Innovation: The Government Was Crucial After All(nybooks.com)
nybooks.com
Innovation: The Government Was Crucial After All
http://www.nybooks.com/articles/archives/2014/apr/24/innovation-government-was-crucial-after-all/?insrc=hpss
16 comments
Private industry tends to innovate in different ways from governments, and it has been crowded out of innovation in many areas, in most Western countries, making this comparison difficult. You could look at industries which have low levels of government regulation and intervention, and try to compare them to government-run industries, to find the comparative innovativeness of the industries. This analysis will give you a mixed bag, with some government-related fields having historically high levels of innovation (aerospace), and others having low levels (education and healthcare). The private sector has many innovative sectors (retail, software, semiconductors, IT) and probably some low achieving industries, though none come to mind.
Those arguing for the positive role of government in disruptive innovation should also avoid allowing the government to 'take credit' for anything in any field which it has ever been involved in, as the private sector is not given the same deference; (McDonnell built Mercury and Apollo, Grumman made the moon lander, and Rockwell designed the space shuttle; Rocketdyne and P&W designed, tested, and built the engines).
Those arguing for the positive role of government in disruptive innovation should also avoid allowing the government to 'take credit' for anything in any field which it has ever been involved in, as the private sector is not given the same deference; (McDonnell built Mercury and Apollo, Grumman made the moon lander, and Rockwell designed the space shuttle; Rocketdyne and P&W designed, tested, and built the engines).
This is hardly a West Coast attitude. It's just the typical narrow perspective on the world from people that overly rely on well tuned skills with first-order logic, and therefore use ridiculously leaky abstractions that fall down.
It's also ignorance, a lot of people don't know where ideas and implementations came from, and how various products got traction.
Combine that with politics, the most powerful tool that mankind has invented for turning off critical thought, and you get a bunch of people parroting "government bad" who are far louder.
It's also ignorance, a lot of people don't know where ideas and implementations came from, and how various products got traction.
Combine that with politics, the most powerful tool that mankind has invented for turning off critical thought, and you get a bunch of people parroting "government bad" who are far louder.
That same innovation could be funded without also funding weapons development and other destructive wastes of resources. How much more innovation would there be if 100% of the funds went to R&D of non-military applications?
Yes some good does come of it, but at what cost? The whole point of MAD was that it was no longer necessary to develop better killing tools, because any war should be unthinkable. Yet we continue to waste valuable resources, 100s of billions of dollars that could be used for education or humanitarian efforts, on shit like this: http://www.wired.com/2012/03/f35-budget-disaster/
What's the point, other than making a small number of people rich?
Yes some good does come of it, but at what cost? The whole point of MAD was that it was no longer necessary to develop better killing tools, because any war should be unthinkable. Yet we continue to waste valuable resources, 100s of billions of dollars that could be used for education or humanitarian efforts, on shit like this: http://www.wired.com/2012/03/f35-budget-disaster/
What's the point, other than making a small number of people rich?
> What's the point, other than making a small number of people rich?
Its an interesting thing to say, because much more so than in SV, DOD R&D money is spent on engineers. The profit margin at Lockheed Martin is 4-7%, versus 20-30% at Google, Apple, Yahoo, etc.
Its an interesting thing to say, because much more so than in SV, DOD R&D money is spent on engineers. The profit margin at Lockheed Martin is 4-7%, versus 20-30% at Google, Apple, Yahoo, etc.
Just wanted to say thanks for providing contrarian nuggets of thoughts. I once used to think SV was the powerhouse of American innovation and that gov't only retarded its growth, you've been a big part helping me in the process of seeing better on these things.
Working now at a place that is pretty much all funded by the gov't - NIH, specifically - and is decidedly good (medical stuff) has been another datapoint.
Working now at a place that is pretty much all funded by the gov't - NIH, specifically - and is decidedly good (medical stuff) has been another datapoint.
Nice straw man. Profit margins have nothing to do with the fact that the money is being spent to develop tools to kill humans instead of helping them. Not all engineering jobs are equal.
> Government had nothing to do with Bill Gates, Steve Jobs, Zuckerberg
Gates and Jobs built their companies on the microprocessor, the development of which was completely dependent upon government contacts to Fairchild.
Zuckerberg's debt is even more so - the Internet was a government funded R&D project from 1969 until the 1991 entry of ANS/CIX. He built his business on top of a 20+ year government project, just like Google and other businesses did. To say that the government had nothing to do with it is absurd, and just highlighting Gordon's own ignorance of how technology, and for that matter the economy, works.
Just looking at the official government forms, tens of billions in military contracts have come into the Peninsula over the past decade ( http://www.governmentcontractswon.com/department/defense/cal... ). That doesn't even cover all military spending, and it does not cover non-militray government spending.
Gates and Jobs built their companies on the microprocessor, the development of which was completely dependent upon government contacts to Fairchild.
Zuckerberg's debt is even more so - the Internet was a government funded R&D project from 1969 until the 1991 entry of ANS/CIX. He built his business on top of a 20+ year government project, just like Google and other businesses did. To say that the government had nothing to do with it is absurd, and just highlighting Gordon's own ignorance of how technology, and for that matter the economy, works.
Just looking at the official government forms, tens of billions in military contracts have come into the Peninsula over the past decade ( http://www.governmentcontractswon.com/department/defense/cal... ). That doesn't even cover all military spending, and it does not cover non-militray government spending.
The debate over the nation’s budget deficit aside, government’s contribution to innovation is not financially rewarded. The benefits to government, it has always been argued, would be increases in tax revenues as companies grow based on its research. The fact that Apple avoids almost all taxes by international avoidance strategies, as do many other high-technology companies, shows such hypotheses to be largely bogus.
This sounds to me like a non sequitur. The government has collected massive tax revenue from a growing Apple, let alone the larger, more productive economy spurred by the internet as a whole. Income taxes on Apple's employees, capital gains taxes on AAPL stock transactions, sales taxes on Apple products...
If spending on basic research leads to even a tenth of a percent of higher annual GDP growth, it will almost certainly pay for itself as that compounds over time into a much larger tax base.
