Creating the Private Capital Market Infrastructure for Sustainable Innovation Economics

Abstract:     
Our interest in writing this article is to create a bridge between the scholarly and academic research on technological innovation and a private sector, for-profit business model that implements the ideas on innovation and entrepreneurship, primarily in metro regional economies.

We begin by asking the question what happened to all the venture capital from profits made in the 1998 IT boom. We explore deficiencies in both the existing traditional economic explanation of innovation economics, and the related issue of a failed venture capital business model that dissipated the nation's supply of capital.

We review the Canadian experiment in increasing liquidity in the private capital markets and establishing a junior stock exchange to trade private capital units.

We conclude that self sustaining and self renewing innovation economic growth requires an entirely new private capital market infrastructure. The components of that infrastructure must be built in each major metro region.

Relying on worn-out concepts of equilibrium economics, or worse, recycling old-style liberal policy options, will not provide a useful roadmap for building the new innovation economics infrastructure. At its very initial assumption, the old theory makes a deadly wrong assumption about the supply of capital.

The supply of capital does not depend on a future unknown expected return, it depends on how much profit the capitalist has in her pocket ready to invest, that is left over from her last round of exits. What happens after the exit event depends on what's coming out of the Innovation Economic Pipeline.

Number of Pages in PDF File: 8

Keywords: social welfare, innovation, regional private capital markets, upward occupational mobility, Canada

JEL Classification: L16, M13, O16, O31, O32, O33, O34, O38, R58

working papers series