The limits of capital: Transcending the public financer-private producer split in industrial R&D

A near consensus has emerged supporting the public funding of industrial R&D as a solution to a host of market failures. However, the common policy prescription urges government to go no further than minimal 'market-enhancing' intervention, largely keeping the state to the role of financer of privately conducted R&D. By focusing on three general issues in the context of industrial R&D - trust, coordination, and motivation - this article develops an argument for a more expansive government role. Two models of state intervention are at the center of the analysis: public production of R&D, and state sponsorship of inter-firm and inter-organizational networks. It is argued that both these models have distinct advantages, as well as weaknesses, in addressing common challenges to industrial R&D production. Informed by the positive experiences of different states that have moved in recent years from high technology industries' periphery to the center, this article explains how the two models of state intervention address the various problems associated with pure private production. It is concluded that while even advanced countries with well developed markets might find it advantageous to actively intervene in industrial R&D, the two models should especially be considered in cases of economies that suffer from weak market signals, low retention of value-added functions, limited professional capacities, and limited institutional thickness and networks.