Return on investment or ROI is simply not a useful way of thinking about new ideas and new technologies, writes Tim Harford in ‘Adapt: Why success always starts with failure' ( www.landmarkonthenet.com ). It is impossible to estimate a percentage return on blue-sky research, and it is delusional even to try, he argues. “Most new technologies fail completely. Most original ideas turn out either to be not original after all, or original for the very good reason that they are useless. And when an original idea does work, the returns can be too high to be sensibly measured.”

Mentioning as an example how, in 1928, Alexander Fleming did not keep his laboratory clean, and ended up discovering the world's first antibiotic in a contaminated Petri dish, Harford adds that apparently useless curiosities have later turned out to be essential for developing radio, television, and computing.

To those who wonder if such projects are no different from lottery tickets because of the rare and spectacular payoff, his answer is that lotteries are a zero-sum game. “All they do is redistribute existing resources, whereas research and development can make everyone better off. And unlike lottery tickets bold innovation project do not have a known payoff and a fixed probability of victory.”

You may feel that innovations are easy and widespread because open-source software gets used in student dorms and computing power is ubiquitous. While that may be true of innovations in certain areas, the grim reality is that cures for cancer, dementia and heart disease continue to remain elusive, as the author notes. “In 1984, HIV was identified, and the US health secretary Margaret Heckler announced that a vaccine preventing AIDS would be available within a couple of years. It's a quarter of a century late. And what about a really effective source of clean energy – nuclear fusion, or solar panels so cheap you could use them as wallpaper?”

What these missing-in-action innovations have in common is that they are large and very expensive to develop, he reasons. “They call for an apparently impossible combination of massive resources with an array of wildly experimental innovative gamblers.” In Harford's opinion, therefore, when innovation requires vast funding and years or decades of effort, we cannot wait for universities and government research laboratories to be overtaken by dorm-room innovators, because it may never happen.

Prize money

Thankfully, there can be interesting alternatives. Take, for instance, the $1.5 billion prize offered by five national governments and the Bill and Melinda Gates Foundation. Called an ‘advanced market commitment,' the prize aims to reward the developers and suppliers of a more effective vaccine against pneumococcal diseases such as pneumonia, meningitis and bronchitis.

The reason a prize is needed, as the author elaborates, is because despite a patent, no pharmaceutical company could expect to reap much reward from a product that will largely benefit the very poor, though pneumococcal infections kill nearly a million young children a year, almost all of them in poor countries. And, reassuringly, the idea has worked! “At the end of 2010, children in Nicaragua received the first prize-funded vaccines for pneumococcal disease.”

The next target is a vaccine for malaria, which might require a prize of $5 billion to generate commercial interest, the author observes. “Prize enthusiasts think that even an HIV vaccine may be possible, and speculate about a fund of $10 billion to $20 billion, three times the total annual research spending of the largest drugs companies.”

The wonderful thing about prizes, says Harford, is that they do not cost a penny until success is achieved. “This allows the ultimate combination: a completely open field, where failures are tolerated and the boldest, riskiest idea could succeed, alongside huge sums of money that are spent only when the problem is solved.”

A book that can push you to reprioritise your resources.

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