The BBC's idea of business

The BBC ran a half-hour promotion on Thursday night for government-funded investment in businesses or technologies that government judged to be promising. In other words, a promotion for picking losers (the policy, not the site, sadly). I'm sure the institutionally-biased BBC didn't think that was what they were doing, but that's what it was.

That advert was masquerading as one of their business programmes - Radio 4's In Business - which ought to be the last place that one would find such a concept promoted. But this isn't real business, this is the BBC's idea of business. Perhaps it is unreasonable to expect a commercial perspective from a state-funded organization, and from a business reporter (Peter Day) whose background is an English degree, four years with a Glasgow newspaper, and then a lifetime of service with the BBC. This guy has barely been close to a commercial organization or a set of accounts, let alone tried to run a business in a world of government-funded competition.

You can download an MP3 of the programme here (careful, it's a 12MB file). Those of a rational disposition may want to ensure that they have a punchbag (a BBC employee would be ideal) to hand before starting playback, to avoid stress-related injury due to excessive internalization of anger.

There was nothing wrong with looking at the issue of picking losers. But even the most Trotskyite of BBC producers [Tautology - Ed] might have to admit that there are two sides to this story. There was an almost complete failure to examine the arguments against, and plenty of commentary that said to the listener, in effect, "of course government should be picking losers". Let's look in detail at how the programme went about this issue.

Take the list of interviewees. To achieve a balance, one might speak to those who had benefited from government-funding and those who had not (or better still, those who had been disadvantaged by the government-funding of their competitors). One might speak to those who distributed government funds, and those who opposed their distribution. Mr Day's list of interviewees consisted of three distributors of government funds (Tony Tether of DARPA, Jo Anne Goodnight of NIH, and Martti af Heurlin of Tekes), four recipients of those funds (Barry Alexia of Raytheon, Enal Razvi of System Biosciences, and Xia-Chang Zhang and Jaakko Happonen of Enfucell), and two institutional chearleaders for the policy (Charles Wessner of the National Academy of Sciences, and Richard Lambert of the Confederation of Big Industry, 18% Club, Confederation of British Industry). Only Richard Aboulafia of the Teal Group (a consultancy) introduced a slightly dissenting note, and that was not against the principle of picking losers, but against the European way of doing it. His caveat was important, but this was hardly a representation of the full case against the approach.

* * * * *

What a joy, incidentally, to find a story with two of my favourite institutions (the BBC and the CBI) displaying their bias, lack of principle, and intellectual vacuity in one place. A quote from the programme (at around 25:15 minutes) should illustrate how well these two parasites fit together in their world view (with a few notes):

Day (BBC): "The idea of concentrated funding1 for corporate R&D may become a big issue in Britain, where we had plenty of government intervention in industry only a few decades ago.2 But is this sort of thing really desirable now, I wondered?3 Richard Lambert is the Director-General of the CBI, and he says, yes it is."

Lambert (CBI): "Here we are.4 We're a country where government purchases amount to about £150 billion a year.5 And if that money could be used to procure goods and services smartly, and to encourage the development of new technology and new development,6 that would make a huge difference to the operations of our economy7 and the wealth of the nation.8 I think that's the lever to pull9 and that the Technology Strategy Board, properly financed and properly structured,10 could do that."

Day (BBC): "But it would need a lot more money, wouldn't it?"11

Lambert (CBI): "Well, it's got around £200 million now"

Day (BBC), interjects: "That's about one project really"12

Lambert (CBI): "We think about £600 million would be the right sort of figure.13 And we are, as you would imagine, we are trying to make that case to anyone who is prepared to listen."

Day (BBC): "Oink, oink, slurp."

Lambert (CBI): "Grunt, snuffle, snort."

Swineherd: "Noses out of the trough, boys." [Ed: Sorry, bad transcription. There is no swineherd in this story, or in modern Britain. The concept of someone to keep the porkers under control is as out-of-date as the term.]


1. Nice euphemism: "concentrated funding". Presumably to contrast with "diffuse funding", where corporate R&D is spread amongst all businesses in proportion to the judgment of their managers, shareholders and financiers on how best to invest in their own future in order to satisfy market demand. Much better to concentrate this spending more efficiently on a few hand-picked winners, and this judgment of future demand on a handful of bureaucrats processing all the available market information. Diversity be damned. What we need is central-planning and a few industrial behemoths.

2. And what a success that was. But let's not bring that up.

3. Implication: "As it was desirable then".

4. Oh, there you are. I'm glad you cleared that up.

5. And that's just not enough, right?

6. "Development of new development"? And you used to edit the FT, you say?

7. "Operations of our economy"? Does that actually mean anything?

8. Ah yes, the key to increasing the wealth of the nation: government-spending on innovation. Just like Adam Smith recommended.

9. The mechanical theory of government. It's no different to running a model train-set really.

10. "That is, with some of our big members on the Board to advise on the best way to give the money to some of our big members (and a few scraps for the little guys to avoid awkward questions)."

