The big question for this segment is can innovation be planned? [MUSIC] Does innovation just sort of happen through the synergy of collective learning and the growth of exchange networks? Or can you plan innovation? Governments have always been powerful drivers of change. And despite the instinctive conservatism of traditional governments on many issues, in the ancient world they often invested large amounts of wealth and resources in innovative activities. The Pharaohs who built the great pyramids had to seek out cutting edge technologies in building, transportation and labor management. It was worth doing so because the pyramids projected the awe inspiring images of power and control that rulers valued so highly. Traditional governments were always interested in innovations with military significance, such as chariots or catapults or roads. The Persian Achaemenid Empire built an imperial highway along which horse couriers could carry information fast from Persepolis to Greece. Chinese governments and the Mongols built similar systems across Eurasia. These were the ancient equivalents of the internet. The Romans built roads that have lasted until today, just so that their legions could control a large and expanding empire. In China Tang Dynasty rulers built a huge canal that transported rice and goods from south China, to the capital in the north. But usually, traditional governments treated innovation as a dangerous and disruptive process. Whether it was in technology or religious or political ideas, most modern governments treat innovation more positively. By the 19th century it was clear that the innovations of the Industrial Revolution, from rifles and machine guns to trains and planes meant power. In the middle of the 19th century, the great traditional empires of Russia, Ottoman Turkey, Ching China and others, began to realize that they would not survive unless they too began to encourage innovation. Humiliating military defeats, such as the Crimean War or the Opium Wars forced traditional rulers to innovate, but how? The first industrializers such as Britain and the states of Western Europe and North America seemed somehow to stumble into industrialization even though some of their policies, such as the protection of colonial markets or the creation of national banks, may have encouraged innovation. The Russian, Ottoman and Ching governments, had to take a more active role, and to try somehow to plan innovation. But how? What could governments do to accelerate innovation, above all, in manufacturing on weaponry? The economic historian, Alexander Gerschenkron, argued that planned industrialization was bound to take very different forms from more Spontaneous forms of industrialization. Above all, he argued, governments would play a greater role. In Russia the government funded and built the Trans-Siberian Railway. And supported those who ran the factories and mines that built Russia's trains and rails and supplied them with coal. The Russian government also sought out new technologies as early as the 18th century. Russian rulers tried to hire James Watt, when it learned he was working on an improved steam engine. In Japan, from the 1870s, the major government launched a massive campaign to organize and fund modern industries to train scientists, bankers, and engineers, and to borrow, buy, or steal modern industrial technologies. During World War I, governments took an increasingly active role in industrial policy, and actively supported innovation simply in order to win the war. After the financial crash of 1929, economists such as John Maynard Keynes began to argue that even peace time governments might have a crucial role to play in pump priming, the economic activities that encourage growth and innovation. As Keynes pointed out, it was worth paying the unemployed if that meant they could buy products that would otherwise go unsold. During World War II, government planning lay behind many crucial innovations in nuclear weaponry and computer design, in rocketry and airplane design. The Soviet government took these tendencies to an extreme when, under the ruthless leadership of Stalin, it built an economy In which market forces were almost entirely eliminated. The Soviet government began to manage the entire economy. It bought or stole innovations developed elsewhere. Its tanks, for example, were based on French and American models. But they'd also invested huge amounts in education and research. And it had some spectacular successes. Particularly in areas that were militarily significant such as the mass production of weapons or high prestige areas such as the space race. So how effective were governments as planners of innovation? The eventual failure of the Soviet planned economy suggests that too much planning could stifle innovation by clogging up the networks of intellectual exchange on which innovation depended. The Soviet Union even banned the use of Xerox machines for fear they would be used by dissidents. And yet, the successes of the major government in Japan and the other east station tigers such as South Korea and Taiwan and now China suggest that government could nevertheless play a crucial role in encouraging innovation. But how? What was the right balance of government planning and independent market activity in encouraging innovation? At what point did government planning threaten to stifle innovation? This remains a fundamental, and as yet unresolved debate within modern governments, and within modern development economics. [MUSIC]