This sounds to me like a non sequitur. The government has collected massive tax revenue from a growing Apple, let alone the larger, more productive economy spurred by the internet as a whole. Income taxes on Apple's employees, capital gains taxes on AAPL stock transactions, sales taxes on Apple products...
If spending on basic research leads to even a tenth of a percent of higher annual GDP growth, it will almost certainly pay for itself as that compounds over time into a much larger tax base.
I don't understand why some feel the need to defend Apple on this count. They've evaded taxes to an outrageous degree and are sitting on a pile of cash so big it would take generations for the company to get anywhere near bankruptcy again. Had they been forced to pay the taxes any sane tax regime would say they owe, they'd still be the same company making the same products. They'd just have a smaller nest-egg.
Non sequitur or not, this actually cuts to the heart of the matter. Governments play a huge role in innovation, so we should stop using false claims to the contrary when rationalizing theft of revenues the government is owed for its work. Corporate tax evasion is a crime against innovation and theft from all of us who actually do pay our taxes.
Non sequitur or not, this actually cuts to the heart of the matter. Governments play a huge role in innovation, so we should stop using false claims to the contrary when rationalizing theft of revenues the government is owed for its work. Corporate tax evasion is a crime against innovation and theft from all of us who actually do pay our taxes.
They've evaded taxes
The government screws up the tax laws through utter dysfunction and you imply/say that Apple and other big companies are breaking the law?
To my knowledge, Apple is paying all of the taxes required by US law. The fact that the government wants a bigger chunk doesn't change the fact that they aren't legally entitled to it.
The government screws up the tax laws through utter dysfunction and you imply/say that Apple and other big companies are breaking the law?
To my knowledge, Apple is paying all of the taxes required by US law. The fact that the government wants a bigger chunk doesn't change the fact that they aren't legally entitled to it.
The government screws up the tax laws because they have been captured by the lobbying arms of large multi-national corporations, including Apple. It's no surprise then that those same corporations are the ones who get to pay 0% taxes while your average startup or mom & pop business has to pay the 35% corporate tax rate because they don't have a dozen tax lawyers on retainer to get them through the loopholes.
Why give the corporations who spend millions lobbying against tax reform a pass, just because they're "technically" lawful?
Why give the corporations who spend millions lobbying against tax reform a pass, just because they're "technically" lawful?
Why give the corporations who spend millions lobbying against tax reform a pass
Because unfair taxation is just a symptom of the core problem of too much trust in an institutionally corrupt government.
Because unfair taxation is just a symptom of the core problem of too much trust in an institutionally corrupt government.
So even though you acknowledge that the taxation system is unfair, and that it's due to a corrupt system. Despite the fact that this corrupt crony-capitalist system involves two actors, corporations and government, for some reason, you only blame the government?
Just because there may be a better system that exists out there in the abstract, where government is less centralized, and thus potentially less vulnerable to corruption, it seems like quite a bizarre leap of logic to exonerate one of the two main actors in the existing corrupt system.
Can you explain your logic please?
Just because there may be a better system that exists out there in the abstract, where government is less centralized, and thus potentially less vulnerable to corruption, it seems like quite a bizarre leap of logic to exonerate one of the two main actors in the existing corrupt system.
Can you explain your logic please?
The corporation is doing what it's supposed to do within the system. It's supposed to look out for its own interests, obey the law, and make money for its shareholders.
The government is fundamentally broken. It's trusted as the law maker and the enforcer of the system, but fails in its main supposed benefit of trustworthiness.
Blaming the corporations for lobbying and planning their taxes is like kicking a kitten for drinking out of a bowl of milk that you left on the floor.
The government is fundamentally broken. It's trusted as the law maker and the enforcer of the system, but fails in its main supposed benefit of trustworthiness.
Blaming the corporations for lobbying and planning their taxes is like kicking a kitten for drinking out of a bowl of milk that you left on the floor.
I agree the point where purpose and incentives don't align isn't companies, it's government(s). However how can you fix that ? Democracy at least puts some limits on how far it can go, but doesn't seem to fix the problem.
That's because people aren't smart enough to elect their own high quality leaders. Then after that, they aren't smart enough to assess the quality of the leaders they elected.
The Dunning-Kruger effect is a good example of why that is.
This is where capitalism is different from government. Money flows to success and tends to form feedback amplification. Smart people make more money than stupid ones. Smart people reward smart companies with their increased access to money.
The above is why I want to see government as small as reasonably possible. It should be limited to providing a basic framework, defense, maybe some basic research like for the Internet, Space exploration, etc. Only things that have a good track record of success. After that, though, the answers should typically come from the private sector where winners and losers get sorted out based more often upon merits than politics.
The Dunning-Kruger effect is a good example of why that is.
This is where capitalism is different from government. Money flows to success and tends to form feedback amplification. Smart people make more money than stupid ones. Smart people reward smart companies with their increased access to money.
The above is why I want to see government as small as reasonably possible. It should be limited to providing a basic framework, defense, maybe some basic research like for the Internet, Space exploration, etc. Only things that have a good track record of success. After that, though, the answers should typically come from the private sector where winners and losers get sorted out based more often upon merits than politics.
>"They've evaded taxes to an outrageous degree"
How did you arrive at this (normative) judgement? They are paying the minimum in taxes that they legally can, so that they can invest the money in research, buy back stocks, or hold it in reserve for some period of time; why is this bad? Do you have any evidence that the government's allocation of additional funds would be more productive than Apple's use of the money?
How did you arrive at this (normative) judgement? They are paying the minimum in taxes that they legally can, so that they can invest the money in research, buy back stocks, or hold it in reserve for some period of time; why is this bad? Do you have any evidence that the government's allocation of additional funds would be more productive than Apple's use of the money?
Why exploiting the flaws in your computer system to get access to things you intended to keep out of reach is bad?
The point of having taxes is for government to extract money from companies that collect lots of money from their clients. If you are using technicalities of the system to go against this goal you are only as bad as a hacker that uses technicalities of system you built and maintain to get access to things that were supposed to be protected.
Don't get me wrong. I don't see nothing intrinsically wrong in using law or any other system to full extent. What makes it wrong or not are additional circumstances. Evading taxes in badly managed country to fund basic research or education is much less bad than putting this money right in the pockets of various wealthy people so they can buy yahts.