11. "Duh. Everyone knows that, right?"

12. "Didn't you know that all projects cost roughly £200 million?"

13. A precisely-calculated number, I'm sure. Just remind me. What is the economic equation that reveals the optimal amount of money that government should spend on this sort of thing? Is it three times whatever the current budget is? Or three times the standard cost of every project? If the USA is supposed to be our model, their £1.5 billion budget (according to the programme) is spread over an economy that is five times the size of ours, which would suggest an equivalent budget of around £300 million, not £600 million, but who's counting?

* * * * *

But let's not get ahead of ourselves. That was near the end of the programme, and the tone was established at the beginning:

Day (BBC): "Everyone knows that global competition is hotting up. New ideas, products, services are vital for national economies to flourish. But why do some countries do better than others when it comes to innovation? What has Europe and Britain to learn from what the American government has been doing for decades."

So we are starting with our conclusion. Is it possible that America's success has nothing to do with what its government does? Is it possible that America's success is because of what its government doesn't do, rather than because of what it does? Is it even possible that America's success is due to something else that its government does? No. We will simply assume that those two phenomena (government spending on innovation and American economic success) are not only correlated but linked as cause and effect, without testing that assumption in any way. It's just a question of the degree of significance and the detail of how one goes about it. Spiffing journalism, Peter.

Day (BBC): "Let's start with a flashback to the 1950s. Red Square in Moscow in October 1957. It's one of those times when technology grabs the popular imagination. Huge crowds gather to celebrate after the then Soviet Union launches the first satellite into space. It was called Sputnik 1, beaming messages back to Earth. It was the beginning of the space age. This dramatic demonstration of the strength of Soviet technology came as a very big shock to its Cold-War rivals in the USA. Washington's response was to create something now called DARPA, an organization that changed the face of technology innovation, and which might have lessons for other countries too."

No question, the race to space mattered to the Soviet Union and the USA, probably strategically and militarily (e.g. GPS), and certainly for reasons of prestige and propaganda. But for commercial reasons also? Did the USA see itself as liable to lose out on a major commercial opportunity because the Russians got into space first? Remember, they give away access to GPS. If you want to argue that the Americans got very good at funding defence-related (and other strategic, non-commercial) innovation, and that this was an appropriate thing for their governments to do, and even that some of this turned out to have commercial applications, you won't get an argument from me. But that isn't the case you are trying to make, is it Peter? You are trying to make the case that the purpose of this sort of government investment is to improve economic competitiveness.

We'll try to forget, shall we, that there were sustained periods, since the establishment of ARPA in 1958, when the American economy has looked anything but competitive? For a good run before the Reagan presidency, America looked like it struggled to compete against the manufacturing and engineering might of the Germans and Japanese. Since Reagan and Thatcher, roles have been reversed. So those with a short memory suggest it was ever thus, at least so far as is convenient for the theory they are trying to promote. Because this is promotion, not journalism, isn't it Peter? Otherwise, might it have occurred to you to ask what accounted for the swings in competitiveness during the half-century of DARPA's existence? Did it get better and worse at funding innovation coincidentally in sync with the policy changes that more obviously account for the economic changes?

* * * * *

Tony Tether, Director of DARPA and Day's first interviewee, claimed, probably with justification, that DARPA had been "extraordinarily successful" at "mining the fundamentals of knowledge worldwide...[to] find people with ideas and concepts whose time had come to be taken from the fundamentals to be brought into a product". But if you listen to his words, he doesn't say anything about the commerciality. So what does Peter Day conclude?

"That's not just the DARPA Director talking his own book. This is, after all, the organization that invented the internet, and the stealth-bomber and -fighter, and all sorts of still-secret weapons. A coalition of American politicians, commentators and businesses seem to agree that the more-than-three-billion-dollars DARPA spends every year (more than £1500 million) is a huge but little-known boost to the performance of the American economy as a whole."

An unnamed, unquantified "coalition of American politicians, commentators and businesses", that is. Classic rhetoric. "It must be true, because everyone who knows something about it believes it".

At the top of his list of DARPA's innovations are the internet and various items of defence-spending. Of course the defence-spending is appropriate. It is a principal task of government. And (as a later interviewee will point out), the government is also the customer in this case, so it ought to be telling producers what it wants and encouraging them to produce it. Demand is secure if a product can be delivered. But that leaves the internet as the sole example given of a non-military, commercial product spun-off from DARPA.

The advertprogramme leans very heavily on the internet, returning to it several times as the example of what can be achieved with government-funding of innovation. But let's consider exactly what ARPA actually invented. ARPA invented the concept, the structure, and some of the protocols. But it made them freely available. This enlightened decision led to its extension and ultimately wide adoption in the form of the internet, but it is not obvious how this provided a commercial advantage to the USA. The protocols were public, and freely available for adoption by Europeans, Asians and other nationalities as much as by Americans.

