America’s Monopoly Crisis Hits the Military
theamericanconservative.com
theamericanconservative.com
But, there's an issue called the "Frozen Middle", where the middle managers, decision makers, and contract officers will still pick the mega-primes because they're perceived as safe, in an environment were compliance and liability is extreme. So, it's hard for (very) small businesses to get a secure foothold, and god forbid they start winning bigger contracts, because the Primes will come muscle them out.
Not mentioned in the article is the issue of blatant technology theft by the Primes from small business. This is very well known in the industry, and a huge issue because typically the Primes are the gatekeepers to integration on a weapons platform.
Over and over people mention this phenomena. I am not sure why its okay, or that people even suggest giving these organizations more money.
In the end, they pivoted to market their software to commercial enterprise clients (think data analytics) and they've been going ever since. It's a shame, really.
The flip side, of course, is that a lot of the same regulations I bemoan as red tape exist because someone, somewhere, bought something that either completely failed, or the supplier wasn't big enough to support the military's scale. I've seen businesses make similar reactions- every time there's a mistake, layer on another new process or documentation requirement.
There's got to be a middle ground somewhere between the needs of auditing, accountability and avoiding regulatory capture, but I don't really have a good answer for what it is.
Nobody ever got fired for buying IBM
If you pick a small company and something goes wrong, they might go out of business and leave you with nothing. If they stay in business, you might try to sue them but the company isn't worth enough to make a lawsuit worthwhile. IBM, Microsoft, Amazon, Google, Apple, etc, they're big enough to sue. Which is kind of an insurance policy against something going wrong in the contract.
https://www.vanityfair.com/news/2007/03/spyagency200703
There's also the Congress side where the contracts they're pushing bring jobs to their districts. One joke, which might be true, about the B2 was that the ridiculously-expensive project kept getting support since part of it is made in every state. I never confirmed if that one was true, though. Just remembered it as a funding strategy. ;)
While I can't speak to the what the big guys do, the government itself is an enemy of the smaller businesses from what I have seen.
Every government contract I have seen always has the equivalent of "We can cancel this contract and quit paying you money at any time."
That misaligns the incentives immediately.
1) A small company can't commit a significant fraction of its resources and risk getting yanked. Any small company that does is run by an idiot.
2) From the small company perspective, the primary useful goal is to do nothing as long as possible while collecting as much money as possible and deliver as little as possible to fulfill the contract. The ideal outcome is to do nothing and have the government actually yank the money and default on the contract. The secondary outcome is to collect all the money and do all the work in the last month of the contract.
3) The small company will pile everything into change orders and charge the government a fortune up front on those.
The problem here is that those are rational behaviors when the government behaves that way in its contracts.
You wrote: "We can cancel this contract and quit paying you money at any time."
That is an incorrect statement. The link below tells you how a DoD contract can be canceled.
http://farsite.hill.af.mil/reghtml/regs/far2afmcfars/fardfar...
If you meet your SoW, you will get paid. The FAR is very, very clear on this issue.
1) All of my resources are committed to the gov and I am not an idiot.
2) This is simply not true. It doesn't matter what flavor of contract you have: time and materials, cost plus fixed fee, etc. You have milestones and deliverables that are defined by your SoW. If you don't meet the milestones, you will not get paid. There is no incentive to "do nothing and wait for the last month of the contract"
3) This is an especially idiotic statement. These are called ECPs, which are a contract mod, which if there are enough of, the contract can get re-competited. Adding ECPs is a very, very bad idea.
You clearly have no idea what you are posting about wrt to gov contracts
Source: I own a small R&D company that works for the DoD and IC
I am glad for you that your experience does not match mine. However, I'm going to stick by my statement.
I have had my funding pulled on a budgetary rearrangement. I have had Congressional staffers threaten my contract to score patronage after an election changeover. I have had already completed and signed off milestones suddenly get reexamined as not complete. And, while contracts are very well specified, there is not a lot of point in trying to litigate a contract on someone in the government who is determined to break it.
While my commercial contracts generally work beautifully (not always, but probably less than 5% cause serious issues), all but one government contract I have had longer than 12 months has had some government-initiated disaster (short contracts are better but you often waste too much time acquiring them for the amount of money involved).
I am glad you have never been high enough on anyone's radar to hit this or that you have a powerful champion as your protector. However, I have talked to more than a few people about this and I can tell you that I'm very much not alone.
> Source: I own a small R&D company that works for the DoD and IC
The difference may be R&D vs production. Someone is always looking to score political points by slapping around a supplier.
> Believe it or not, America has been here before. In the 1920s and 1930s, the American defense industrial base was being similarly manipulated by domestic financiers for their own purposes, retarding innovation and damaging the nation’s ability to defend itself. And American military readiness was ebbing in the midst of an increasingly dangerous world full of rising autocracies.
