But this is good waste, and indeed is a necessary waste for a progressive and growing economy or society. Public goods are created by a process that begins with political entrepreneurship and enterprise and ends with an ongoing order (i.e. a firm organized about an idea or technology or a bureaucracy organized about a policy). Except when it doesn't, which is when an idea has failed. Yet this 'operational expense' is not a 'generic loss' if lessons can be learned; which will be true to the extent that the endeavour was appropriately conceived as an experiment from the start (Burtless 1995, Leigh 2003). Good waste is the consequence of experimentation that leads to learning that then feeds back into innovation in governance and opportunity. Learning naturally involves mistakes and post-hoc waste.

Yet being wasteful in an effective way is hard: it is not easy to 'waste' money well. Best practise is always to spend public or shareholder money in a transparent, accountable and efficient manner. It is easy to do what the average voter wants, which is, by the very definition of the arithmetic mean, to not take risks. Those who support risk-taking experimentation are always in the tails of the distribution. As such, the natural demands of transparency and accountability will tend to induce corporate, civil and public offices toward the risk adverse centre and away from imagination, uncertainty and experimentation. This is a rational strategy and the failing here is institutional, not personal. Yet the cost is born publicly, as good governance is associated with the promotion of efficiency and the avowal of the sorts of imagination-led risk-taking experiments that produce innovation.

It is of course far from my intention here to present or develop this argument as a critique of democracy. Rather, what I wish to emphasise is that within any democratic system of the public organization of asset ownership, management and service provision there are systematic biases against innovation that function through the promotion of public accountability and efficiency. Occasionally, of course, a charismatic leader can overcome these inherent biases and lead their people down a path of experimentation with full cognition of the risks and uncertainties involved. Yet these situations are rare and often correlated with desperate contexts linked to immediate threats. The fair-weather entrepreneurial politician remains a rare species.

The implication is that entrepreneurial innovation in public policy is discounted due to a public aggregate of what in behavioural economics is called 'loss aversion', or the tendency to value a statistically equivalent expected loss higher than the corresponding statistical gain. This paradox functions for known gains and losses, and is proportionately higher for unknown potential gains and losses. In terms of both individual rationality and social democracy, we all systematically underestimate the gains from novelty. Put differently, it is entirely human to overestimate the costs of 'good waste' and to underestimate potential gains from experimental learning. This is why efficiency is an easy political sell, but why innovation is hard. It is why efficiency and innovation seem logically connected when in fact they are not. It is why there remains a persistent innovation deficit in democratically organized public services.

5. EVOLVING POLICY

So, what might be done to remedy this seemingly intrinsic state of affairs? On one hand, there is an important role for public education about the actual nature of the need for policy experimentation based on the reality of economic evolution and its socio-cultural correlates in order to create a public climate of trust and willingness to proceed in such experimental ways along with the promotion of a tolerance of legitimate failure. This is obviously a fine line, as the very conditions implicit in this bargain are also the conditions that lead to the encroachment of unaccountable power. Accountability is vital, yet absolute accountability crowds out imagination and experimentation. The balance must then turn on accountability of process. But what is this?

The logical form of such a contract is an adaptive or evolutionary policy-making framework, which involves accepting at the outset that some of the things tried will fail (see Pelikan and Wegner 2003). But, rather than focusing on the minimization of the risks associated with such failure, it is better to focus on the possibility and prospect of successful experiments. Policy rules then enter to ramp-up those initiatives that were successful into an ongoing process, and to then renew the process with new experiments in new directions updated by the knowledge acquired from the last round of experiments. Such an empirically adaptive policy approach would also be scientific policy. Yet like all scientific experiments, it would need to build into its expectations from the outset the near certainty that some failure will occur. Yet by properly accounting for failure, the prospect of innovation may become routine, not exceptional.