It took 30 years before the internet started to become commercial. Its initial purpose and long-time raison d'être was as a means for certain elites (academic and military) to communicate - nothing to do with commercial development. It required the invention (by a Brit in Europe) of the Web before it had commercial potential. And that invention, though equally important to the eventual popularity of the internet, provided no more commercial advantage to the Europeans, than the authorship of the internet protocols provided to the Americans. The development of the Mosaic browser under the aegis of the USA's National Center for Supercomputing Applications (NCSA) finally provided a tool that could popularize the internet beyond the domain of the elites, but to produce a genuinely commercial, useable product (Netscape Navigator), one of Mosaic's original authors, Marc Andreessen had to leave the NCSA and found the privately-funded Mosaic Corporation with Jim Clark. Likewise, the fledgling Internet Service Providers, who brought internet-accessibility to the public, were privately-funded. The history of the internet is really the history of a series of publicly-funded projects that were technically excellent but for which no commercial application was envisaged or attempted from within government, waiting for entrepreneurs to identify the potential of the products in the marketplace and to invest their money to make the products commercial. How this can be used as an illustration of governments' ability to pick commercial winners to the benefit of the national economy is beyond me.

Still, despite his failure to claim or demonstrate that the products developed under DARPA-funding are commercial, Tether also claims that DARPA is significant to the broader American economy:

Tether (DARPA): "I think it is the secret sauce. I think it is the engine that drives the economy. Our industry is responsible for coming up with ideas on their own that they bring in to us that we then fund. We are perhaps the most friendly venture-capitalist that they can come to. Why? Because we do the same thing that a venture capitalist does, we give 'em money to take their idea to a product, but we don't take any equity."

These are ideas that are so good that they drive the American economy, but so bad that they can't get private funding? Or perhaps they could, but choose to take DARPA money because the terms are less strenuous. Well, isn't that just peachy? Businesses get a better deal, and the economy flourishes. Everyone is happy. Looked at with half an eye in that way, it sounds so good that you have to ask why don't we do away with venture capital (or, indeed, private credit generally), and get government to provide all credit facilities?

Because it doesn't work, that's why. Government is not better than diversified specialist financiers and investors at spotting probable market winners, and you can't make money cheap simply by providing it on preferential terms from the government. Someone still has to pay for it. Government has not eliminated time-preference, nor opportunity cost, nor risk. They have simply moved the risk and cost away from those who stand to win or lose on the strength of their judgments (private credit providers) and on to taxpayers at large. We have tried letting civil servants, who have inadequate access to market information, little specialist experience in specific markets, and no stake in the outcome, decide what people will or won't want. It was called the Soviet Union. Even in its more moderate form, in the UK (and other Western countries) of "a few decades ago" (i.e. the 60s and 70s), it hardly proved to be the elixir of economic growth. It was a part of the ever-expanding cost and intrusion of government into all walks of life that eventually brought our economy to its knees. A path that our Government and the BBC seem intent on dragging us down again.

It might be an idea to remember what Tony Tether's role is, and to consider whether he could say anything other than that his organization is very important. How is he going to get government money arguing that they'd do a better job letting taxpayers keep it?

But the key point, and the reason why Tether is not being disingenuous in arguing that his organization delivers, but Day is being disingenuous in extending that into a broader economic argument, lies in the following part of his interview:

Tether (DARPA): "They [DARPA-funded developers] all have one thing in common, and that is that they have an idea that they can't get done wherever they happen to be; an idea that they are very passionate about. And if that idea or concept lines up with what we think is a new capability for the Department of Defence, we bring 'em in, give 'em money to execute that idea, and that is, quite frankly, how the place is run." (My emphasis)

In other words, this is very specifically about defence - that sector of the economy to which the government is not just entitled but obliged to give special consideration, and for which the government is the principal customer. Yes, it is probably unavoidable for government to pick winners in that field, because, in the form of the military, it has the expertise and it provides the demand. There will be occasional commercial spin-offs (sometimes big ones) from that investment. That does not say anything, as Day assumes, about the applicability of this approach to the rest of the economy.

* * * * *

The same conclusion emerges from the interview with Barry Alexia of Raytheon. The focus is entirely on products targeted at the military.

Nevertheless, Day jumps from the defence specific to the economic generality with Charles Wessner of the National Academy of Sciences in Washington DC. It would be interesting to know why it was necessary for Day to note that Wessner was speaking in a personal capacity. Perhaps it was because that personal opinion was not entirely in accordance with those of his colleagues? It didn't stop Wessner and Day speaking as though this was a common view.

Wessner (NAS): "One of the US myths is that if it's a good idea, the market will fund it. And that is simply not the case. A venture capitalist has to ask what is the technology and is it really going to work and is there really a market for that. And that's not self-evident in the beginning."

Are the civil servants, when deciding how to allocate public money, asking different questions? Are they not interested in what the technology is? Do they not care whether it is really going to work? Is it irrelevant to them whether there is a market for it?

