Innovations are risky. Entrepreneurs are willing to walk those paths because they hope to profit. They devote time, money and energies which may fail. Since the allocation of the “seed corn” of society is important, it is critical that the allocation decisions of the entrepreneurs are adequately disciplined.
There are two polar ways of achieving this discipline: the competitive disciplines of the market, and the bureaucratic disciplines of political regulation. In the first, the entrepreneur profits if she succeeds, and loses if she fails.
The political response is often to subsidize failure – to bail out failed ventures. The outcry that results often creates demands for tighter control over innovation. The results can be fatal for innovation as the creativity of the market is held down to “bureaucracy speed.”
Is this wise?