Rethinking fundamentals of innovation
finance leads us inevitably into a conundrum of balancing motives with
accounting realities. Even if research may be driven in very particular cases by
noble reasons independent of monetary incentives, somebody has to pay for it. Either
developers cover the necessary costs themselves – which is just not feasible in
the case of foundational research as capital-intensive as nanotechnology; otherwise,
funding needs to come from institutions and/or investors or, horribile dictu for many, from the
taxpayer.
In the case of academic research
institutions, their primary incentive may originate less from a potential for
commercialization than from the likelihood of industrial and scholarly
recognition. Honors such as a Nobel Prize or other major awards and distinctions
are just one category of non-monetary rewards. Published reports of breakthroughs
in research define another.
However, the more
capital-intensive research turns out to be, the more commercial funding becomes
indispensable, and financial interests of significant investors will inevitably
gain influence over the type of research undertaken. One way to sidestep prioritization
of research with good short-term return-on-investment potential in favor of
more basic research or of research done ‘for the right reasons,’ i.e., for the
benefit of society, is to increase funding by publicly financed institutions
such as the National Institutes of Health or the National Science Foundation. However,
such institutions are not really independent either: since funding of research
grants originates from the treasury by way of budgetary legislation, allocation
of resources to innovation and scientific discovery is subject to, and often enough
victim of, a wide array of political pressures. In the end, areas that will
receive the largest share of financing will be those marketed by scientists or lobbyists
as having the greatest potential to improve either the economic or the political
standing of their nation, and above all increase its military capabilities.
Between the economic and
political objectives of various stakeholders, finding a golden middle to
accommodate research done in the public interest may be easier if scientists
keep their eyes on the bigger picture: that is, the reality and priorities of
whoever holds the power of the purse in funding science. Since scientists do
not normally hire public relations agents, they need to perform this function themselves,
and they do that with notoriously bad results. But mediating interests and, above
all, conflicting interests, always begins by stepping into the mind and awareness
of one’s target constituency. That may be investors who, up to a point, are not
always and entirely motivated by numbers only. It could also be politicians caught
up in perpetual reelection campaigns and torn between pressures to “create
jobs” for their constituents on the one hand and to “protect the public” from
various risks and threats on the other, all the while trying to stretch
budgetary limitations on spending and to avoid political pitfalls. Or it could
be administrators of governmental science organizations whose behavioral
patterns follow those of decision makers in any bureaucratic organization.
It is all too often overlooked
that the seemingly obvious national interest, and even much less the ‘interest
of mankind’, however frequently invoked, does not have an impartial,
knowledgeable lobby anywhere. This has to do with the complexity of issues
under consideration as well as with the uncertainty about which one of several
competing technologies or innovative approaches will ultimately prevail. In its
comparatively short history, information technology has given us some choice
examples of the fact that it is not the technologically superior and most
functional solution that is adopted as the general standard but rather the one
that is marketed best – be it as a result of users’ prior investments or, for
example, of their esthetical preferences and social appeal.
Because the science and
technology community have done such a poor job educating the very public on
which they depend for sustainable funding, it comes as no surprise that
intermediaries like investment bankers, politicians or industry groups have
stepped up to the plate and presented their version of the public interest in
highly biased accounts often enough blatantly reflective of conflicting
interests. It is very difficult to identify, not to mention enforce, ‘right
reasons’ when already our accounting rules so heavily distort generally
accepted tools of valuation and allow, if not encourage, the privatization of
profits while socializing most pertinent expenditures – as the ongoing
environmental discourse reflects – or by failing to account in adequate fashion
for creative potential and for as yet unmarketed but largely market-ready products.
The result is profound uncertainty about the funding of creative processes
including research – an uncertainty that, until the last moment prior to
commercialization, cannot be disproved rationally. But this is a characteristic
that processes and intangibles in general share with forward-looking issues.
Yet, at a time when value creation more and more vitally depends on intangibles,
a body of accounting rules that only values tangibles and faits accompli is wholly insufficient. It is this key aspect of
valuation and accounting as a basis for almost all decisions in finance that
the rules and standards of the pre-internet age still continue to apply.