Or do they ask the same questions, but somehow the positive answers are more evident to them than to venture capitalists? Do they have greater expertise? The venture capitalist is risking his own money, whereas the civil servant is risking other people's. The civil servant will naturally be more sanguine about the risk, but does he have the same incentive to delve deeply into the issue to try to protect the investment funds?

That could be turned into an argument that government is better-placed to make high-risk investments because it is not so concerned about the risks, but remember, the venture capitalist cannot make money from his funds if he does not invest them. He has as many reasons to look for good investments as to avoid bad ones. He wants to invest, so if he turns down a project, it is because of a genuine concern, not because he is simply risk-averse.

Any individual venture capitalist is as likely to be mistaken as any individual civil servant (ignoring the difference in incentives to investigate thoroughly), but in a market with many suppliers of venture capital, if a proposal cannot raise funds from any of them, one has to ask how sound the proposal is. It is not a perfect system. Some good ideas will fall by the way-side, and some bad ideas will be developed. But the diversity-, incentive- and specialization-factors all suggest that a diverse, market-based system is likely to get it right more often than a centralized, bureaucratized system. Anyone suggesting the reverse has to explain why a civil service team is more likely to make the right judgment than multiple venture-capital teams.

Wessner (NAS): "The challenge is that there's what we call the 'valley of death', where you have to take the idea from the laboratory and bring it across a period where there's no capital to keep it going. And that's where, in cowboy, capitalist America, we actually have public innovation award programmes designed to get across the valley of death."

Day (BBC): "This valley-of-death funding-gap is something that has bothered governments and business-experts all over the world. In Britain, it's been in and out of the business headlines for decades."

There's those "decades" again. "In" in the 60s and 70s, "Out" in the 80s and 90s, presumably. If only we could rewind the clock to the glory-years of the 70s, huh, Peter?

I'd have thought businessmen were the main "business-experts". And I haven't noticed that this gap has bothered successful businessmen so much (other than leaders of the sort of corporations, such as the old nationalized industries, that have a symbiotic relationship with government, and an aversion to risking their own funds if they can get government to pay for it). Of course, what Peter means by "business-experts" is academics and consultants - people who earn their money by commenting on other people's risks rather than taking their own. Add these "experts" to those in government, and what this really means is that people who take little risk think those that take real risks overvalue those risks. That's easy to say from your armchair, boys, armed with other people's cheque-books.

I am, in a sense, a venture capitalist. Our company invests in immature solutions and commits to the long haul of bringing them to maturity. We have just sold a substantial renewable-energy company that was started twenty years ago when the technology was untried, and indeed when there was not even a market within the nationalized energy industry. We are already developing some new businesses to take over from this one, and are looking at other opportunities. We will invest in immature technologies. We will invest for the long-haul and not demand immediate returns. There are others like us. If there is a "valley of death", it is not because the money is not available for a good idea.

The common factor in proposals we look at that have been developed by inventors, particularly if they are academics, is that the inventor overestimates the potential of his idea, underestimates the difficulty and cost of bringing it to market, underestimates the threat of competition, undervalues management expertise, undervalues the cost of money, overvalues their own expertise, etc. They are blind optimists who resent being told that success is less than certain. In their business plans, revenue- and profit-growth is always exponential, while costs are linear and often flat. It is pure fantasy, yet it is disturbingly common amongst otherwise intelligent people.

There is funding out there for inventors with good ideas, but many of them will not agree to the terms on which it would be made available in the market. The "valley of death" exists because of the gap between the fantasy of inventors' hopes and the reality of businessmen's experience. What is needed to bridge that gap is not a prop from government unconnected to the reality on the other side, but removal of that prop so that both sides have to work together to meet in the middle. While the government provides that prop, inventors will not work with businessmen, but the prop will often not be sufficient to get them to the other side.

Two opportunities that we have looked at recently spring particularly to mind. One looked quite promising in theory, in a small niche. It was, at least, technically credible. The technology was probably sound, but the inventors were overestimating the market (they thought they could get grab 100% of all possible applications around the world within a few years), and underestimating the potential costs and difficulties. We were prepared to offer the money they were asking for, but they were not prepared to accept our terms. In particular, we demanded a controlling interest for as long as the project had failed to deliver. They claimed that we wanted too big a cut of the success that would be attributable to their invention if it went as planned. We called that bluff by offering a mechanism that gave them the opportunity to regain control at any point if it were sufficiently successful that they had the funds indicated by their plan. They, of course, wouldn't accept, because it wasn't really about the cut of success, it was about them not wanting to yield to our management expertise, and them undervaluing the risk. We might nevertheless have bridged the gap, because they didn't have many attractive alternatives, and we liked the idea if we could get more real about the prospects. But then they won a government award. They gave us one more opportunity to improve our offer, which we refused, and they went off to do it themselves. They may succeed, and good luck to them, but they are more likely to fail, because the government (unlike a committed investor) will not stump up more money if development proves more costly than expected, and because they needed management expertise to go with their technical expertise. The likelihood is that they will be back out there in a year or two looking for more funds. Investors like us will be grateful to the taxpayers for taking some of that initial cost off our hands, but what the taxpayers will have got out of it will be less clear.