The point of having taxes is for government to extract money from companies that collect lots of money from their clients. If you are using technicalities of the system to go against this goal you are only as bad as a hacker that uses technicalities of system you built and maintain to get access to things that were supposed to be protected.
Don't get me wrong. I don't see nothing intrinsically wrong in using law or any other system to full extent. What makes it wrong or not are additional circumstances. Evading taxes in badly managed country to fund basic research or education is much less bad than putting this money right in the pockets of various wealthy people so they can buy yahts.
It's bad because it's unfair.
If everyone, including small businesses, got to pay 0% tax, then you might have a good argument. But as it stands, we have a 35% corporate tax rate for everyone except large multi-national companies who have the means to take advantage of the loopholes. Regular Joe Business does not have those means.
And of course, these same large companies are spending millions lobbying the government to not reform the code.
If everyone, including small businesses, got to pay 0% tax, then you might have a good argument. But as it stands, we have a 35% corporate tax rate for everyone except large multi-national companies who have the means to take advantage of the loopholes. Regular Joe Business does not have those means.
And of course, these same large companies are spending millions lobbying the government to not reform the code.
Apple's income taxes in the US were $13.1 billion on $50.2 billion in earnings, for an effective income tax rate of 26.2% [1].
I don't know why so many people think Apple pays little or no tax. They are in fact the 3rd largest income tax payer in the US.
[1] http://finance.yahoo.com/news/companies-paying-most-taxes-17...
I don't know why so many people think Apple pays little or no tax. They are in fact the 3rd largest income tax payer in the US.
[1] http://finance.yahoo.com/news/companies-paying-most-taxes-17...
This doesn't take away from your point, but from a practical perspective, small businesses pay 0% corporate tax. When you have just a few shareholders, as nearly all small businesses do, all profits get paid out as salary. If small businesses didn't do this, their owners would be taxed twice (first at the corporate level and then again individually).
The companies that get squeezed are not the Regular Joe Businesses but the midsize businesses that can't get away with paying out all profits as salary (because they have third party shareholders who don't work for the business) and yet can't afford to set up the necessary bureaucracy to take advantage of things like a Double Irish With a Dutch Sandwich.
The companies that get squeezed are not the Regular Joe Businesses but the midsize businesses that can't get away with paying out all profits as salary (because they have third party shareholders who don't work for the business) and yet can't afford to set up the necessary bureaucracy to take advantage of things like a Double Irish With a Dutch Sandwich.
Do you actively avoid legal tax breaks because you feel the need to pay your "fair share"? I would bet not. Why should Apple act any differently? They don't evade taxes... They actively seek to pay as little as legally obligated. Anything else would be a disservice to every Apple employee, consumer and financial backer (the only people that should matter to Apple). They're a for profit organization, not a charity...
The terms of art may be important here. Tax evasion is literally a crime, and different from tax avoidance, which is reducing your taxes by legal means. http://en.wikipedia.org/wiki/Tax_evasion
>This sounds to me like a non sequitur. The government has collected massive tax revenue from a growing Apple, let alone the larger, more productive economy spurred by the internet as a whole. Income taxes on Apple's employees, capital gains taxes on AAPL stock transactions, sales taxes on Apple products...
Compare the real taxes reaped by the state from companies that make use of publicly-funded research versus the alternative: the government holds all intellectual-property rights to publicly-funded discoveries and licenses them for a profit to commercial firms.
Compare the real taxes reaped by the state from companies that make use of publicly-funded research versus the alternative: the government holds all intellectual-property rights to publicly-funded discoveries and licenses them for a profit to commercial firms.
The government's goal isn't to turn a profit: It's to bring a better life to its citizens, improve its ability to defend itself, etc. Basic research being financially self-sustaining is a benefit, but it's not necessary or sufficient for the success of the programs.
But putting that aside, if the government owns the basic research that it funds, why would any (self-interested) researcher or institution choose to work for the government vs. private industry, which can offer a share of future revenue? How does the government set prices for its licensing? Don't we benefit that Jobs and Wozniak didn't have to have a large amount of capital to invest in licensing in order to take advantage of all that basic research?
But putting that aside, if the government owns the basic research that it funds, why would any (self-interested) researcher or institution choose to work for the government vs. private industry, which can offer a share of future revenue? How does the government set prices for its licensing? Don't we benefit that Jobs and Wozniak didn't have to have a large amount of capital to invest in licensing in order to take advantage of all that basic research?
> why would any (self-interested) researcher or institution choose to work for the government vs. private industry
For the same reason researchers choose to do so now: the government pays for a lot more fundamental research than private industry does.
For the same reason researchers choose to do so now: the government pays for a lot more fundamental research than private industry does.
I'm not talking about whether the research is self-sustaining or not. I'm talking about whether the economic value of basic research is treated as a positive externality (current situation) or captured by some actor at a market price (my counterfactual).
Why ask that question? Because, quite interestingly, without the value of basic research being captured as revenue with a market price, we don't have numbers to perform a direct comparison between research costs and research revenues to compute the profitability of basic research. We don't actually know right now whether basic research is financially self-sustaining - in which case the apparent "expense" is actually a state subsidy to technological industries - or whether basic research is a financial net-negative. We also don't actually know what lengths of time are necessary to realize the final economic result of basic research.
So we kinda sorta feel pretty sure that basic research eventually helps the economy, but nobody's accounting ledgers actually get forced to reflect that or pay for it.
Why ask that question? Because, quite interestingly, without the value of basic research being captured as revenue with a market price, we don't have numbers to perform a direct comparison between research costs and research revenues to compute the profitability of basic research. We don't actually know right now whether basic research is financially self-sustaining - in which case the apparent "expense" is actually a state subsidy to technological industries - or whether basic research is a financial net-negative. We also don't actually know what lengths of time are necessary to realize the final economic result of basic research.
So we kinda sorta feel pretty sure that basic research eventually helps the economy, but nobody's accounting ledgers actually get forced to reflect that or pay for it.
I think the author and many people who look at this fail to distinguish between a research grant (good thing for the government to do) and investment/tax break/subsidized loans for an on going business concern (iffy thing for the government to do.)
