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High Risk, Higher Reward: David Sandalow on Why the Government Must Invest in Innovation


By Lauren Simenauer, in a Science Progress cross-post.

The Internet is ablaze with allegations of government overreaching as the Tea Party rails against federalism and pundits lambast the administration’s role in the manufactured Solyndra scandal.  YouTube videos abound depicting a popular protest chant on Wall Street: “Banks got bailed out; we got sold out.” But the 99 percent wouldn’t even have the Internet as a medium of expression if the government hadn’t made a high-risk investment.  Now, more than ever, it is imperative that we remember our innovative roots and do not compromise on government-funded research.

On Friday, David Sandalow, assistant secretary for policy and international affairs at the DOE, addressed Yale University on the subject of government’s role in funding innovation. In his speech, he emphasized the importance of the government footing the bill for research that would otherwise be too expensive, too time consuming, or too risky for individual corporations to fund. Sandalow highlighted some key examples of government investments yielding monumental rewards: Google, natural gas from shale, GPS, the mapping of the human genome, and the Internet, just to name a few, wouldn’t have been possible without government-funded research.

The fact of the matter is that the private sector simply doesn’t have the right incentives to invest adequately in the basic science and pre-commercial research from which innovation springs forth.  The Solyndra scandal is a perfect example of this. Critics point to the Solyndra bankruptcy as a symbol of government investment failure, but it is actually the exception that proves the rule. Said Sandalow, “Loans for innovative technologies involve extra risk. Many innovations are successful. Some change the world. But innovation is never a sure thing.” He then pointed out that Congress intentionally designed the loan guarantee program in which Solyndra participated to absorb some failures.

Not making investments in future technologies for fear of failure would be far worse than making the investments and seeing a few failures along the way. Learning from failure is a healthy and important part of innovation. Failing to invest in the risky, bold aspects of technology development would hold back the essential trial and error that is innovation.

Said Arun Majumdar, director of the Advanced Research Projects Agency – Energy, or ARPA-E, in a March statement before the House, “The portfolio of ideas that ARPA-E funds are too risky for the private sector to invest in at this time. However, if one of the ARPA-E ideas is shown to be practical, it could indeed change the world.”

Public investment in innovation is not just up against Tea Partiers and the 99 percent movement; the government is contending with human nature itself to maintain funding for the sciences.  One reason technology funding might not seem so appealing is that research and development can take decades to produce results. The Internet boom, for example, that drove economic growth throughout the 1990s and today has fundamentally transformed the way individuals and businesses communicate and access information, was rooted in research initiated by DARPA in the 1960s and 1970s—nearly half a century ago.

The problem is that humans are notoriously bad at gauging the benefits of long-term investments. In behavioral economics, “hyperbolic discounting” refers to the tendency to opt for more immediate rewards, even when waiting would result in a greater payoff. In the choice between receiving $20 today or $40 in a year, for instance, many people would choose the former. The longer the delay, the more we discount the second option.

In the case of technology innovation, it’s hard to resist the temptation to spend our money on something more immediately gratifying, especially when the results seem so abstract and out of reach. But it’s clear that technology has left its fingerprints everywhere in our lives, and has become the primary engine of economic growth. Sandalow’s speech reminded us that investment in research has led to tangible, oftentimes invaluable outcomes. And in the case of clean energy technology, if research does take years, we cannot afford to wait to fund it.

It’s a positive sign for the country’s intellectual health when we are openly engaging in debate over the role of government in society. In this nationwide discussion, it is important to remember that in the instance of science funding, there is a niche that only government can fill, due to the unique financial challenges that research entails. If we want a country on the cutting edge of the latest technological advances; if we want technologies that will make us safer, smarter, and healthier; if we want to see new markets opened, jobs created, and the standard of living improved, then we must uphold our commitment to science progress in America.

–Lauren Simenauer is an intern with Science Progress and a senior at the University of Virginia. She is finishing her degrees in biology and psychology.

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