The Innovation Economy begins with discovery and culminates in speculation. Over some 250 years, economic growth has been driven by successive processes of trial and error and error and error: upstream exercises in research and invention, and downstream experiments in exploiting the new economic space opened by innovation. Each of these activities necessarily generates much waste along the way: dead-end research programs, useless inventions and failed commercial ventures. In between, the innovations that have repeatedly transformed the architecture of the market economy, from canals to the internet, have required massive investments to construct networks whose value in use could not be imagined at the outset of deployment. And so at each stage the Innovation Economy depends on sources of funding that are decoupled from concern for economic return.

Upstream, when mechanical tinkering yielded to scientific discovery as the basis for economically meaningful innovation, funding initially was supplied by the great corporations that had been spawned by the second industrial revolution toward the end of the nineteenth century. These corporations, variously supported or at least tolerated by the state, channeled a portion of their profits into central research laboratories. By the time over the past generation that their seemingly unassailable market positions were lost to competition or deregulation, a cadre of American political entrepreneurs had successfully invented national security and human health as legitimizing rationales for direct state investment in science.