> Within the defense base itself, every example—from TransDigm to L3 to Chinese infiltration of American business—has drawn the attention of members of Congress. Representatives Ted Budd and Paul Cook are Republicans and Representatives Jackie Speier and Ro Khanna are Democrats. They are not alone. Democratic Senator Elizabeth Warren and Representative Tim Ryan have joined Khanna’s demand for a TransDigm investigation.
Outside of this article, the best writing I've seen on this topic of short-term incentives is from British economist John Kay's book "Other People's Money", for example when he compares the annual reports from chemical company ICI in 1987 and 1994.
1987: ICI aims to be the world's leading chemical company, servicing customers internationally through the innovative and responsible application of chemistry and related science...
1994: Our objective is to maximise value for our shareholders by focusing on businesses where we have market leadership, a technological edge and a world competitive cost base.
Kay goes on to explain how ICI, a leading British chemical company since its founding in the 1920s, attracted a short term flurry of investment activity but ultimately sold in 2007 just about a decade after their change of priorities.
Kay primarily blames an over-expansion of the finance sector and the revolving-door culture on Wall Street, fairly consistent with the premises of this article.
Globalisation has been a big thing in the arms trade for the last twenty years. Obviously sales have always gone on but what happens if you end up with one monopoly defence contractor that sells to both sides in every conflict in every corner of the globe?
In the UK the government used to make its own stuff. The shipyards were state owned and the Royal Navy really did rule the waves. The bullets and shells were made in state owned factories. This provided an anchor to the rest of the industry that needed and went through a lot of consolidation in the post war years. Projects and costs did over-run but a project could be put out to tender with 3-4 competing concerns submitting proposals. If the proposals were no good the government could do it in house.
But then when everything gets sold off to private finance and then resold to giant trans-national mega corporations, the giant mega corporations get to be bigger and more powerful than the governments. They then become in charge so democracy isn't for the people and by the people.
A similar thing has happened with property in the UK. The government and local councils used to own a large part of the housing estate. This provided an anchor in the marketplace so people could afford to rent affordable housing. When this was sold off it meant that prices skyrocketed and nowadays the government has to give a lot of tax revenue to private property owners to put up benefit claimants. Again the speculators and the interests of finance capital get to be in charge.
I will take up your John Kay recommendation. Anyway, the article was most interesting as normally it is a left-wing anti-militarist, anti-capitalist viewpoint that sees finance capital as the enemy, not any view with 'conservative' in the name.
Are there any proposed models that could potentially replace the current consumerist / capitalist model that results in these monopolies or other effects such as maniacal focus on short term gains?
While a company is hot and innovative, growth comes from value creation. Then innovation slows, but the executives need to give shareholders growth, so it's extracted in any way possible such as making employees work more hours no increase in income, or buying out smaller innovative emerging competitors and either shelving their innovations or destroying them through staff attrition when integrating after acquisition (like being assimilated by the borg).
What actually causes this is the tax code. Shareholders want to make money and in general are pretty agnostic as to whether it comes from dividends or increases in share price, outside of the taxes.
But the US income tax creates a major preference for share price increases. If a corporation pays a dividend, it first pays corporate income tax on the money it earned, then the shareholder pays personal income tax on the dividend. But if the corporation instead uses the same money for "growth" it doesn't get taxed at all -- many forms of expansion are tax deductions.
Switch from income tax to, say, VAT and that no longer happens. (The immediate objection would be that VAT is less progressive, but that can be solved by combining it with a UBI.)
Incidentally, the rise of tech and trying to make everything measurable and data-entry-able—where the cost of doing so is low-visibility or even, to certain players, desirable, but the benefits are high-visibility—is another thing he blames.
As a conservative leaning US citizen, things like these have me seriously questioning what the point of all this is- our nation obviously needs to do this differently, but as someone who ostensibly believes in a "free market" / laissez-faire economics, this is a hard problem to swallow. Personally, I've found that anti-trust regulation, Government involvement [iterference, if you don't like it], and forbidding horizontal consolidation, is necessary to the maintaining of a free market, because as companies grow huge (IE Google) they seem to always become anti-competive to keep growing.
Maybe the thing to do is change the way that companies report financial gains to promote a more long-term approach- just as China has been operating on the basis of four- and five-year plans, it might be better for everyone (except Wall Street's HFT bots) if the financial structure of the US was changed to encourage longer-term planning.
They also tend to sort of merge with government. At some point they figure out there is better ROI in buying government influence and using it to insulate themselves from competition than in investing in a better product.
Libertarian idealism says that economy and state should be separate, but I don't think that's entirely possible in practice. The trouble is that sufficiently large concentrations of wealth are able to easily buy access to state power or even tend to become indistinguishable from the state.
Money isn’t real, and generating more of it can never be a sensible primary goal; phones, airplanes, and health are real.
When I was a taxi driver, one of my jobs was to take poor people to their medical appointments. The taxi company I used to drive for has reformed itself around its contracts with the various insurance companies. I never got a number for how much the government paid to get people to their appointments, but I imagine it was on the order of $2/mile (the driver got $1.50/mile, iirc).