The other "opportunity" was very different. It was clearly hopeless. The inventors could not provide a credible explanation of how it worked. I looked at it several months ago, and I know that the brokers are still touting it around. The inventors had been funded for several years by a formerly state-owned defence technology company, which was first privatized and then floated (shouldn't take too much to work out who that was). Following the float, their funding had been terminated, which was why they were now touting around for private money. They were armed with reports from former colleagues within the former state-owned business, talking positively but vaguely about the potential of the technology. The difference between the optimism and lack of concern with the detail of people who were not spending their own money, and the scepticism of those (even within the same organization that had previously been optimistic) who had to risk their own money was striking. We may all have been making a mistake, but I doubt it.

Government-funding can even make good ideas look like bad ones. We invested in one such project. Despite receiving several million pounds of grants, the business had gone into administration twice before we bought it. One of its many problems was a contract that the Government had burdened it with, that obliged it to operate in a way that was clearly uncommercial. There were many other things wrong with the project, but this factor would have ensured that it had little hope of success, however well-designed and -run it had been. We had to fight hard for a year to be allowed by the Government to terminate this contract - we had to prove to the satisfaction of the regulator that it was uneconomic, which one would have thought was fairly obvious after the company went into administration for the second time. The "expert" advice from consultants to the government and the business, a routine accompaniment of any grant-funded operation, was wrong in many ways. They had failed to identify many of the weaknesses in the proposal, some of which had been introduced in order to maximize the chance of obtaining the grant, and in some regards they had made recommendations that would only have made matters worse. In fact, it is rare to find a consultant advising government on how projects ought to proceed, who knows as much as the hands-on businessmen whose proposals they are criticizing, but that doesn't stop them recommending significant changes. That's why they are in the business of commenting rather than doing.

* * * * *

Day pretended to introduce a hint of balance in his interview of Jo Anne Goodnight, the Programme Manager of the Small Business Innovation Research unit at the USA's Institute of Health, which distributes government funding for medical innovations. But first he tried to establish that what she did was more commercial than she claimed:

Goodnight (NIH): "We say 'it sounds interesting, give us your research plan and methodology, tell us how you're going to do it, again why it's important'." [She then expands on how they review the research applications]

Day (BBC): "So you're getting involved in the business bits of a getting [sic] an idea to the marketplace in quite a complex way, aren't you?"

Goodnight (NIH): "We're getting involved in facilitating the business aspects. We're still about supporting the best science and the best research."

Try as you might, Peter, she is not going to let you characterize her work as commercial. She couldn't be clearer that they are funding research, not bringing commercial products to market. If the result of the research is a commercial product, commercialization is the responsibility of the business that received the research funding. We already provide research funding for academics and businesses over this side of the pond too. This isn't as different to our approach to research-funding as you would like it to be. But it is very different to our approach to supporting commercial R&D.

Anyway, on to the "balancing" question:

Goodnight (NIH): "But we want to do everything possible to position those companies for succeeding to the extent that we are able to affect that."

Day (BBC): "But this is federal money, federal money going into something which maybe in Silicon Valley a lot of it would be generated by angel investors putting not very large sums of money into companies that have only just been conceptualized and started. It needs federal money to do this thing, does it?"

Goodnight (NIH): "It does, because they're not always going to be able to find angels, they're not typically going to be able to find venture capitals, so this is again the beauty of the programme. It provides a resource of funds for small companies where they're not able to get that funding elsewhere."

End of interview. No question raised as to whether a business's inability to raise money from other sources is sufficient reason for government to provide that funding. The answer in Jo Anne's case is probably that most of this is research funding, and therefore not sufficiently commercial to attract investors, but maybe of sufficient social interest to justify government intervention. But if it were commercial, as Peter believes and wants us to believe, surely that was not a sufficient answer? Unless you really believe that one purpose of government is to chuck taxpayers' money at "commercial" projects that are insufficiently commercial to raise funds by other means.

* * * * *

The programme steps to another recipient of government funds, this time from the NIH. The first recipient, you remember, was a defence company whose business inevitably and exclusively involved producing products for governments. The second, System Biosciences, "specializes in creating tools enabling scientists to investigate the human genome, how the cell works and responds to various stimuli". Do these sound like products that are just yearning to be let loose in the marketplace? Or are they products for which there is demand only from other research projects? They may well be valuable products, but that is not the same thing as saying they are commercial. They exist to service pure science - research for the purpose of expanding understanding of the world - and as such belong in another sector where commercial funds are unlikely to be available, and where governments or charities are therefore going to have to provide funds if the work is to be done.

The amount of public money made available for those purposes is a political judgment, and it is a judgment that governments ought to make. It has little to do with economics and the strength of the economy, though. Apart from the wages of the scientists, and the suppliers of obscure equipment to those scientists, it is hard to demonstrate that this research inevitably contributes to the wealth of our national economy. We should do it, to the extent that we can afford it, because the outcome will be beneficial to society, not because of some calculation of assumed economic return. If the latter worked, funding would be available from VCs.

