Should governments intervene to aid entrepreneurship?
According to the capitalist economic theory, markets should be left to regulate themselves and government regulation and intervention should be minimal as it alters the equilibrium between supply and demand either creating a surplus or a shortage. However, this does not take into consideration negative externalities of some business activities that can lead to pollution and social harm, and positive externalities of sectors such as in education where there is a greater societal benefits to be obtained by raising the human capital of the population (Government intervention n.d.).
In the example of the UK based start-up Aula Education, there is particular societal benefit to be obtained by government investment and subsidies for the technology particularly at times such as now where we find ourselves in a pandemic. There is a dire need for online education technology to support teaching at home when conventional schooling can not take place and governments may want to invest in start-ups such as Aula Education to help them develop and grow at the speed required to help the nation. Furthermore, in the example of WiTricity, there is a growing environmental impact from the wastage generated by wires, chargers and batteries for new technologies. Consumers, as individuals, may not consider the environmental impact of their decisions and continue to demand wires and batteries for their low price and reliability, not being aware of an alternative. For instance, Henry Ford famously said ‘if he had asked the people what they had wanted, they would have asked for faster horses’ (Da Rin and Hellmann, 2017). Consequently, the demand from consumers, alone, may not be enough to support innovators and the start-up community. Government intervention in such cases, particular in the environmental economy to reduce pollution and the integration of renewable technologies may be essential to prevent negative externalities on the environment that are not taken into account by the ‘invisible hand’ in the free-market.
However, government regulation needs to be carefully designed to not limit the flexibility that entrepreneurs need to thrive (Lerner, 2009). Overengineering policy incentives can prevent entrepreneurs from acting with the self-direction and flexibility that is needed to innovate and develop creative solutions to new problems. Furthermore, government intervention can end up making incorrect predictions on the market as predictions are difficult to make at an early stage for dynamic and complicated markets (Lerner, 2009). This can lead to an inefficient allocation of resources and suboptimal market leaders who do not deserve their position at the top. For instance, an early decision made on subsidising wireless electricity using coupled resonance magnetic induction from WiTricity may result in other technologies such as Wireless power mats from Fulton innovation, or radio frequency power from Powercast being unfairly outcompeted. This could be a suboptimal decision, as if the market were left to regulate itself, it could be that radio frequency power would develop into a far more valuable and environmentally beneficial technology. Careful evaluation of firms and technologies need to be made by the government to make better decisions (Lerner, 2009). Furthermore, another example is with Zoona Mobile. If the Zambian government made the decision to intervene and give grants and subsidies to grow Zoona Mobile then this may cause it to outcompete initiatives from other companies that may allow rural unbanked customers to become banked and manage their money even better than they would be able to do with Zoona Mobile. Unintended consequences of government intervention needs to be well thought out.
Furthermore, universities such as MIT also have a strong role to play in innovation and encouraging start-ups such as WiTricity. The founder of WiTricity, Marin Soljacic, himself was a professor of Physics at MIT which undoubtedly aided his idea of wireless electricity transmission and the development of the idea into the entrepreneurial venture WiTricity. In order to maximise knowledge-transfer it needs to be ensured that university structures can enhance innovation (Litan, 2007). In order to advance university innovation, it is found by Litan (2007) that free agency can be pivotal to enhancing innovation as opposed to placing responsibility on university professionals who do not have the same opportunity recognition skills as research experts in their field. Consequently, university researchers should be given autonomy to choose a third party for themselves to license arrangements for entrepreneurial activities (Litan, 2007). Undoubtedly, this can lead to a more efficient allocation of university resources with a more decentralised transfer of knowledge and innovation from universities to industry.
References
Government intervention and disequilibrium — https://courses.lumenlearning.com/boundless-economics/chapter/government-intervention-and-disequilibrium/
