Does innovation need government?

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(MoneyWatch) After President Barack Obama in his State of the Union address this year proposed creating 15 "innovation institutes" to spur entrepreneurship, famed economist Robert Shiller asked whether this was really necessary. Doesn't such an initiative really amount to unnecessary government intrusion, an invasion of what he calls "corporatism"?

Shiller has an admirable body of work, and he's no ordinary dreary scientist. He's an innovator himself, having created a well-known housing price index and helped launch securities market. Still, I'm wary of a rigid mindset that says innovation is great and government is bad -- leave the true entrepreneur alone and business will flourish.

The truth is that vast swathes of wealth have been built with government money and encouragement. Economist Marianna Mazzucato has already shown that virtually everything inside the iPhone started off as a government-funded research project. Google's famous search algorithm came from research funded by the National Science Foundation.Pharmaceutical companies lean on research funded by the National Institutes of Health.

Not that Shiller doesn't have a point about the risks of government pump-priming. I've seen a lot of it in the U.K., where a business advice service for small companies, BusinessLink, came to be regarded as the departure lounge for failed executives.

Yet Mr. Obama is addressing a very real problem, which is the gigantic difficulty that universities and local communities have working together. They lack a common language and often harbor a deep mutual suspicion. The idea that they have a lot to offer one another is intellectually sound but socially unsupported. This produces waste -- of opportunity and ingenuity -- on a scale that makes bureaucracy look positively lean.

The truth is that innovation is hard and needs all the help it can get. Will the president's proposal solve our economic woes? Of course not. But business success is always spectacularly non-linear, more like a pinball machine than a "Newton's cradle." You don't know where one great conversation, introduction or argument will need. All you can be sure of is that you need millions of them.

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    Margaret Heffernan has been CEO of five businesses in the United States and United Kingdom. A speaker and writer, her most recent book Willful Blindness was shortlisted for the Financial Times Best Business Book 2011. Visit her on www.MHeffernan.com.