Some of the people I took to their appointments certainly had transportation charges that were higher than the fee paid to the service providers -- say $100/round trip for transportation, vs. $30 for the counseling session or doctor's appointment...
Here is one such example: https://www.npr.org/sections/health-shots/2018/01/27/5810552...
"In some states Medicaid is subcontracted to private health insurance companies, while other states pay providers (i.e., doctors, clinics and hospitals) directly." - https://en.wikipedia.org/wiki/Medicaid#State_implementations
Arizona is a subcontracting state. The state government pays insurance companies to manage the services provided under the Medicaid program; the insurance companies pay the transportation companies to get people to their appointments.
> The comment even indicates that the taxi companies structures themselves around the insurance company contracts
It started out as a taxi company... Then "transportation vouchers" came along, so businesses could get people where they needed to go without having to give people cash for taxi fares.
Over the decades vouchers became a larger and larger part of the taxi company's business. Paper vouchers for drivers became electronic vouchers; pickups and dropoffs are scheduled electronically.
When the Apps came along the taxi company's business of leasing taxis mostly evaporated, so the company got rid of its taxi fleet and now focuses on its transportation contracts ("vouchers").
> I'm confused how the state is supposed to be in this too.
In the comment above I mixed up who pays for what, but ultimately the transportation funds come from the state government and federal government, filtered through the state's subcontracted insurance company.
Interestingly, Arizona seems to have recently changed the rules around that to allow Lyft to service these customers. Personally I find the idea of financing transport for Medicaid patients on the back of IPO funny money a darkly humorous take on the capital gains tax.
One of the passengers I stay in touch with now has a United Health Care [UHC] AHCCCS (Medicaid) plan. They have their primary transportation provider, but if they don't show up she can call UHC and they'll send her trip to Lyft.
It's probably cheaper for UHC to use their primary transportation provider. Lyft provides flexibility and a backup way to get people where they need to go.
They are the bottleneck. The American Medical Association has lobbied 400,000,000 dollars in the last 30 years to make sure they are the only ones that can issue prescriptions.
Making 300,000 USD/yr is unnatural, even for professionals. The market is artificial and gives them massive power even outside yearly income.
Rather than doctors salaries driving up health care, there are fewer doctors serving more patients. A substantial amount of the increase in health care is the fancy facilities, high tech equipment, and the under-charging by medicaid and medicare for services.
On the one hand, I know a doctor who was essentially paid by medicaid less than minimum wage for certain treatments. On the other hand, I paid cash for a pre-surgery physical to make sure I was healthy enough for the surgery (I showed up thinking they were in my insurance network, and they were not).
Basically, a couple hundred bucks down the drain for a nurse to take my temperature, blood pressure, height, weight, and for a doctor to look at me and say "yup, you're good to go".
they are the only ones that can issue prescriptions.
"Very good article. I worked at Bell Labs from 1975-77 after my undergraduate degree. Today, young Scientists don't even know that Bell Labs existed or what it accomplished. I have worked in R&D since 1983 and have watched this process from that vantage point. People used to say, we are just moving the production but we will keep the R&D. That doesn't work. It may take some time, but the R&D eventually follows the shop floor."
https://www.nytimes.com/2016/03/26/opinion/andy-groves-warni...
It's fortunate it doesn't apply to software, isn't it? Otherwise the West would be screwed. As it is Google / Apple et al don't make much at all, it's all done in China. But there is literally zero chance of their expertise all toddling off to China. Trump's Huawei ban has a better chance of leading to China developing it's on inhouse software expertise than Apple making stuff there.
And b/c of that I'm not sure how much of a moat software-only expertise is as. It's hard to spin up a rich supply chain of industrial production, or re-spin it up in this case, but much easier to spin up software production and compete in that domain.
The problem, of course, is that this obsession makes for a bad combination with a focus on the short term, which is practically Wall Street's middle name.
I'm intrigued by the notion that the best long-term fix for short-term financial thinking is to go back to a 70% top marginal tax rate, for that portion of incomes that exceed some multiple of the median (maybe 10X?). That'd still be less than the 91% top rate in 1960 [1] — and it would reduce the competitive incentive for executives and investors to scratch and claw for more and more money as a proxy for [anatomy] measuring.
Try to actually understand the totality of the circumstances you're talking about.
Too many people think they have just-so solutions to a problem they can't even characterize in any useful way. Please don't add fuel to the fire. The problems facing America can not be reduced to a misunderstood slogan or the name of a president or a street name or a single policy strategy. "Fight for fifteen"-ism and "the one per cent!"-ism do not magically make ordinary Americans richer. The catchier it is, the more likely there is a hidden beneficiary you aren't considering.
Please enlighten us.
> The tax code is completely different today from what it was when there were considerably higher marginal tax rates.
I'm aware. (I was in law school taking a couple of tax-law courses during the 1980 election debates about Reagan's proposed tax cuts.)