In other words, governments that can learn to take risks, and accept that perhaps much will fail in the short run, will succeed in the long run. The same is of course true and plainly observable of firms and, indeed, of people. Risk is essential to the renewal and regeneration of variety, and therefore to the growth of regions and companies alike. The purposeful and noble act of avoiding the immediate waste of public money through the promotion of efficiency may therefore actually lead to the long run waste of public money if it then leads to a loss of appetite for risk. The same argument can be made about shareholders seeking full accountability for short term returns. A good director is not always a good democrat, as neither should be a good civic leader. They should listen to the tails of the distribution as well, and perhaps even with prejudice, for these are where new ideas come from. And new ideas, once adopted, make for new voter averages.

No one likes being experimented on without their knowing, but we each and all regularly put ourselves in these positions for both utility and profit when the experiment is self-selected or complicit. There is no inherent reason that a body politic would not accept or even embrace adaptive policy experimentation if it is explained and accepted that that is what is occurring. Full disclosure is thus not inconsistent with limited accountability or political liability. (Note the comparison with the invention of limited liability trading companies and the onset of market capitalism as a force of innovation: no such political analogue yet exists, i.e. the 'limited liability' political experiment.) Instead, problems only arise when it is simultaneously insisted that this will not result in any failure or (good) waste. Yet that impossible bargain is often sold with the result of systematic political failure (cf. market failure) due to lack of innovation.

It is an axiom of conservative thinking that the greatest damage a government can do is to waste public money. Yet, from the evolutionary perspective, there is something potentially worse: namely the failure to promote or to learn from experimentation, thus resulting in a political or bureaucratic order increasingly divergent from the evolving economic order (Hayek 1960, Buchanan 2006). The propensity toward not taking risks, and the corresponding inability to accept experimental failure, thus begins a downward spiral toward a slow strangulation and swallowing of the resources under governance. Eventually, and often inevitably, this will end in a blaze of rent-seeking once the opportunity is enclosed and captured. This is precisely the outcome that the focus on efficiency is intended to avoid, yet which by the incentivized neglect of policy innovation in an evolving economy eventually all but guarantees. The strategic rent seeking popularly thought to be overcome by the mandates of transparency and efficiency is, in this view, better realized through a mandate to experimental policy learning and innovation.

The promotion of public sector risk-taking is the basic antidote to such an entropic position in which the cost of 'good waste' is the evolutionary outcome of rational experimentation in the discovery of new opportunities and better policies. 'Bad waste' remains as it always was, namely something to be avoided. But it should not be confused with the innovation costs of political experimental endeavour. Bad waste has only public cost (with private benefit to those who corrupted the institution in their specific favour). Yet good waste, while publicly costly, may also be a necessary condition for public benefit in the form of policy innovation. In both scenarios there is public waste, i.e. public resources devoted to things that did not work out. Yet the difference is whether these benefits accrue privately or publicly.

So while inescapably 'political', the driving principles of adaptive policy should be properly 'experimental' and subject to strict methodological protocols (Burtless 1995, Leigh 2003). This should proceed in seeking to make conjectures about what systems or actions will produce public goods and then testing these hypotheses through public action. The purpose of experimentation is of course learning, followed by the analysis of this new knowledge and its communication and distribution to the society or economy under governance.

In this respect, government reports should then aim to be more like scientific papers, stating what was proposed, what experimental conditions held, and what was learnt. This sort of goal is normally recognized as being achieved only by research institutes, such as elite universities or public sector research organizations, but it should also be the goal of all systems with good governance to seek to develop new rules that might be usefully adopted and used by others. Whether this is driven by public or private organization is immaterial. What matters is that the outcome of the experimentation is appropriable learning about what creates value and how that can be applied. Civic and political leaders, as trustees of public wealth, should always seek to be great experimenters as well as great bureaucrats. The solution to the innovation deficit, in other words, is for political leaders to publicly act more like scientists, or political entrepreneurs, and for the public to learn to appreciate that role and to discriminate (at the ballot box, ultimately) their success or otherwise in doing so.

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