The central part of this interview is particularly egregious. Day's sarcastic tone has to be heard to be believed, mocking the thought that some people suggest picking winners is a bad idea.

Razvi (System Biosciences): "There's really three things you need. You need to have a strong scientific base. You have to have a very clear vision as to what products and technologies you're going to do. And then third you need to have good execution. Because without the last point, the money goes to waste."

Day (BBC): "And execution is, well, what we frown about nowadays in Britain. It's what the government used to do when it backed business with public money in the past in Britain - picking winners - and it had a disastrous reputation. But that's what you're talking about, that's execution isn't it - picking winners."

Razvi (SB): "Execution is not necessarily picking winners in the strict sense of the word. When I say 'execution', it means the company is driven, is focused, is moving fast and all the pieces of the team are working as one engine."

Damn these American businessmen, huh, Peter? You can lead them to water, but you can't make them drink. Try as you might to put words in their mouths to endorse governments picking winners, they somehow resist. Because unlike BBC journalists, they understand where one ought to draw the line between the activities of the state and the activities of the market. They may "big-up" the benefits of state-funding, because they depend on that funding, but they don't want government sticking its nose in to their commercial activities.

Razvi (SB): "I feel the market is very neutral, you know. It will reward you if you have the right products, the right formats, and, er, great customer service, and we strive to have all three of those."

Day (BBC): "Don't your rivals grumble about the public money that's gone into you?"

Razvi (SB): "No, they all have access to that. So it's an important source of financing for us and for other companies and, er, in fact there's no grumbling. Without this catalyst, there wouldn't be any chemical reaction if you will. So we all have availed the value [sic] of this catalyst and have been driven by it."

Maybe, but shouldn't you ask that question to the rivals rather than to Mr Razvi, Peter? What answer did you expect from him? "Yes, it's not fair and they hate it. But that's the way the cookie crumbles." Next week, Bill Gates. Day: "Don't other software developers grumble that you steel their ideas and then build your version into Windows?" Gates: "No, they all have access to Windows and freedom to develop for any platform, so, er, in fact there's no grumbling."

This may be an unavoidable part of public-funding for research, but let's not pretend the system is perfect, shall we? Everyone having access is not the same as everyone getting funding, unless this is an absurdly generous funding mechanism. There will be winners and losers. The NIH probably does its best to choose the best ones, and it may not be possible to improve on the way they go about it, but choices still have to be made, and some of those choices will be mistakes. Only someone who was determined to present only the upside could pretend otherwise. Is that the job of a BBC journalist?

* * * * *

Richard Aboulafia, of the Teal Group, provided (as mentioned) some welcome (if mild) dissent from this hagiography of state-funded research:

Aboulafia (TG): "There's an intriguing contrast between the European and British model and the US model on the other hand, in terms of research and development funding by the government. The European model is far more commercially-oriented; that is to say, they put money into new products that result in jobs. Whereas in the US, I think that's looked at more as the domain of the private sector, and therefore the best the government can do is to provide the kind-of long-lead items, the long technology concepts that might be harnessed, migrated over to the private sector if they reach an appropriate level of maturity." (He then compares France's minitel system with DARPA's internet.)

Finally, a contrasting view. Does Day explore this alternative perspective? No, he gives Aboulafia his chance to have his say and then moves on. Aboulafia is the only interviewee of whom no questions are asked. And his is the shortest segment in the programme, even though his was the only dissenting view. Very balanced.

* * * * *

In the process of moving on, there is time for a dig at Aboulafia.

Day (BBC): "Richard Aboulafia at the Teal Group. He may be critical of the European model, but there is at least one country in Europe that has had a huge success funding innovation."

Did any of the other interviewees get a concluding remark that said, roughly, "well that's your opinion, but..."? Of course not.

Day (BBC): "Finland, with only five million people, is world-famous for mobile phones. Think of Nokia. But it has a bundle of other smaller high-technology businesses and it wants many more. For two decades, the Finnish government has been putting money into private companies to encourage brainpower and innovation, and Finland is now ranked by the World Economic Forum in Davos as the most competitive economy in the whole world. State funds for R&D might have something to do with that."

Again, the tone is telling. That last sentence is pronounced the way that a health expert might tell a recalcitrant fatty that "eating too much might have something to do with your weight". Of course, it's the R&D funding, silly. What else could it be?

Keep in mind that first mention of Nokia, by the way. We're coming back to bask in its reflected glory in a big way shortly.

Day(BBC): "So, in Helsinki, I went to see Martti af Heurlin, Deputy Director-General of the Finnish funding body called Tekes. It was formed as a recession-fighting move in 1983."

Heurlin (Tekes): "We saw that we need some new areas for our industries in Finland. We were very much forest-based industries, then forest-cluster industries, also metal industries, but we didn't have very much ICT sector at that time, so that was very clear strategic choice also to increase that area, knowledge creation for ICT, but not only for ICT but how to apply ICT in more traditional areas."

