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Throwing Good Money After Good

The United States and France have established public funds that invest in innovations addressing the needs of poor people. These social innovation funds, characterized by an open, tiered, and evidence-based approach, have already benefited more than 100 million people and could be a powerful tool in reducing global poverty.

PARIS/CHICAGO – Innovation can have a profound effect on our lives. Thanks to technological advances that reduced the price of solar energy by nearly 90% between 2009 and 2019, the green-energy transition is within reach. Likewise, agricultural innovation has helped to triple the amount of food grown per hectare since 1960, dramatically reducing hunger even as the world’s population more than doubled. And mRNA vaccine technology has saved countless lives during the COVID-19 pandemic.

Societies have established various mechanisms to encourage innovation. One is the market system: companies pay for research and development in the hope of selling innovations at a profit, and investors back companies if they think their products or services will sell. The patent system encourages R&D by protecting original inventions from being copied. And government funding supports basic science, which is critical to driving innovation but difficult to patent.

While these mechanisms foster innovation, they are not perfect. In some areas, commercial investment incentives fall far short of what is required, and the needs of the poor too often go unaddressed. Certain innovations, such as emissions-reduction technologies, benefit everyone rather than the customer. This means that their price does not fully reflect their value to society, reducing private companies’ incentives to develop them. Other innovations are difficult to patent and too easy to replicate, which limits the potential rewards for developers.