A good example (IMO) of the effectiveness of government directed "innovation" is the "war on cancer" initially declared by Richard Nixon. The net effect has been 'nota'.
The NIH is the primary funding agency for basic medical research. This process has evolved to the NIH trying to pick winners and losers through the peer review process. To illustrate how this has changed, I had a conversation a few years ago with the late Baruch Bloomberg, MD (Nobel Prize for the discovery of the Hepatitis B virus). The comments he received in response to his initial grant application were scathing and the grant received a very poor score, but it was funded (this was in the '60s).
Had that grant application been reviewed today, it would not have even been discussed and considered for funding.
The experts that review grant applications (I have sat on numerous review committees) by definition review the application in light of the current paradigm. Innovation, by definition, is outside of the current paradigm and cannot be predicted or mandated. My point is that by trying to pick winners and losers, the NIH is, in fact, suppressing real innovation.
Furthermore, the NIH needs to be accountable for how it spends it's money budgeted by Congress. This has led to false metrics, i.e. numbers of papers published or drugs approved or scientists employed. Now that may sound reasonable enough, but merely publishing a paper or hiring grad students and post-docs or junior faculty or having a drug approved by FDA does not translate to changes in disease progression in patients or reducing the cost of healthcare.
I would argue that a second and third order effect of the 'false metrics' from the picking winners and losers strategy has in part led directly to exponential rise in the cost of drug development. The net effect is that we have past the point of diminishing return for drug development, i.e.
we can spend infinitely more dollars and get no new drugs that alter the course of disease.
What we are getting from this process is incremental increase in knowledge (not a bad thing) but I have likened this to extending the known decimal places of pi by one. Woopie!
Moreover, the hidden cost of killing innovations like the discovery of the Hepatitis B virus is incalculable in terms of healthcare costs and the loss of improvements in public health, patient suffering and deaths (lost opportunity cost).
Just my $0.02 worth