> The actual ratio of tax to GDP has not changed considerably since then.
Please explain how this is relevant to individual incentives and the "emergent behavior" that they create.
So yes, like most people here, you did not personally file taxes as a one-per-center before the Reagan administration. Nobody here is expecting you to muse accurately on pre-Reagan tax filing and how people accounted for their wealth. Just remember that nobody pays marginal rates on any money, ever. The deduction structure changed with the rates, as happened for FY 2018. The relationship between marginal rates and revenue/liability is modulated by deductions.
> Please explain how this is relevant to individual incentives and the "emergent behavior" that they create.
I'm saying that the "incentives" you cite (marginal tax rates you arbitrarily consider to be low) probably don't create that behaviour, because those same people have actually been paying about the same amount of tax this whole time; with the difference mainly coming in the form of subtle differences in compliance and in the way that people account for wealth.
If you want to tax the caricature baron-type people you seem to be talking about, make playing by the rules as cheap as the creative strategies they inevitably and understandably employ when nominal marginal tax rates are higher than the cost of doing business a bit differently.
Also consider that dragging down the rich doesn't uplift the lower and middle classes. If we have a monopoly problem (as the article's framing conveys), then we should maybe look at a solution to the incentives for excess corporate consolidation and anti-competitive behaviour, rather than getting dragged into the weeds with tired conversations about personal income taxes. Or if we're looking at the personal income tax side of things, at least look at something more relevant to the pain that small businesses face: people who are self-employed are at a tax disadvantage in the U.S, and self-employed people are often the ones who start businesses with their after-tax self-employment income.
Or: The swordsman scene in Raiders of the Lost Ark: https://www.youtube.com/watch?v=anEuw8F8cpE
Recall for me a competing principle with its very own meta-relevant renaissance painting. You are not going to untangle this knot with "just raise the top marginal rate"; it does not eliminate any underlying assumptions which preempt a solution. You do not have indy's gun, and this is not a bumbling swordsman.
You're awfully confident.
> this is not a bumbling swordsman.
"Bumbling"? The swordsman in the Raiders clip seemed to be quite skilled; unfortunately for him and his mission, his skills — and more importantly, his assessment of his situation — were badly mismatched to the reality. Putting it another way: As my late father used to say, you can be the world's most-skilled rain dancer, but that doesn't mean you'll be able to make it rain. Supply-siders urge tax cuts and more tax cuts because that will supposedly "make it rain" due to innovators doing more innovating and entrepreneurs doing more enterprising; they also scold anyone who suggests raising the top marginal tax rate. There's more than a little reason to wonder whether the supply-siders are like rain dancers.
If I understand supply-side economics correctly, the underlying model of human motivation assumes that innovators and entrepreneurs will change their behavior in response to almost any increase or decrease in marginal tax rates. While that's likely somewhat true when the marginal rates are at confiscatory levels, there's ample reason to doubt that it's true in the general case, because:
1. Optimizing after-tax revenue is not the only thing that motivates innovators and entrepreneurs. Many other things play roles as well, in varying degrees for different people: A quest for status; a sense of solidarity with "the tribe"; personal satisfaction from the work; and altruism, to name just a few factors.
2. We're nowhere near confiscatory marginal tax rates and haven't been for many years. The Reagan tax cuts were followed by his tax increases [0]. The tax hikes of the early 1990s, under Bush the Elder and Clinton, were followed by a major economic boom (yes, I know, correlation ≠ causation).
Most economists who have studied the matter have estimated that the optimum maximum tax rate for generating tax revenue is around 70%. [1] Economics Nobel laureate Paul Krugman (in whom I have considerable confidence because of his epistemological modesty and his track record) endorses this view [2]. The Cato Institute recently published an opposing view [3], but I don't find it persuasive, for socio-political reasons that I don't have time to go into.
[0] https://money.cnn.com/2010/09/08/news/economy/reagan_years_t...
[1] https://en.wikipedia.org/wiki/Laffer_curve#Empirical_data
[2] https://www.nytimes.com/2019/01/05/opinion/alexandria-ocasio...
[3] https://www.cato.org/publications/commentary/no-economists-d...
You might well be right about that; it's an empirical question.
How do you discourage consolidation without increasingly punitive tax levels on concentrated wealth and income (individual and corporate)? There are strong financial incentives for winner-take-all, I don't see non-financial tools being effective at fighting them.
After-tax income is not the only incentive that drives people. Entrepreneurs and corporate executives did their thing even when tax rates were significantly higher than today.
Income taxes can't do that anyway. If you have a pile of money collecting interest, it gets bigger over time whether you keep 80% of the interest or only 10%. It changes the rate but not the trend. And that's assuming it even does that, rather than having a nominally high marginal rate that nobody pays in practice, as was the case prior to the 1980s.
The way you fight consolidation is by facilitating competition. You can't keep a monopoly if anyone with a dominant market position is prohibited by antitrust from vertically integrating and anybody with $100 in their pocket and an hour's notice can join the market and compete with you. The way you get stable monopolies is regulatory capture and a regulatory environment with many overlapping barriers to entry for small businesses.