It's a good idea for the government to get involved in basic research, research which might not have a positive economic return for at least a generation. On the other hand, if the government is involved in trying to make unprofitable companies profitable, it's social policy not technology research.
Grant proposal -- good; Business plan -- bad.
It's a good idea for the government to get involved in basic research, research which might not have a positive economic return for at least a generation. On the other hand, if the government is involved in trying to make unprofitable companies profitable, it's social policy not technology research.
Grant proposal -- good; Business plan -- bad.
I don't see much difference between giving science team a grant and giving research company money to develop cool robot. Either way it's giving money to the people that free market doesn't want to fund so they can do the stuff that free markets deems too risky to undertake.
I don't think JackFr sees a problem with giving grant money to an R&D company. JackFr is most likely referring to tax breaks, subsidies, and other assistance that government gives to non-R&D companies in order to prop them up. A few examples:
Agricultural subsidies for big agricultural companies
Starbucks gets real estate deals that smaller cafes cannot. That's why there is a frickin' Starbucks on every street corner.
Bank bailouts
In those cases, government is actively picking economic winners and losers, not funding basic research.
Agricultural subsidies for big agricultural companies
Starbucks gets real estate deals that smaller cafes cannot. That's why there is a frickin' Starbucks on every street corner.
Bank bailouts
In those cases, government is actively picking economic winners and losers, not funding basic research.
I might imagine good scenario of goverment giving money to some large player in non-innovative industry so they can modernize instead of waiting a decade or so for small more up to date company to grow and eat old behemoth. It's picking winners and it's not fair but it doesn't matter who wins as long as technology advances. It's not like people are in the business only because it's fair.
But generally I agree that examples you provided are bad goverment spending. Subsidizing agriculture is actually subsidizing poor that would not be able to afford food if consumers would need to pay for it 100% out of their pockets. Bank bailouts came out of fear that economy could not take massive bank bankruptcies. I can't even imagine what goes on with starbucks. Those are bad reasons to give money. Money for food should be given to poor in form of basic income and farmers should compete for that money like every other company. And gambling banks should be allowed to fail if they were allowed to gamble. Real economy is much more resiliant and it's pretty distanced from financial markets "economy" to be seriously harmed by collapse of multiple banks.
But generally I agree that examples you provided are bad goverment spending. Subsidizing agriculture is actually subsidizing poor that would not be able to afford food if consumers would need to pay for it 100% out of their pockets. Bank bailouts came out of fear that economy could not take massive bank bankruptcies. I can't even imagine what goes on with starbucks. Those are bad reasons to give money. Money for food should be given to poor in form of basic income and farmers should compete for that money like every other company. And gambling banks should be allowed to fail if they were allowed to gamble. Real economy is much more resiliant and it's pretty distanced from financial markets "economy" to be seriously harmed by collapse of multiple banks.
So, X contributed to Y, therefore Y could not exist without X. Is there a name for that kind of logical fallacy?
Ya, good call. It is a super interesting fallacy that people interested in disassembling dysfunctional status quo models should be good at calling-out. Something like a "post hoc rationalization".
For me, another use case is 'all the fantastic things that have been invented because of war'.
For me, another use case is 'all the fantastic things that have been invented because of war'.
Perhaps a form of the fallacy of composition?
P(X) = "X exists due to the government"
S = "Scientific developments"
Fallacious statement:
∃x ∈ S (P(x)) ⇒ ∀x ∈ S (P(x))
P(X) = "X exists due to the government"
S = "Scientific developments"
Fallacious statement:
∃x ∈ S (P(x)) ⇒ ∀x ∈ S (P(x))
Stating that this reasoning is always a falacy is in itself "coulda woulda shoulda" "falacy".
Strict reasoning is hard.
Strict reasoning is hard.
Post hoc, ergo propter hoc (after this, therefore because of this).
That's not quite right either, because in this case there was some sort of casual relation, not merely a barrier in time.
There's a little bit of Complex Cause in there, too.
The problem with centralized government isn't that it doesn't succeed in cases.
The problem is that it's never allowed to fail.
The problem is that it's never allowed to fail.
Can you elaborate on this? Because there were plenty of projects funded by no-bid government contracts that failed. Likewise, plenty of government R&D dollars have also gone toward efforts that have failed.
Nobody bats 100%, but it all becomes worth it when they hit on something very big, like the micro-processor or the internet.
Nobody bats 100%, but it all becomes worth it when they hit on something very big, like the micro-processor or the internet.
Different people define failure in different ways.
In business, if you fail, your assets are liquidated and recycled or transferred to your former competitors, your customers go elsewhere, and you lose the ability to command economic resources.
In government, if your contract fails, your company/team/department/bureau/whatever still exists, and is still eligible to fail again the next year. There might be a reshuffling of personnel, if anyone is watching, but there is no real penalty for failing to deliver.
The important thing about business failure is that resources are reallocated away from the people who created the failure towards those less likely to fail (in the same way). This mechanism is not usually present with government.
In business, if you fail, your assets are liquidated and recycled or transferred to your former competitors, your customers go elsewhere, and you lose the ability to command economic resources.
In government, if your contract fails, your company/team/department/bureau/whatever still exists, and is still eligible to fail again the next year. There might be a reshuffling of personnel, if anyone is watching, but there is no real penalty for failing to deliver.
The important thing about business failure is that resources are reallocated away from the people who created the failure towards those less likely to fail (in the same way). This mechanism is not usually present with government.
I've got perception that bureaucrats are reluctant to change things for the very reason the new things can come worse - and those specific bureaucrats will be held accountable, in one way or another. In other words, I doubt there is no reason to try to do better.
May be incentives as a whole are different enough - say, lesser, if we can compare - with government-baked projects rather than with privately backed ones.
Could it be so that government is less efficient, but only on some projects where it can have good competition from private resources? May be government is better - or actually the only option - with some other areas, where you just can't find private backing?
May be incentives as a whole are different enough - say, lesser, if we can compare - with government-baked projects rather than with privately backed ones.
Could it be so that government is less efficient, but only on some projects where it can have good competition from private resources? May be government is better - or actually the only option - with some other areas, where you just can't find private backing?
