I’ll Dare to Be Unpopular: Innovation Needs More Than One-Spot Solutions

I’ll dare to be unpopular for a moment and suggest that prominent ideas—especially when it comes to driving innovation—are rarely about one-spot solutions. In recent years, “disruption” has become the mantra of the tech world, with startups and industry giants alike chasing after revolutionary breakthroughs. But while radical, fast-paced innovation sounds alluring, it isn’t the only—or even the best—path to meaningful progress. Some of the most transformative advancements come from a slower, evolutionary process that unfolds over time. This kind of sustainable innovation requires a focus on long-term incentives—a factor that neither the private sector nor the government alone can fully provide. Rather than debating whether private investment or government funding is superior, we should focus on creating a balanced and approach that leverages the strengths of both sectors. Only through this collaboration can we foster innovation that serves both immediate market needs and broader societal goals.

Yes, even if Milton Friedman himself were in the room, arguing that markets alone can drive innovation, I’d push back with respect: in cases where market forces discourage foundational, long-term research, public-private collaboration is not only effective but essential.

The Private Sector’s Role—and Its Limitations

Private investment is undeniably powerful in driving certain types of innovation. Venture capital, corporate R&D, and private equity funding allow startups and established companies to pursue ambitious ideas, respond quickly to market demand, and deliver products that meet consumer needs. Companies like Tesla and SpaceX, for example, have made remarkable advances in electric vehicles and space exploration, largely through private funding. This agility and responsiveness are hallmarks of a profit-driven system, where competitive pressure drives companies to iterate rapidly, reduce costs, and increase efficiency.

However, the same hyper-growth, profit-driven model that fosters competitiveness can also impose limitations. Private companies are accountable to shareholders and investors who typically expect a quick ROI, making it difficult for them to commit to long-term projects with uncertain commercial payoffs.

In the pharmaceutical industry, for example, companies often prioritize “blockbuster” drugs aimed at widespread conditions like diabetes or heart disease, where they can expect a high financial return. As a result, research into treatments for rare diseases that affect smaller populations is frequently neglected. Known as the “orphan drug” problem, this focus on profitability over broader social impact has left significant gaps in treatment options for thousands of rare conditions, affecting millions of patients.

This short-term approach isn’t limited to healthcare. In renewable energy, for instance, companies often focus on established technologies like solar and wind, which already have commercial markets, rather than high-risk but potentially transformative technologies like nuclear fusion or carbon capture. These emerging technologies require enormous upfront investments and lengthy development timelines—making them less appealing to private investors who prioritize quick wins. Thus, many innovative ideas with long-term potential end up “on the shelf” simply because they don’t fit within the narrow investment horizons of private capital.

Why Long-Term Incentives Are Essential for Sustainable Progress

If we were debating with Friedman, we might argue that certain types of innovation require patience and foresight that short-term market pressures don’t always allow. Long-term incentives, in the form of government grants, matching funds, and tax credits, can help bridge this gap by supporting research and development that doesn’t yield an immediate profit but holds substantial promise for the future.

Take, for example, basic scientific research—work that often lays the groundwork for future commercial applications. Many of the technologies that define modern life, from the internet to GPS and MRI machines, originated in publicly funded labs, supported by government agencies like NASA, the Department of Energy (DOE), and the National Institutes of Health (NIH). These foundational breakthroughs were possible because they weren’t subject to the short-term demands of the market; they were allowed to evolve over decades, guided by the pursuit of knowledge and long-term societal benefits rather than immediate profitability.

Moreover, long-term incentives can encourage companies to pursue innovations that address critical public needs, such as clean energy and healthcare, where the benefits extend far beyond shareholder returns. By providing incentives for private companies to invest in sustainable, socially beneficial projects, governments can catalyze progress in areas where the market alone might fall short. Rather than distorting the market, these incentives help correct market limitations, ensuring that innovation isn’t purely driven by consumer demand but also by societal priorities.

Hybrid Models: Bridging Short-Term Profit and Long-Term Progress

To achieve the best of both worlds, hybrid funding models that combine public support with private investment can create a fertile environment for sustainable innovation. These models recognize that while private investment is essential for commercialization, government support is often necessary for foundational research and high-risk projects that may not yield returns for years, if ever.

Some effective hybrid models include:

• Matching Grants and Cost-Sharing: In a matching grant, the government agrees to fund a portion of a project if private companies contribute the rest. This setup shares the risk, making it easier for private investors to participate in long-term or high-risk projects. Cost-sharing agreements are commonly used in clean energy R&D, where both the government and private sector stand to benefit from breakthroughs that can transform energy production and reduce environmental impact.
• Tax Credits and Subsidies for Long-Term Goals: Tax incentives can help make long-term projects more financially viable for private companies by reducing the initial entry costs. For instance, tax credits for renewable energy research or green technology innovation encourage private companies to invest in projects that might yield little profits but have significant public value. These incentives help align private sector goals with societal needs, fostering a market for sustainable products and services.
• Public-Private Partnerships (PPPs): PPPs are collaborative efforts in which government and private entities share resources, funding, and risks for specific projects. For instance, the initial research and development of MRI and CT scan technologies were supported by government funding, but private companies later refined and commercialized these innovations. PPPs offer a way to transition groundbreaking ideas from the lab to the market, ensuring that the public benefits from new technologies while private companies profit from their application.

Emphasizing the Public Good: Why It Matters for Long-Term Innovation

One of Friedman’s core arguments was that the primary responsibility of business is to maximize profit. However, in cases where innovation serves a broader societal need, we’d argue that the public good itself can be viewed as a legitimate form of return on investment. Government-funded projects don’t always deliver immediate financial returns, but they provide social, environmental, and economic benefits that improve quality of life and lay a foundation for future progress. Clean air, reliable infrastructure, and accessible healthcare are all "returns" that may not directly translate into profit but create lasting value for society.

Furthermore, governments can implement mechanisms like equity stakes or royalty agreements to capture financial returns from taxpayer-funded research, ensuring that if public investments lead to profitable innovations, some of those returns flow back to the public. For instance, the Human Genome Project—funded by the government—opened the door to a lucrative field of genetic research. Through licensing fees or royalties, governments can recapture some of the value created by these projects, making public funding for innovation more financially sustainable.

Structuring Milestones for Balanced Innovation

To mitigate the tension between short-term and long-term goals, milestone-based funding models are increasingly common. Breaking projects into phases with specific goals allows both public and private investors to gauge progress and adjust funding as needed. This approach, often referred to as translational research, allows early-stage, high-risk discoveries (typically government-funded) to develop into commercially viable products that private companies can scale. By involving private capital at later stages, once initial risks have been mitigated, this structure appeals to both investors and government stakeholders.

Conclusion: A Balanced Approach to Innovation

In the end, sustainable innovation requires a balanced approach that integrates both private and public funding models. Private investment excels at driving market-ready, consumer-focused innovation on short timelines, while government programs are essential for long-term, high-risk research with broader societal impact. Neither approach is superior; rather, it’s the combination of both that yields the most sustainable results.

If Friedman were here, we might argue that a truly free and flourishing market requires infrastructure, foundational research, and societal investment that only a long-term approach can provide. By moving away from an "either/or" mentality and embracing and solutions, society can foster an innovation ecosystem that values both disruptive breakthroughs and gradual, evolutionary progress. A balanced approach ensures that innovation is not just driven by the pressure for immediate returns but is also guided by the long-term vision required for sustainable, societal progress. When the strengths of both sectors come together, we create an environment where groundbreaking ideas have the time and resources to flourish—building a foundation for advancements that benefit everyone, not just in the present but for generations to come.

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