You're pretty confident about your view of human motivation.
1. There's a certain motivational boost that comes from feeling that "we're all in the same boat." There's a reason that highly-paid NFL quarterbacks make a point of buying watches for their linemen, hosting banquets for them, etc. It's the same reason that military officers are taught never to ask your troops to do something you wouldn't be willing to do yourself if necessary — along with principles such as officers should only eat after they've made sure the troops are being fed, and they should sleep only when they've made sure the troops are getting sack time.*
* In reality, of course, there are circumstances when that won't be the case, e.g., when standing watch in a 24-hour rotation.
2. On the other hand, resentment, triggered by a feeling of being ignored and abandoned, is "a thing," whether we like it or not (probably programmed by natural selection). Moreover, people tend to view their well-being in comparison with that of their neighbors [0]; failing to keep up with the Joneses can be a real demotivator. That's especially true if you've come to believe that what you see the Joneses have, and you don't, is not a luxury but a necessity. For good or ill, most of us have that tendency, to one degree or another — ask any parent who has heard, But Dad, I NEEEEED a [whatever]!
3. The rich didn't get that way entirely on their own merits (and sometimes not even principally that way). If you haven't seen or read Elizabeth Warren's famous remarks, here they are: <QUOTE> "There is nobody in this country who got rich on their own. Nobody. You built a factory out there — good for you. But I want to be clear. You moved your goods to market on roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory... Now look. You built a factory and it turned into something terrific or a great idea — God bless! Keep a hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along." </QUOTE> This is spot on.
[0] https://users.nber.org/~luttmer/relative.pdf
[1] https://www.goodreads.com/quotes/439207-there-is-nobody-in-t... and https://www.youtube.com/watch?v=60fQCDqXfq0
You forgot the network in time. Almost all our current productivity is made possible by knowledge, processes, culture, and tools created by dead people.
For the rest of us, the only reason you can "make million" (or billions) is because you are at a favorable location in the human network in space and in time, and you get to control a sizable section of that network. You didn't build that network, nor did you build the capacity of the nodes, and not the vast majority of the connections. How much a human can achieve is very much a function in that network. Even in science. Newton or Einstein, what would they have accomplished 1000 years earlier?
Most of what we produce we owe to dead people, and since that is so, we can relax about distributing those gains that the current generation mostly just inherited. Nobody needs to be worried that "something is taken away from them" that they "worked hard for" when they have to pay taxes. Put a "self-made" man in the middle of nowhere and let them keep the result of their "hard labor" tax free. They can keep their entirely self- and literally hand-made mud hut.
For the same reason those who control larger sections of the human network benefit more from government than those who do not. Because it is government of one kind or another that enables it. If there is no government those who want to be rich and powerful create one. Which is exactly what happened - it wasn't the poor, the workers and farmers who created government. It was the rich and powerful. First local lords, then kings, then Britain and their parliament, forced by the new economic upstarts, not by the peasants. And some "redistribution" down to the lower levels was only introduced to pacify the masses (people like Bismarck in Germany, who introduced a pension scheme, are under no suspicion of communism), to let the wealth increase continue undisturbed. Just like the bee keeper has to give the bees something to live on.
Or: Imagine a variation on the Parable of the Workers in the Vineyard: The grape pickers show up at the end of the growing season and do their thing. They demand to be paid the lion's share of the entire crop yield, because it was their specialized skill and hard work that produced the harvest. They conveniently forget about the earlier workers who had patiently planted and tended the vines — without which there'd have been no harvest .... [1]
[0] https://en.wikipedia.org/wiki/Standing_on_the_shoulders_of_g...
[1] https://en.wikipedia.org/wiki/Parable_of_the_Workers_in_the_...
In America, though, more so than most other places. If you look at economic mobility in America, it is impressively high.
> If you haven't seen or read Elizabeth Warren's famous remarks, here they are: <QUOTE> "There is nobody in this country who got rich on their own. Nobody.
Sure, nobody does anything alone ever.
> You built a factory out there — good for you. But I want to be clear. You moved your goods to market on roads the rest of us paid for.
A lot of road funding comes from fuel taxes, new infrastructure is built from the budget, where the corporate profit taxes, local and state sales taxes, and other miscellaneous fees and tariffs go. It's not as though companies don't pay for the roads they use.
> You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for.
Chances are the public did not pay outright for their workers' educations. But let's assume for a moment that the public paid for their educations: Why did the public pay? Did the public pay so that they could hold it over every future employer, or did the public pay so that they could empower the individual to make him/herself useful for his/her own good? I'm willing to bet the latter. This kind of tyrannical thinking on her part is a big part of why subsidies are so much worse than their immediate effects: they paint a picture of dependence on the state where none previously existed.
> You didn't have to worry that marauding bands would come and seize everything at your factory...