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In all of the examples given, government contributed funds toward the creative process.
At no point was the government itself the source of the creativity. Which makes sense, since those who create are scientists, artists, industrialists, etc. etc. ... not politicians and bureaucrats.
Politicians do not create. Well, that's not exactly right, there are political and legal works which can be considered great contributions, but they seem to come only every few decades.
At no point was the government itself the source of the creativity. Which makes sense, since those who create are scientists, artists, industrialists, etc. etc. ... not politicians and bureaucrats.
Politicians do not create. Well, that's not exactly right, there are political and legal works which can be considered great contributions, but they seem to come only every few decades.
By the same logic, entrepreneurs and businessmen do not create either.
Both government and business merely provide incentives.
Both government and business merely provide incentives.
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> At no point was the government itself the source of the creativity. Which makes sense, since those who create are scientists, artists, industrialists, etc. etc. ... not politicians and bureaucrats.
No doubt, but you could just as easily have said that about the USSR and been right. The inventor of Tsar Bomba was a scientist, not a politician, after all. Does that mean a Communist planned economy is a bad way to advance science?
When people are saying government needs to be involved in science it's almost never because they think the government itself should be training administrative clerks to do science and then engaging in research. It's because they want the government to ensure that our existing pool of trained scientists are tasked with doing research, either directly or indirectly.
No doubt, but you could just as easily have said that about the USSR and been right. The inventor of Tsar Bomba was a scientist, not a politician, after all. Does that mean a Communist planned economy is a bad way to advance science?
When people are saying government needs to be involved in science it's almost never because they think the government itself should be training administrative clerks to do science and then engaging in research. It's because they want the government to ensure that our existing pool of trained scientists are tasked with doing research, either directly or indirectly.
There are plenty scientists, who are paid from government grants. Government even participated in training them - in state universities or with federal grants. Saying that it's not "government" which does research shouldn't imply that government can't be critically important in the process which led to research results.
I agree completely (one might even say violently)
Governments can't be faulted for not being creative because they are not human. Employees of the government are the creative ones.
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That vast resources were confiscated from the public at large and spent with some notable successes (waste & failures are conspicuously absent), does not trump the conspicuously absent analysis of what that money would have been used for outside of confiscation.
On average, governments spend a higher percentage of their income on innovation and investments for the future than individuals or corporations do. Infrastructure, Education, Innovation, and Civil Order are critical to society's long term success. Eating out does not.
>"[G]overnments spend a higher percentage of their income on innovation and investments for the future than individuals or corporations do"
I would like to see a citation for this, as it seems unlikely (due to the vast sums of money which governments spend on redistribution); but even if I assume arguendo that you are correct, the spending is not at issue, the results of the expenditure are what is important.
I would like to see a citation for this, as it seems unlikely (due to the vast sums of money which governments spend on redistribution); but even if I assume arguendo that you are correct, the spending is not at issue, the results of the expenditure are what is important.
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As much as I agree (the central point is very obvious), the author does something pretty common which I think might be a mistake: defending current government-sponsored projects as having a low bankruptcy rate. Right now that's true, but it's also an indication that they might be doing it wrong rather than an indication of that spending's correctness.
Government money would best be spent on things that might have an outsized impact but are too risky, expensive or unfashionable for private enterprise to fund alone. If government is taking the same amount of risk as private funds, they should probably be looking a little harder. On the other hand, try selling that to voters...
Government money would best be spent on things that might have an outsized impact but are too risky, expensive or unfashionable for private enterprise to fund alone. If government is taking the same amount of risk as private funds, they should probably be looking a little harder. On the other hand, try selling that to voters...
> On the other hand, try selling that to voters...
Aint that the rub?
Solyndra cost taxpayers ~$550 million in 2011. It was an attempt to develop a domestic manufacturing capacity for a next-gen solar panel technology. It failed due to shitty management, but also to the massive subsidies on Chinese panels that dropped PV prices dramatically.
Their bankruptcy is still in the news on a regular basis.
For comparison's sake; US Military-related spending in 2011 was $1.2 trillion. Solyndra's failure cost the same as four hours of 2011's military budget.
[1] - http://upload.wikimedia.org/wikipedia/commons/8/86/Inflation... (2011 Dollars)
Aint that the rub?
Solyndra cost taxpayers ~$550 million in 2011. It was an attempt to develop a domestic manufacturing capacity for a next-gen solar panel technology. It failed due to shitty management, but also to the massive subsidies on Chinese panels that dropped PV prices dramatically.
Their bankruptcy is still in the news on a regular basis.
For comparison's sake; US Military-related spending in 2011 was $1.2 trillion. Solyndra's failure cost the same as four hours of 2011's military budget.
[1] - http://upload.wikimedia.org/wikipedia/commons/8/86/Inflation... (2011 Dollars)
There are some additional negative consequences that are neither readily apparent nor easy to measure.
Think about if you were trying to run a competitor to Solyndra. You would not be able to hire qualified engineers, because your subsidized competitor does not need to care about what the market will bear.
You could say that the solar market worldwide has been a boondoggle because of these government subsidy price wars, as you note yourself. All that has resulted is a lot of junk equipment that can only be manufactured at a loss when you factor in all the layers of production.
Accounting performs a business function that many modern people like to ignore. Perhaps because math is scary, or accounting as a concept has become politically unpopular in America. Accounting matters even in technology research and development. It tells you whether or not the underlying market and societal conditions can actually support a particular project or not.
Extended losses on a process inform managers that that process must either be reformed or eliminated. Government does not operate based on profit-loss accounting, but on the dead-reckoning decisions made by political leaders and bureaucrats.
Voters are not relevant to this because almost none of them know what a solar panel is, how it works, or anything else relevant to energy issues. Almost no voters make decisions based on such issues. Almost no voters are even vaguely informed of the issues in general.
Projects that do not use accounting to improve the decision-making process fall prey to corruption and cost over-runs in a systematically predictable way. This is what happened to Solyndra. I don't blame the people in charge. I don't even blame the politicians who commissioned the project. Our intellectual culture has decayed in such a systematic way so that no one with social status even recognizes that it has.
Think about if you were trying to run a competitor to Solyndra. You would not be able to hire qualified engineers, because your subsidized competitor does not need to care about what the market will bear.
