Most businesses fail; high failure rate correlates to high innovation; attacking green investment failure dumb.

Via this Gruaniad comment, this article listing `faltering or bankrupt' US green companies that have received government money.

Krugman provides the basic riposte: "because the private sector never ever puts money into ventures that end up failing." But I thought it worth throwing in a couple of things from here - from Albert Bravo Biosca's `growth dynamics' presentation. The data is from a UK pespective but compares to the US and Europe.

1. Of UK businesses that started in 1998, ten years later only 37.5% survived. Only a very small percentage had anything like strong growth in that ten years.

2. A "5% increase in share of static firms = 1% lower annual TFP [technological frontier of production] growth" . So more stable firms in aggregate means less innovation overall.

So: businesses fail - the majority, in fact. And high failure rates actually correlate to higher innovation overall. The presentation also has data showing Europe to be more static than the US too - there is thus both higher churn and higher innovation overall. Creative destruction indeed.

Of course, people citing failure of government-supported firms generally oppose government intervention of any kind. But in order to make the case they want to make, they'd have to demonstrate those investments are always worse than comparable private sector support. They'd also need to show some statistically significant difference of failure rate between green tech and other business investment. Given how many firms fail, though, a strategy of "listing failed firms" is pure cherrypicking. Shock.

As Ha Joon Chang's Bad Samaritans explains in some detail (echoing List) governments have often provided support and a degree of protection to fledgling industries. The trick is to strike a balance between that and propping up unsustainable organisations (or deciding that some service isn't suitable for the private sector. I know, some people don't really understand those last six words...)

The rest of the presentation is well worth looking through for US/Europe comparisons and some great data-driven contradictions of common business memes (e.g. there are no `high growth sectors'; high growth is a stage some businesses go through; most high growth is from firms over 5 years old...)