Actually, they do. This is why companies spend so much money on private security and insurance: the police are not duty bound to protect your company's assets in the moment, they'll typically only follow up to a report. In the end, the company (and indirectly its employees and customers) pay for the cost of most crime in a highly direct way.
Then look at Venezuela, which became a "democratic socialist" country. Marauding bands literally came and seized everything at various factories and other businesses; and they did so with the full endorsement of the state.
> Now look. You built a factory and it turned into something terrific or a great idea — God bless! Keep a hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along." </QUOTE> This is spot on.
The money doesn't go to "the next kid who comes along"; at least, not hardly ever.
The real way wealth is kept in a social circle across generations is through social networks and in-person learning. You will never convince me to invest as much in teaching some stranger as selflessly as I would my own son.
> 2. On the other hand, resentment, triggered by a feeling of being ignored and abandoned, is "a thing," whether we like it or not (probably programmed by natural selection). Moreover, people tend to view their well-being in comparison with that of their neighbors [0]; failing to keep up with the Joneses can be a real demotivator. That's especially true if you've come to believe that what you see the Joneses have, and you don't, is not a luxury but a necessity. For good or ill, most of us have that tendency, to one degree or another — ask any parent who has heard, But Dad, I NEEEEED a [whatever]!
You don't solve that problem by giving mental children exactly what they want. You teach them that a) they'll probably squander it, because they didn't work for it, and b) if they really want it, they can get it through honest means.
If you have a problem with "failing to keep up with the Joneses", then you're in deeper doodoo than the freedom dividend can pull you out of. There is no amount of material wealth you can reasonably transfer to that person to make them satisfied with their lot in life.
FIRST: Neither of your points is self-evident.
As to a), there's research indicating that poor people, given unrestricted cash grants, do not just squander the money. https://www.vox.com/2016/1/23/10810978/cash-transfer-givedir...
As to b), that's the No True Scotsman fallacy — you failed, so you must not have REALLY wanted it ....
SECOND: Assuming your premise arguendo, people vary in their ability to grasp life's lessons. That was tough for me to come to terms with — isn't it obvious? Why don't you see this? Believe it or not, what helped me see this was my frustration at the inability of my wife and our now-adult children — all of whom are very-intelligent people — to grasp what I regarded as simple mathematical concepts.
> If you have a problem with "failing to keep up with the Joneses", then you're in deeper doodoo than the freedom dividend can pull you out of. There is no amount of material wealth you can reasonably transfer to that person to make them satisfied with their lot in life.
As I mentioned upthread, we seem to be programmed by natural selection to want to keep up with the Joneses. OK, if that's the way things are: I make it a practice not to argue with the weather (to borrow a Heinlein saying), but instead to try to figure out how best to deal with it. If we want our interconnected global society to survive and thrive, we need to figure out better ways of dealing with the volatile combination of a) the Joneses problem and b) people's varying abilities to grasp life's lessons — especially when those who fail to grasp those lessons can misguidedly inflict grave damage on society.
That part, was a good and highly relevant addition to the conversation. It would be given more attention, if it were not surrounded by the rest.
I've moved things around a bit (without removing anything, for posterity, and so that the replies make sense), and moved the important statement to the top.
I also wish he'd addressed that the barriers to entry in many of these areas are extremely high, and not just for monopolistic reasons - There is an analogue to Moores law (I can't remember the name) that states that the cost of a semiconductor fab facility doubles roughly at the pace semiconductors shrink. Where this is happening (and its been happening in defense aerospace for a long time), there is a natural trend toward consolidation because the payoff is too low to up another facility or line.
Overall an amazing article though.
EU faces the same problem, tackling it semi-successfully with regulation, but it's size limited. Russia keeps its military to itself in working condition with few dependencies, but it is getting increasingly outdated...
There is a real human toll that comes with these decisions, in that so many talented individuals that work coffee shops and service jobs, unable to score a technical job without X years experience because their genius and talent is simply not valued by companies.
At least, not at the wages these companies have come to demand.
https://www.trade.gov/topmarkets/pdf/Semiconductors_Executiv...
"Over 90 percent of global semiconductor manufacturing equipment sales outside the United States take place in five markets: China, Taiwan, Japan, Korea (South) and the EU, creating a very concentrated market. "
The standard conservative reaction to such issues is a "market based" incentive against monopolies, such as what is being done with SpaceX/ULA. The government buys from two people, ensuring that at least two market actors survive. But the advantages of monopoly are extraordinary. Eventually the government has to step in and deny a merger (like they just did with photomultiplier tubes) or bail out a failed business. So conservative principals are inevitably sacrificed. The more mature option is to encourage a healthy market through regulation long before the market boils down to two, but that is definitely not a conservative ideal.
There is no such thing. All the american monopolies are due to protection policies defending them from the competition, i.e. due to the government's interventions.