You could say that the solar market worldwide has been a boondoggle because of these government subsidy price wars, as you note yourself. All that has resulted is a lot of junk equipment that can only be manufactured at a loss when you factor in all the layers of production.
Accounting performs a business function that many modern people like to ignore. Perhaps because math is scary, or accounting as a concept has become politically unpopular in America. Accounting matters even in technology research and development. It tells you whether or not the underlying market and societal conditions can actually support a particular project or not.
Extended losses on a process inform managers that that process must either be reformed or eliminated. Government does not operate based on profit-loss accounting, but on the dead-reckoning decisions made by political leaders and bureaucrats.
Voters are not relevant to this because almost none of them know what a solar panel is, how it works, or anything else relevant to energy issues. Almost no voters make decisions based on such issues. Almost no voters are even vaguely informed of the issues in general.
Projects that do not use accounting to improve the decision-making process fall prey to corruption and cost over-runs in a systematically predictable way. This is what happened to Solyndra. I don't blame the people in charge. I don't even blame the politicians who commissioned the project. Our intellectual culture has decayed in such a systematic way so that no one with social status even recognizes that it has.
I largely agree that government influence is a market distorting, but a few points;
* Solyndra received ARRA money which only existed because the economy blew up. The 'crowding out' effect of government money is greatly limited in recessions caused by low aggregate-demand. (The unemployment rate for those over 25 years old with bachelors degrees tripled from spring 2007 to spring 2009 when Solyndra received the loan[1])
* The type of accounting you're describing is nearly impossible for these extreme tech projects. Many of these types of companies are unprofitable until they aren't any more. Solazyme and Tesla are good examples. The 'straight accounting' said they were horrible investments for the government, but both have found success after a decade of struggling and both could be world-changing.[2][3]
* Politicians didn't 'commission' Solyndra, it was founded by ex-Intel employees in 2005, all of the initial R&D and pilot work was paid for by VC/PE and debt, and they only used the DOE loans to scale-up after four years of groundwork.
* It wasn't some ignorant bureaucrat running the DOE program, it was Nobel Prize winning physicist, Steven Chu.[4]
[1] - http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=x...
[2] - http://www.altenergystocks.com/archives/2014/03/solazyme_lau...
[3] - http://www.usnews.com/opinion/blogs/economic-intelligence/20...
[4] - http://energy.gov/contributors/dr-steven-chu
* Solyndra received ARRA money which only existed because the economy blew up. The 'crowding out' effect of government money is greatly limited in recessions caused by low aggregate-demand. (The unemployment rate for those over 25 years old with bachelors degrees tripled from spring 2007 to spring 2009 when Solyndra received the loan[1])
* The type of accounting you're describing is nearly impossible for these extreme tech projects. Many of these types of companies are unprofitable until they aren't any more. Solazyme and Tesla are good examples. The 'straight accounting' said they were horrible investments for the government, but both have found success after a decade of struggling and both could be world-changing.[2][3]
* Politicians didn't 'commission' Solyndra, it was founded by ex-Intel employees in 2005, all of the initial R&D and pilot work was paid for by VC/PE and debt, and they only used the DOE loans to scale-up after four years of groundwork.
* It wasn't some ignorant bureaucrat running the DOE program, it was Nobel Prize winning physicist, Steven Chu.[4]
[1] - http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=x...
[2] - http://www.altenergystocks.com/archives/2014/03/solazyme_lau...
[3] - http://www.usnews.com/opinion/blogs/economic-intelligence/20...
[4] - http://energy.gov/contributors/dr-steven-chu
Thank you for the added detail and for correcting gaps in my knowledge about the company. It's been a while since I thought about it.
>The type of accounting you're describing is nearly impossible for these extreme tech projects.
I thought I had made myself clearer. Obviously the company's losses are what did it in, so of course it matters regardless of how ambitious the company is. Investors can provide entrepreneurs with more time to discover a sustainable business model. Governments do not have a great track record for producing profitable enterprises that sustain themselves, to say the least.
The position that I subscribe to is that those sorts of stimulus methods make it harder for companies to discover a business model rather than easier, because it pushes the incentive towards politicking rather than building a successful private company.
It was not my intention to impugn the original investors or even the people who work there. I don't agree with your first point, but would rather not get bogged down in it on HN. There is probably a substantial gap there between what I have read, what you have read, and what our values are. We don't have the time to bridge that difference in a discussion like this.
>The type of accounting you're describing is nearly impossible for these extreme tech projects.
I thought I had made myself clearer. Obviously the company's losses are what did it in, so of course it matters regardless of how ambitious the company is. Investors can provide entrepreneurs with more time to discover a sustainable business model. Governments do not have a great track record for producing profitable enterprises that sustain themselves, to say the least.
The position that I subscribe to is that those sorts of stimulus methods make it harder for companies to discover a business model rather than easier, because it pushes the incentive towards politicking rather than building a successful private company.
It was not my intention to impugn the original investors or even the people who work there. I don't agree with your first point, but would rather not get bogged down in it on HN. There is probably a substantial gap there between what I have read, what you have read, and what our values are. We don't have the time to bridge that difference in a discussion like this.
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The author's hilarious use of the Medici family[1] as an example of government contributing to great advances of civilization aside, one of the things that is often overlooked is not that government has successfully contributed to some major technological advances, but why, and whether government contributions were really necessary.
The examples of government successes range from those that almost certainly required government backing to those that almost certainly did not. I have a hard time imagining that anyone but a government is going to finance atomic research. The profits simply aren't there to justify it, particularly when compared to existing means of energy production.
But I have an equally hard time believing that the internet or pharmaceuticals wouldn’t have come to market if government had nothing to do with them. The profit potential, even in those early years, was simply too staggering for the market to ignore. The fact that, in many cases, companies were able to persuade governments to share their costs or flat-out underwrite their research doesn’t change this. And so, because government was persuaded to share or pay for many of these costs, I think we get a distorted view of history, including success stories that can be attributed to government involvement, even though we don’t know whether government involvement was really necessary at all. [2]
[1] If you're unaware, the House of Medici became so wealthy that they were able to essentially buy control of Florence, then most of Italy, and turn it into their own little kingdom. They used their wealth to foster wars that expanded their sphere of control, but are now generally known for underwriting the production of some of the great art of the 15th century. Shockingly, much of that art lionized the House of Medici. Claiming that the House of Medici is an example of a government contributing to the advancement of the arts is like claiming Brunei contributed to the advancement of the automotive industry because the Sultan spent a billion dollars on Ferraris, Lamborghinis, Bentleys, and crazy one-off concepts.
