i.e. the systematic attempts by firms to increase their profits not by increasing their productivity but influencing public policy to give out subsidies, imposing tariffs, and the like (Krueger 1974; Helm 2010), such “grant-seeking” diverts resources from core operations including R&D and to applying for subsidies, creating an artificial and self-sustaining economy of subsidies for low productivity.

It should not have to be underscored that public sector bureaucracies are not spared from free-rider problems, nepotism, moral hazard that comes from information advantages of specialist civil servants over elected officials (and electorates), and other similar problems on individual level (Niskanen 1971, 1975). Quite the opposite, it is likely for such challenges to quickly and forcefully present themselves and compromise the theoretically very promising idea that firm subsidies neatly correct market failures and spur innovation in the private sector to the benefit of society as a whole (Gustafsson et al. 2016). There is also much to suggest that several peculiarities and nuisances of representative democracy have been accentuated in the past decades, as elections have come to be decided by the middle ground or the median voter, incentivizing leading politicians both on the right and on the left to focus on the interests of minorities in order to win elections. These minorities may both be very particular in their interests, and may shift rapidly. The result is often less actionable governments and a reduction of political initiative to a wide collection of special interests, more or less compatible with each other, and certainly not conducive of decisive action in urgent policy areas (Helm 2010).