It’s Time for the Innovator’s Insurance Card

“Every government intervention in the marketplace creates unintended consequences.”

Based on this quote from iconic economist Ludwig von Mises a century ago, in this article I request that the government stop intervening in the marketplace by providing direct support services to innovators and entrepreneurs.

Wait, dear fellow innovator, before hashtagging me as an economic liberal extremist. Please read the following lines, and maybe you’ll join forces with me in raising an idea. It revolves around a word you didn’t catch in my first sentence because of your burning anger. It’s the word “direct.”

There is no doubt that the Saudi government is targeting local innovators and entrepreneurs with bold budgets and unprecedented initiatives in most business sectors. But if you borrow the ear of an economist and analyze the status of the different innovation ecosystems across all markets in the Kingdom, then you will hear the decision makers responsible for each market say one of the following statements during the planning phase:

1- “We’ll not intervene in the market, and we’ll let promising innovators buy the supporting services from any private service provider in the market, which perfects itself through the supply and demand forces.”

2- “We’ll intervene in the market by providing promising innovators with free supporting services directly through our employees and facilities.”

3- “We’ll intervene in the market by providing promising innovators with free supporting services indirectly through governmental contracts with a few chosen private service providers.”

As with any economic decision, each of the above three paths is a double-edged sword. So let me briefly explain the intended and unintended consequences. I know that von Mises would smile from his grave if I recommended the first path to you for the Saudi innovation ecosystem, because it will guarantee that both innovators and private service providers grow strong in an environment that is not artificial by any means. Moreover, each innovator has the freedom to choose the private service provider by which he or she wants to be served in a fairly competitive market, and vice versa.

Nevertheless, I’m afraid that this path is appropriate only in advanced markets in developed economies, where high levels of awareness and abundance exist on both sides, and the relationship between them is almost frictionless. However, for laggard national innovation ecosystems, such as the one in Saudi Arabia, waiting for this market to improve itself independently will take forever. This is especially true when it’s inside an endless circle of chicken-and-egg dilemmas. Indeed, the economic race of nations will wait for no one.

Let’s look at the second path. Here, the government will save the day by jumping in like a superhero who uses superfinancial ability to build expensive facilities, hire unemployed citizens, and serve all local innovators for free, using services that are heavily monitored and controlled from A to Z. Seems like a perfect solution, right?

Now let’s have peek at the darker side of this bright moon and see the other narrative. Even if we ignore the significant probability that these government service providers will provide low-quality support due to their lack of business mindset, we can’t ignore the private service providers in the market, which will kill their paid services one by one and die slowly. In the end, no man can compete with Superman, or with Superwomen to be politically correct.

Now, we are left with the third path. At first glance, it looks like a smart mixture of the first and the second paths that allows the market to gain the best of the two worlds, hence allowing the government to release the feeling of economic guilt. Nonetheless, the devil is in the details, my friend!

On one hand, the government will quickly support promising innovators by providing them with free services and supporting private service providers by paying them to provide these services. Thus, two birds are killed with one stone as the saying goes. On the other hand, only a few lucky private service providers will get these governmental contracts, and the rest will face an unknown future with their not-free services.

Unfortunately, most of the time, the lucky ones win these contracts not because of their excellent service quality, but because of their low price. This leaves no choice for the innovator but to be supported by free low-quality services through a limited number of cutting-cost providers.

After all of that, if you are expecting that I’ll pull a bulletproof economic path from my magical hat, then I might disappoint you because, as mentioned previously, no economic solution is perfect. However, please take an analytical look at the following fourth path:

4- “We’ll intervene in the market by letting promising innovators choose any paid supporting service from any private service provider from the market, and we’ll pay that provider afterward”.

I know that it seems similar to the third path, but please take a second look. This will place the freedom of choice in the hands of innovators. This magical wand will unleash fair competition among private service providers, which in turn will increase the level of service quality in the market and enhance the innovation ecosystem rapidly, based on the private sector.

This approach is not completely new. To be honest, the land from which I’m currently writing these lines, The United Kingdom, has partially demonstrated it for years through a service called “The Innovation Voucher”.

Even in the Saudi innovation and entrepreneurship ecosystem, governmental bodies, such as the Ministry of Communications and Information Technology and the Small and Medium Enterprises General Authority, have distributed paid vouchers to innovators and entrepreneurs to be redeemed by private service providers in the local market. However, these vouchers were very limited with respect to the types of services and the number of partnering service providers. In contrast, what I’m requesting is a one card for the whole ecosystem. The execution scenario I’m proposing is easy to describe but needs fearless decision makers.

First, the government should initiate a state-owned enterprise (SOE) that will sign agreements with all local private providers of innovation-and entrepreneurship-supporting services with a written price structure for each one of them. Second, this SOE will produce printed or virtual cards containing different amounts of money that can be redeemed as services from those providers. Third, the SOE will sell these cards to all innovation- and entrepreneurship-supporting entities in the public and private sectors. These entities could include universities, business incubators, and VC funds. These entities will distribute these cards between their beneficiaries, where cards with higher rank will go logically to the most promising innovators and entrepreneurs. In the final and most important step, the government will forbid the provision of any free innovation-and entrepreneurship-related services by any public entity.

Final words

Remember the last time you checked your health insurance card to see your policy rank, because you need to receive the best medical services possible? Afterward, you probably opened the insurance company’s mobile app to read the hospital, clinics, pharmacies, and optical shops that are covered within the rank of your card. Then, you visited the service provider you had chosen and requested the medical service you needed. Consequently, the service provider communicated with the insurance company and gave it the required information about your card, your case, and your requested service. Finally, maybe the payment request for the fees of the service you wanted was approved by the insurer, maybe it was rejected, and maybe it was partially approved. If it were one of the latter two cases, then you had to pay the required fees from your own pocket. Now, please imagine this entire experience again, but as an innovator with the “Innovator’s Insurance Card.”