[2] Another example from the article highlights this: touch-screens. Once it was clear computers would eventually be more than simply adding machines, was there any doubt that users would eventually want touch-screens? (The Jetsons, in the early 1960's, featured consumers using touch-screens, for reference.) And is there any doubt that this is something that absolutely could have been developed privately?
The examples of government successes range from those that almost certainly required government backing to those that almost certainly did not. I have a hard time imagining that anyone but a government is going to finance atomic research. The profits simply aren't there to justify it, particularly when compared to existing means of energy production.
But I have an equally hard time believing that the internet or pharmaceuticals wouldn’t have come to market if government had nothing to do with them. The profit potential, even in those early years, was simply too staggering for the market to ignore. The fact that, in many cases, companies were able to persuade governments to share their costs or flat-out underwrite their research doesn’t change this. And so, because government was persuaded to share or pay for many of these costs, I think we get a distorted view of history, including success stories that can be attributed to government involvement, even though we don’t know whether government involvement was really necessary at all. [2]
[1] If you're unaware, the House of Medici became so wealthy that they were able to essentially buy control of Florence, then most of Italy, and turn it into their own little kingdom. They used their wealth to foster wars that expanded their sphere of control, but are now generally known for underwriting the production of some of the great art of the 15th century. Shockingly, much of that art lionized the House of Medici. Claiming that the House of Medici is an example of a government contributing to the advancement of the arts is like claiming Brunei contributed to the advancement of the automotive industry because the Sultan spent a billion dollars on Ferraris, Lamborghinis, Bentleys, and crazy one-off concepts.
[2] Another example from the article highlights this: touch-screens. Once it was clear computers would eventually be more than simply adding machines, was there any doubt that users would eventually want touch-screens? (The Jetsons, in the early 1960's, featured consumers using touch-screens, for reference.) And is there any doubt that this is something that absolutely could have been developed privately?
> But I have an equally hard time believing that the internet or pharmaceuticals wouldn’t have come to market if government had nothing to do with them.
The argument is that the private sector invests for shorter time frames. VCs look for commercial viability within 3-5 years. They're unlikely to fund biotech and green energy, which have 10-20 year time frames, or the internet, which took 30 years to reach commercial viability.
The argument is that the private sector invests for shorter time frames. VCs look for commercial viability within 3-5 years. They're unlikely to fund biotech and green energy, which have 10-20 year time frames, or the internet, which took 30 years to reach commercial viability.
The private sector plants tree farms that aren't harvested for 40 years. So long as there are strong property rights, profitable investments can be made at just about any time scale.
In fact, the main reason the private sector might in some cases not want to make investments that take a long time to pay off is regulatory uncertainty. If every year you own that tree farm entails a significant chance the government might pass a new law banning logging there, you'll want to chop those trees down sooner rather than later. The more the government regulates and the more regulations change over time, the less sensible it is to make long-term plans and long-term investments.
In fact, the main reason the private sector might in some cases not want to make investments that take a long time to pay off is regulatory uncertainty. If every year you own that tree farm entails a significant chance the government might pass a new law banning logging there, you'll want to chop those trees down sooner rather than later. The more the government regulates and the more regulations change over time, the less sensible it is to make long-term plans and long-term investments.
It's also illustrative to look at the alternatives – e.g. prior to the internet catching on there were many competitors which had been privately funded but the desire to obtain short-term returns ultimately relegated things like CompuServe, GEnie, etc. to also-rans because the private funding model favors centralization and rent seeking over qualities like openness and independent innovation.
Absent something like the academic internet we'd no doubt have some of the abilities we now have but it'd almost certainly look like those older services or the pre-iPhone cellphone app market – costly, high barriers to entry and centralized designs.
Absent something like the academic internet we'd no doubt have some of the abilities we now have but it'd almost certainly look like those older services or the pre-iPhone cellphone app market – costly, high barriers to entry and centralized designs.
That's an extremely narrow argument though. There's a huge world of funding outside of VCs. Of course, this also overlooks the fact that even VCs fund tons of biotech work, and are funding green energy right this very second. (In fact I personally know one VC who made his 9-figure fortune almost exclusively from funding biotechs in the 90s. I'm sure there are many others.)
The internet may have taken 30-years to reach commercial viability, but that doesn't mean it would not have happened privately. Again, as soon as people began using computers as more than simply adding machines, it was pretty clear how beneficial it would be if computers could talk to each other. Eventually, the internet would have happened. Who knows if it would look like it did today (or would be better, or worse) without government involvement. It's impossible to say. But, when stock traders, for example, are willing to invest hundreds of millions of dollars to build a fiber cable to shave 3 milliseconds off their trade times, I have no doubt they would have invested similarly to have the communication abilities afforded by the internet.
My original point was, be careful when people hold up the fruits of government investment. Government fertilizer might have had nothing to do with the size or taste of the fruit. And moreover, that fertilizer might have been much better used on some other type of fruit.
The internet may have taken 30-years to reach commercial viability, but that doesn't mean it would not have happened privately. Again, as soon as people began using computers as more than simply adding machines, it was pretty clear how beneficial it would be if computers could talk to each other. Eventually, the internet would have happened. Who knows if it would look like it did today (or would be better, or worse) without government involvement. It's impossible to say. But, when stock traders, for example, are willing to invest hundreds of millions of dollars to build a fiber cable to shave 3 milliseconds off their trade times, I have no doubt they would have invested similarly to have the communication abilities afforded by the internet.
My original point was, be careful when people hold up the fruits of government investment. Government fertilizer might have had nothing to do with the size or taste of the fruit. And moreover, that fertilizer might have been much better used on some other type of fruit.
It sounds like you might be falling into hindsight bias, to be honest.
