Directed innovation is subject to rent seeking and regulatory capture

As already mentioned, many public actors, like private sector actors, are poorly informed and partly driven by self-interest. In addition, there may be interest groups that exert pressure on the political sector to gain (economic) advantages. Powerful and concentrated interest groups, such as large companies, trade unions and industry associations, can use their networks and financial resources to influence policy, often in areas where information is asymmetric, to the detriment of the political sector. These actors can then influence the design of regulations, remuneration systems and tax structures to their advantage. This aspect is further analysed by Holcombe (2024).

Many of the mission failures discussed in our book can be attributed to regulatory capture. Alves (2024) shows how attempts to revive Brazil's shipbuilding industry were influenced by trade unions to provide extensive support to domestic suppliers that were not globally competitive. Waldron and Coyne (2024) argue that foreign aid politicised many receiving sectors in recipient countries, increasing the scope and scale of corruption and rent seeking.

Other examples include the influence of powerful interest groups on the government-backed US financial institutions Fannie Mae and Freddie Mac, which contributed significantly to the 2008–2009 US financial crisis. The same thing happened in Nixon's War on Cancer. There, interest groups took over the agenda, diverting the focus towards patents and monopoly profits and away from prevention. Prevention would probably have led to a stronger emphasis on research into the carcinogenic effects of various substances on humans.3

The OECD (2021) uses the term ‘mission capture’ to highlight the risk of a mission being controlled by special interests. Since a mission should be developed by interacting and collaborating with established stakeholders, it is likely that they will have a very large influence on the process. Missions therefore tend to favour special interests rather than support new actors or institutional entrepreneurs (Begemann & Klerkx, 2022; Bergkvist et al., 2022). Bloom et al. (2019) also highlight this problem and argue that instead of focusing on the most socially valuable missions, there is a tendency for politics to focus on missions where there is plenty of room for lobbying and client politics.