What crises teach us about innovation

During World War II, the US and the UK had no doubt of dominating normal competition principles. Desperate to improve their air defenses, British aircraft pioneer Frank Whittle was forced to work with Rover and Rolls-Royce and then their engine design to the Americans for production in large volumes. After all, the world’s future was at stake.

This example is worth considering today, as authorities are launching a much-announced suppression of anti-competitive behavior by Big Tech and other large companies. The problems need to be addressed, as the EU recently did with a groundbreaking € 875 million case against German carmakers for colluding to delay the implementation of clean emissions technologies.

But authorities must also ensure that their efforts do not deter the necessary cooperation to solve the pressing problems of climate change and global health. Individual companies are critical to delivering groundbreaking solutions – see the progress of cancer treatments and Tesla steal a march on electric cars.

Some problems are too urgent to wait for the inevitable trial and error process. Covid-19 has forced some governments to reconsider their approach to competition and industrial policy.

During the first UK shutdown last year, the UK dairy industry found itself in a crisis because it usually has three separate supply chains that do not communicate. Farms that normally cater to the luxury hospitality sector have seen demand fall, while supermarkets and milk processors have not been able to get their hands on enough. But they were terrified of working together to solve the problem, because there were already eight companies £ 50 million fined for price fixing. The problem was finally solved when the British government gave members of the industry special permission to research producers and share the results until supply and demand balance.

The US has meanwhile called on the Defense Production Act of 1950 to speed up vaccine production. This prevented the controversy of exporting key supplies, and told the manufacturers to postpone other products and even handed over control from a supplier’s factory to Johnson & Johnson after errors ruined millions of doses.

These lessons need to be applied more widely. There are different ways to do this. Governments can identify specific technology areas, say carbon capture, electric batteries or cancer vaccines, and invite companies to apply to collaborate on specific projects. The permits must be time-limited but renewable, and authorities must demand input from licensing and pricing decisions.

Another option would be to set up a pre-approval process with which companies that want to work together will notify their governments and get guidance on whether governments will object to it.

The EU has a proven model for this. Under a 1962 ordinance, companies could ask the European Commission for “consolation letters” that they had been notified of a co-operation agreement and had not objected to. The process was scrapped in 2003 to force companies to decide for themselves, but in April last year, the commission revived it as part of its response to the Covid-19 pandemic.

Competition Commissioner Margrethe Vestager suggested that the commission be prepared to use the process in the green energy context also, which all benefit. The extreme weather of summer reminds us that we are running out of time with the global temperature rise. The stakes are too high to be purist.

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