Stock traders building high speed data links are actually a perfect example of the limitations of private sector innovation. It was a $300 million project, they started seeing profits after one year when the project was completed, and they were able to calculate the speed increase well in advance and estimate how much more profitable their trades could be. So it was a short term project with very little risk and nowhere near the scale of government investment.
Mazzucato does talk about VCs in biotech and she thinks they have largely been harmful to innovation.
Stock traders building high speed data links are actually a perfect example of the limitations of private sector innovation. It was a $300 million project, they started seeing profits after one year when the project was completed, and they were able to calculate the speed increase well in advance and estimate how much more profitable their trades could be. So it was a short term project with very little risk and nowhere near the scale of government investment.
Mazzucato does talk about VCs in biotech and she thinks they have largely been harmful to innovation.
First, the stock trader bit was an example, and doesn't demonstrate limitations. It demonstrates that people will invest huge sums to generate returns. I will agree that they likely could calculate the returns ahead of time, and the payback time was very small. (This example is further complicated, since the builders actually licensed the use of the cable to other companies and essentially made their money back immediately.) Nevertheless, I simply can't buy the argument that the military and a bunch of academics were the only ones who foresaw the use of the internet, and thus the private sector never would have built it. It simply doesn't make sense, even without the hindsight bias.
Second, whether VCs in biotech are harmful to innovation is irrelevant, both to the current biotech field and to the history of pharmaceuticals.
My point, again, is that if you want the government involved in research, you should want it involved in research individuals aren't willing to pay for, but has the chance to significantly improve society. Otherwise, you're going to see a ton of taxpayer money ultimately flow into the pockets of the rich who likely would have funded the work anyway.
Second, whether VCs in biotech are harmful to innovation is irrelevant, both to the current biotech field and to the history of pharmaceuticals.
My point, again, is that if you want the government involved in research, you should want it involved in research individuals aren't willing to pay for, but has the chance to significantly improve society. Otherwise, you're going to see a ton of taxpayer money ultimately flow into the pockets of the rich who likely would have funded the work anyway.
The question is not only about what could be invented with private funds. No, we also consider if it was actually invented with private funds - or if the government did that first, and now we are not sure when - or if - private capital would actually do that without government.
I'd agree that there are examples of advancements which almost certainly would be delayed without government involvement, and there are examples where it's almost certain that even without government we'd have results in almost the same time. Human genome sequencing comes to mind.
I'd agree that there are examples of advancements which almost certainly would be delayed without government involvement, and there are examples where it's almost certain that even without government we'd have results in almost the same time. Human genome sequencing comes to mind.
"The government" does not exist. It's just individual people, manipulated by psychological tricks into identifying with a certain tribe.
It's a lot like "the company", actually.
Those two metanymic illusions should probably be compared more on the basis of how efficiently they allocate resources to productive people than their absolute number of successes.
Given only $100 apiece, which could make more--"the company" or "the government"? Remember also that the same $100 cannot be given to both at the same time.
It's a lot like "the company", actually.
Those two metanymic illusions should probably be compared more on the basis of how efficiently they allocate resources to productive people than their absolute number of successes.
Given only $100 apiece, which could make more--"the company" or "the government"? Remember also that the same $100 cannot be given to both at the same time.
A government that prints money to spur innovation is merely redistributing wealth around. Arguably it does pull top talented citizens to do it's bidding in a captive economy. But eventually it goes down in a spiral despite more and more poured in. The govt. is an inefficient machine for such ventures as it eventually attracts scammers who systematically drain the pipe. For every 1 of successful outcome there are millions of screwed up endeavours for which it guzzles our money.
Government investment got us the internet. Private investors and rent-seeking gave us GEnie, CompuServe, and AOL.
Perhaps your binary thinking is not adequate for explaining the complexities of the modern economy.
Perhaps your binary thinking is not adequate for explaining the complexities of the modern economy.
And Netscape, Microsoft, Apple and Google.... why do you think it would not have happened in the absence of a bloated government?
You keep making the mistake of assuming that government only comes in one type. My point was that there are good and bad outcomes on both sides of the public / private line (not to mentioned grey areas like DARPA) and using simplistic terminology prevents you from participating in the conversation about how to use the strengths of both. Phrases like "bloated government" are intellectual junk food — not to mention amusingly blinkered in a list including Microsoft or Netscspe.
Your choice in examples underscores the point: all of those companies have profited enormously by taking technology which was developed elsewhere, often on government grants at universities, and successfully commercializing it. None of them have in their combined histories funded even a fraction of what NSF / DARPA / etc. funds every year because the business model for a public company isn't really compatible with funding speculative research without a proven path to market.
Your choice in examples underscores the point: all of those companies have profited enormously by taking technology which was developed elsewhere, often on government grants at universities, and successfully commercializing it. None of them have in their combined histories funded even a fraction of what NSF / DARPA / etc. funds every year because the business model for a public company isn't really compatible with funding speculative research without a proven path to market.
I do have a problem with foreign companies( or foreign subsidiaries) owning US patents, copyright trademark etc. if it's a US patent, trademark copyright you should pay a US tax on earnings from that.
On the flipside, imagine US companies licensing necessary patents (such as those for colored shapes or round buttons) from foreign companies that are made extremely expensive because the licensing is heavily taxed and full of fees by foreign governments.
Presumably they do: a US patent only protects you if you are selling something in the US. Assuming that sale shows up somewhere as someone's profit, there would be an income tax from that.
Lemmeguesswithoutclicking... Mariana Mazzucato?
There is a ton of fundamental innovation that is coming out of what's often derisively called the "Military Industrial Educational Complex." MIT gets about a billion dollars a year in DOD funding. Apple's Siri came out of SRI, a major defense contractor, and is derived from a DARPA-funded project. My friend just finished his PhD in robotics from Stanford. From high school, where our robotics team was funded by the Navel Surface Warfare Center, through college, where he worked on DARPA's Grand Challenge on Autonomous vehicles, the government has played an enormous role in his development as an expert in the field.
This is good. Not everything is something you can hack out in your basement with no capital. There's a lot of hard problems where you need big teams of PhD's with a lot of resources, and the MIEC does that better than anyone.