FCC, FDA, FAA are all run by corps' shills. US is a one big blatant example of regulatory capture and crony capitalism at its worse.
what about classic monopolies like standard oil or northern securities company?
isn’t it more like monopolies that are allowed to survive do so by the ‘protection policies’ of the govt?
so while i do agree fcc, fda, faa are run by corporate shills, back in the days of near zero regulations huge monopolies continued to walk the earth until broken up... and breaking up monopolies is part of regulation
It's a simple common sense: either you continue to provide the best service, and gain nothing from your market share, or you start to milk the consumers to squeeze more profits. The greed would simply mandate the latter strategy, hence monopolies don't last.
>what about classic monopolies like standard oil or northern securities company?
The former wasn't a monopoly at the time of anti-trust case.
>Standard Oil’s share of the market had declined from close to 90 percent in the late 1800s to about 65 percent at the time of the court’s ruling
The latter was operational for how long, less than a year?
>so does that mean that googles search monopoly, or amazons almost soon-to-be monopoly are cause by the govt?
https://www.bloomberg.com/news/articles/2019-01-22/google-se...
>isn’t it more like monopolies that are allowed to survive do so by the ‘protection policies’ of the govt?
No, it's the monopolies which actively exploit the government, especially amazon.
>back in the days of near zero regulations huge monopolies continued to walk the earth
Examples? For example before the deregulation, there were only 6 breweries in the whole US. After deregulation their number grew.
https://www.youtube.com/watch?v=2E3bPU0g8SA
Regulations are burden: they increase the entering threshold leading to monopolization. You also need a regulatory agency, which is either run by bureaucrats who don't understand much in the industry (hence not adequate laws) or the industry people (hence regulatory capture).
And anti-trust is no different here, the standard oil history is a great example of how it punished a non-monopoly.
the way i see it, access to capital is a huge barrier for many potential competitors and it may take many decades for a natural monopoly to fade, all the while the population suffers....
(just to be clear, i’m not necessarily for burdensome regulation, but things like environmental degradation, predatory financial speculation (see post glass-steagal deregulation and 2007) and natural barriers to competition such as capital, land etc make it difficult for me to believe in complete laissez-faire)
You don't need to prevent them. If a company provides an outstanding quality of service, it would have a big market share for some time, and that's fine.
What's bad is when people are suffering due to monopoly. But in this case laissez-faire is enough, because suffering causes the demand, the demand causes the supply, provided by competitors.
> the way i see it, access to capital is a huge barrier for many potential competitors
Most barriers in the west are inflated by the industry and government. Take the big pharma as an example, the barrier is due to the regulations and patents (and FDA), purely. Russian and Indian companies could produce and sometimes even develop drugs for a tiny fraction of costs that are usual in US.
Now I do understand that patents may incentivize investments in R&D, but they also incentivize monopolies and oligopolies being the monopoly right.
>it may take many decades for a natural monopoly to fade
If the population suffers, it create the supply for the better service. If such a supply exists, what prevents a demand? It couldn't be any financial barrier, because it's not a rocket science to attract investments when so much of a demand exists.
>and natural barriers to competition such as capital, land
Capital is not a barrier, especially in US, where investment climate is so good.
Land is not an important resource for a vast majority of contemporary production, we are not living in agricultural society.
I don't think that nowadays there exist many natural limiters like the lack of land or resources. Most of the industries in the west are based on IP, and labor is moved to the third world. So I doubt it's true in the US. Your costs are due to patents and other such things rather than due to the lack of land.
What level of suffering is worth preventing instead of waiting for the market to - hopefully, eventually - correct itself? While meanwhile the incumbent is using their considerable wealth and influence to suppress any new competition.
I'm positive you have a line, I'm curious where you draw it.
i am fully agnostic about what might be the answer
The question is rather, could you prevent suffering by regulating the natural self-organizing order.
The main point of Hayek was that the economy is like biotope: there are millions interconnected entities making decisions on their own.
Intervening the economy is like intervening the biotope, you are adjusting the system you have no clue about. Killing/dismantling one actor could cause a chain reaction of quite dismal consequences. For example Mao campaign on killing sparrows ended with a locust invasion.
The outcome of such anti-trust regulations is impossible to predict, so it could end up with broken supply chains, deficit, inflated prices etc.
I'm quite sceptical about this, I thing the remedy would be worse than the disease. If people are suffering and create a demand, I'd rather find what prevents the supply.
the thing is, and again this is just my opinion of course, but when everything is based on capital and money, and that’s all that is used to enforce adherence to a system of economy, then only those with access to capital can affect change in the system...
the idea of regulation, at least in theory is that it’s a democratic set of controls on capital that a population feel s is important enough to push for (such as labor standards, or safety standards) and i find it hard to believe (as we can see from our own history) that those wielding great power will just do the right thing because the market pulls them there; people at the bottom with little collective share will have little collective power to affect them through market signals
i think at least we can agree that alot of today’s regulations are by corporations to protect thier positions and do no good, and that even well intentioned but not well thought out interventions can wreak havoc, but i guess we differ on what to do about it (i would prefer to have more democracy (e.g get corporate money out, outlaw lobbying etc) instead of just market based solutions)
Regulatory capture can absolutely lead to monopolies, but to claim that "all American monopolies are due to protection policies" is incorrect. Monopolies arise naturally in quite a number of sectors where there are natural barriers to entry. Those barriers can be initial startup costs (ie, wired communications), limited customer bases for niche products such that only one company can be economically supported, or other purely economic reasons.
