This paper outlines a counter-cyclical innovation strategy, derived from an innovative project, the California Institute for Regenerative Medicine (CIRM). We identify an “innovation paradox” in that the very point in the business cycle tempts legislators to view austerity as a cure for economic downturn and reduce innovation spend, is when increase is most needed to create new industries and jobs and innovate out of recession or depression. It is both desirable and possible that policymakers resist the urge to capitulate to the innovation paradox. During periods that exhibit subdued inflation, elevated spare productive capacity, and low government borrowing rates, governments should increase their borrowings and use the proceeds to boost investment targeted toward innovation. We show how the State of California successfully utilized debt financing, traditionally reserved for physical infrastructure projects, to stimulate the development of intellectual infrastructure. Finally, we recommend a halt to European austerity policies and endorse a new way forward. Europe should seize the present macroeconomic opportunity and proactively make the investments in innovation needed to foster the transition to a knowledge-based society.
Henry Etzkowitz, Alex Etzkowitz