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Guess what BusinessWeek discovered about State-backed monopolies? They don’t spend much on innovation.

This is not a terribly new discovery. There is little incentive for a firm that legally owns the entire market on a service, so why waste the money on more efficient or effective technologies when you have a legally guaranteed revenue stream? What is the incentive for a monopolist to invest in developing new widgets?

TechDirt suggests that these rent-seeking firms aren’t technology companies at all, but rather wealth-extractors. And AgainstMonopoly notes that their monopolistic actions speak louder than their superficial overtures.

You see, apparently despite bringing in revenues of over $40 billion last year, AT&T spent a mere $130 million on R&D. This is in contrast to the less-regulated market of computer chips, in which Intel alone spent over $5 billion on R&D.

So one question can be, what is that G-spot firms should spend on innovating?

Paul Kedrosky shows that sometimes more investments means less return in the long-run — just because you spent money on creating a product does not mean it will turn into a commercial success.

And this is a point that ArsTechnica misses in their op-ed on the matter. Throwing money at “basic research” without a comprehensive business model behind it is not a practical way of staying profitable in industries that do not receive subsidies or legal monopolies.

In fact, the main reason AT&T Bell Labs, Xerox and IBM all had the money to do what they did is because of one thing alone: State intervention.

They received tax-funded subsidies in the form of large government contracts. Their industries were protected from outside competition through patents and geographical monopolies. And while it is impossible to predict what free-markets would have created, a strong case could be made that different, more efficient patterns of capital allocation would have been made if this intervention never occurred.

In short, these firms did not have to deal with free-enterprise and its creative destruction. And unfortunately the only winners in the continual cycle of telecommunication reregulation has been the State monopolies which have once again consolidated into their original form.

And rather than making another long-winded polemical against State intervention, perhaps one of the solutions to innovation at large firms is already being discussed: Crowdsourcing.