Day (BBC): "Coz the Nokia story of an evolving, established forest-products company making paper, and paper goes around cable when electricity comes along, so it gets into cable-making. And then gets into the implications of what cable joins together - in other words, wireless. It's an extraordinary evolution for a single company, isn't it?"

Heurlin (Tekes): "Yes, it's a huge, huge evolution for Nokia, but we have to see that there is a lot of other things also in Finland but Nokia. But, of course, it has very central role - has had in 90s and this millennium and so it's really a very very big player here."

Day (BBC): "That evolution, though, is something you were trying to do for the country in general. That evolution away from raw materials production."

Heurlin (Tekes): "Yes, it was more the overall development we wanted to reach, so that there's more diversified industries in Finland. We didn't know if it will be the mobile phone. We knew it would be the more ICT-related industries."

You can hear the tension in Martti's voice. Yes, Nokia is great, he wants to shout, but that's not what I want to talk about.

What seems to be missing from all this talk about Nokia is a description of Tekes's role in its success. Why so coy, Peter?

A quick google reveals nothing about the role of Tekes in the development of Nokia's mobile-phone business, though the reverse - Nokia's role as co-funder and partner in several recent Tekes projects - is common.

Perhaps Nokia's website will tell us the role Tekes played in their redirection and growth? In a way. Their "Story of Nokia" pages reveal that the company went into manufacturing radio phones in 1979, the Nordic Mobile Telephone network was built in 1981, with Nokia providing car-phones the following year, when it also produced its first digital telephone switch. But hang on. Wasn't Tekes only formed in 1983? It may be hiding its light under a bushel, but as far as I can tell, Tekes was not instrumental, in fact, apparently not involved at all, in the development of Nokia's mobile-phone business.

So exactly why are you recounting Nokia's history, Peter? Is it because Nokia's development provides that rather tenuous analogy with what Tekes wants to achieve? Or are you looking to leave the impression that Nokia was, in some vague way, a part of the Tekes success story?

The problem for Peter and Martti is that Nokia is the story, and that story is one of commercial success by a private company investing its own funds, not of a government-funded winner. They badly need their own success story to parallel the private Nokia one. But they are struggling to find one.

In googling for Nokia and Tekes stories, I found a news story on Tekes's website, whose tone sounds very much like Martti's tone of frustration that everyone always focuses on Nokia. The story dates back to 2001, and is headed "There's more to Helsinki than Nokia". It points to an article in a local magazine that "describes Helsinki as a place with many budding companies and forthcoming technology visionaries who will dictate the future of Finnish business to a much greater degree than Nokia." Two examples are given: Arcus Software Oy and Smartner Information Systems. Well, it's been over six years. Presumably these "budding companies" and "visionaries" will now be dictating the present of Finnish business, as they were dictating the future then?

Not exactly. Arcus Software Oy seems to have disappeared off the map. I can find no references to them after 2002. Perhaps they just aren't very good at making themselves visible on the web, but that wouldn't say much for a software development company. Seems more likely that they have been sold or closed down. Smartner Information Systems still exist - as a website and product-range. But they were sold in 2005 to a British competitor with greater market presence. Is this the future of Finnish business? Or is it just the future of businesses all over the world that receive that kiss of death that is government grant-funding?

Perhaps this is unfair. Perhaps the rest of the Tekes projects have been storming success-stories? Happily, the Tekes website helps us out, with a selection of the most recent success stories. It's an odd collection. There are a few (Ekahau, Medixine and VTT) that appear to be building a business based on innovative solutions, though only Ekahau could claim to be reasonably hi-tech and to have grown the business significantly outside Finland. VTT is a long way from commercialization (post-2010) and as we have seen for Arcus and Smartner, there can be many a slip twixt cup and lip. These are the most straightforward of the crop, and describing VTT and Medixine as successes seems somewhat premature. Still, at least they make a credible story. The rest are more complicated:

  • "Tekes’ technology programme on fine particles has been completed but a cooperation network of companies and researchers in the field, the Fine Particle Forum, continues its work." Its achievements included network creation, and publication of knowledge on fine particles. "It offered a great deal of valuable knowledge to participating SMEs and supplemented their meagre R&D resources." The programme finished in 2005, so this "success" announcement relates not to the direct results, but to the continuation of the Fine Particle Forum. The direct results themselves consist of the "commercialization" of some measuring instruments and services. No value is placed on these goods to compare with the EUR 26 million that the programme cost.
  • "The nationwide HyväHoito (Good Care) project cluster develops shared national practices and structures for the care and prevention of chronic illnesses." Hi-tech? Innovative? Commercial? Very worthy, I'm sure, but a success-story for a research-funding organization with commercial ambitions?
  • "With the help of Tekes, Clothing+, a company that specialises in developing and producing wearable technology, participated in UCLA’s Global Access Programme in 2005. The programme analyses the success potential of a company’s product in the North American market." So the "success" was that Clothing+ participated in an analysis that predicted Clothing+'s potential. Shall we call that "meta-success"? The company's MD was quoted as saying "We have also been involved in EU project applications that were not successful. Preparing the applications has, however, inspired ideas, which we are now taking forward in other ways." Is that "anti-success"? And by the way, Clothing+ is a subsidiary of a substantial childrens' clothing company. This isn't exactly a start-up. Shouldn't they be funding this sort of thing themselves?
  • "NVIDIA Corporation, the worldwide leader in programmable graphics processor technologies, bought the Finnish company Hybrid Graphics in spring 2006." Hybrid had been going since 1994, surviving partly on Tekes funding, but finally succumbed to the high cost of R&D in its field, and sold itself to a bigger foreign partner. No information on the price paid by NVIDIA. It smells like a company that jumped before it was pushed. Success? We don't know enough to know whether this is success or failure.
  • "Sisu Axles has, in stages, introduced to the market the improved FuPro family of axles, which are suitable for heavy-duty trucks and military and industrial vehicles....The new family of axles was developed in 2002–2005 in a situation when the company was struggling with its old products. The research and development investment was exceptionally large, approximately 40 per cent more than the company’s usual R&D investment." So it's (a) old news, and (b) naked protectionism of an established company in a sector that Tekes was never intended to address.
  • "A private day care provider Suomen Tenava päiväkodit Oy has been applying service business models in day care since 1994. Customer focus, standardised procedures and use of technology guarantee quality and efficiency in all activities." Innovation? Hi-tech? In what way is this a business that needs government funding? I didn't notice a shortage of day-care businesses. And where exactly is the news in this?
  • "A cluster of five municipalities in northern Finland, the Oulu Arc Subregion, has created a health-care service model where small municipalities form a network through broadband technology. The Internet-based videoconferencing system has so far been used in tele-consultation, training and meetings." Tekes must be so proud. They have "invented" the idea that you could use videoconferencing for workers in remote municipal healthcare centres to gurn at each other over the internet. Was there really no one around who could install this facility at a competitive price? Or is that simply what they did (outsourced the provision) and then claimed it as a great innovation? As a bonus: "People have been very interested in our network model. Yet the service systems vary such a lot from one country to another that our model cannot be directly applied elsewhere." said the Project's Manager.

This may still be unfair. Some of these may be more innovative, or more successful, or more deserving of government funding than they at first appear. And this is only the most recent success-stories. The earlier ones (apart from Arcus and Smartner) may have been more convincing. But the point is that we don't know, because Peter didn't ask the relevant questions to make that judgment. What are the combined annual revenues and profits of Tekes-funded projects, compared to annual funds made available by Tekes and its internal costs of operation? What proportion of Tekes's projects go on to commercial success / are still operating profitably five or ten years after the end of funding? What proportion of Finland's GDP is attributable to businesses that have received Tekes funding? We will never know. Peter was not interested to know the answer to these or any questions like them.

Another nugget from Tekes's website is that "Tekes experienced a dramatic growth in the late 1990s as a result of a marked increase in public technology funding." It had started with a staff of 20, but that number "has now increased tenfold". Typical government programme - ever-expanding size and reach, with ever-contracting efficiency and success.

And another dirty little secret - where these projects are real businesses needing real development funding, they all had VC funding as well as money from Tekes. It wasn't that these ideas couldn't get money. It was that the Finnish government wanted their taxpayers to reduce the risks for Finnish VCs of investing in Finnish businesses. This is a straightforward market-insulation mechanism.

* * * * *

The penultimate pair of interviewees (before the already-mentioned Lambert of the CBI) were from a Tekes-funded startup - Enfucell Ltd. Xia-Chang Zhang was the founder and Jaakko Happonen was the Chief Executive. I use the word "was" advisedly, because by the time the programme aired, Mr Happonen was no longer Chief Executive. The company's News page on its website records: "15.5.2007 The board of Enfucell has released company's CEO Jaakko Happonen from his duties on May 10, 2007 with immediate effect because of differences in view." Still, I'm sure everything's going swimmingly. Day's impartial observation that "demand for the batteries is just round the corner", and Happonen's claim that "we are talking about hundreds of millions of batteries" (or it could have been billions - hard to tell through the Finnish accent) are rock-solid. Funny, though, how these things are always, just around the corner, but going to be massive, isn't it?

* * * * *

So let's run through that again. The US economy is very successful, and the American government spends a lot of money funding research (just don't mention that it's not commercial research and it's limited to a couple of specific sectors where the market would not provide funds). The American and British/European models are different because the European model is more "commercial" (in the sense of targeting neither innovation nor efficiency, but jobs). And the European model must be successful because the Finns spend a lot of money on this sort of funding, and they have a competitive economy and are the home of Nokia (whose success is not a result of that funding, but don't be awkward).

Congratulations, Peter. The Pullitzer must be in the bag. Or should that be the gong, for services to socialist propaganda?