Yeah, that's why the number of "natural monopolies" is a tiny fraction of all monopolies exist. Could you list at least 10 american natural monopolies?
Natural monopolies are also not as tough as the incumbents want you to think they are.
If you have a sufficiently crappy water company (i.e. prices are more than double the cost of an efficient operator), it's not totally infeasible that someone else could put in a competing water main, do a better job and take half their customers.
Then both companies would have to charge twice as much per customer as an efficient monopolist would to cover costs, but that still may be less than what an inefficient monopolist (i.e. the incumbent) would charge. So there's an upper bound for how bad they can get in an unregulated environment.
But having a competitor show up is a catastrophe for the incumbent. If an efficient monopolist can provide service for $50,000/street but their mismanagement causes their costs to be $150,000/street, a new competitor that shows up with costs of $50,000/street can match the incumbent's price, take half their customers and still turn a tidy profit. But losing half their customers would bankrupt the inefficient incumbent due to their higher costs -- and that creates even more incentive for someone to do it, because then they can expect to ultimately gain 100% of the customers.
The result is that the incumbents lobby hard for rules that either establish a statutory monopoly or otherwise make it as difficult as possible for anyone to challenge them. Because the barriers to entry are higher than in most other industries, but so is the cost to the incumbent of anyone clearing them, so they rely even more than other industries on the government to impair competition.
In reality it is entirely unfeasible though. Because as soon as the competition would start digging the incumbent simply lowers prices. The newcomer would need crazy and very rich investors to enter the market - the incumbent has a nice cache flow, which they can and do use to force you out. Unless you are Uber and investors are willing to pay for you to become the monopoly your suggestion won't work. Especially since if the goal simply was competition the margins would not be nearly good enough for such a kind of investment, which only makes sense if you yourself, the newcomer, strife to replace the old monopoly with yours.
So the monopoly would have to keep the prices low all the time, since the competitors would appear all the time is the demand exist.
It's not what monopolies do. Did Walmart lower the prices when Amazon appeared? Why to be a monopoly and not use this state of affairs to squeeze the profits?
The solution to which is to get the customers to precommit to buying service from you for a sufficient period of time. If the incumbent is currently charging $300 and you offer a five year contract at $200 contingent on more than whatever threshold percentage of the customers signing up, and then only start digging when you reach that threshold, it no longer matters to you if the incumbent lowers prices because you have your customers locked in. And they're all happy to be paying $200 instead of $300. Or the neighbors can all get together and cosign a loan to pay to install the infrastructure in their neighborhood, which they then own and have no reason to ever patronize the incumbent again.
What the incumbent would have to do to prevent that is start charging less immediately, before you spend a penny or sign up the threshold amount of customers, so that customers are no longer willing to do that. But then anyone can promise to do that at no cost and the incumbent has to charge competitive prices before there is any competition. Which they hate, which is why they lean hard on the government to interfere with any such attempts to compete with them, to remove the credibility from any such threats.
> Especially since if the goal simply was competition the margins would not be nearly good enough for such a kind of investment, which only makes sense if you yourself, the newcomer, strife to replace the old monopoly with yours.
Even that's making assumptions that don't necessarily hold. If the existing incumbent is charging $400 even though an efficient operator could charge $100, a new competitor that shows up to charge $200 even though they only have $100 in costs is making huge margins. And the incumbent slashing prices to bankrupt them only works if they can actually expect to do that. If the newcomer has more secure finances than the incumbent then all the incumbent does by slashing prices is bankrupt itself -- so they don't and you end up with both companies charging $200 instead of $400. Because that's more profitable to both of them than a price war that bankrupts one of them and causes the other to suffer big losses.
And suffering those losses just to have a "monopoly" isn't worth very much if someone else can do the same thing to you as soon as you try to charge monopoly prices. Hence the strong desire to stifle competition with regulation.
The world and the US had monopolies well before there were strong regulatory regimes. Businesses variably ask for regulation to give them more legitimacy when they've betrayed trust, and they ask for regulation to create barriers to market entry by competitors, and so on.
I disagree all of the problems are new or that they exist only because of government regulation. The pure free market nonsense is exactly that, nonsense.
So for you to have 100% freedom of your property mean to let the government to do whatever it wants with your property if somebody bribed it?
>well before there were strong regulatory regimes.
When, exactly, were times before there were strong regulatory regimes? You know that monarchies of the past were significantly more invasive than the contemporary liberal democracies, right?
You don't even have to go into the distant past to find an example of an unregulated industry. Payday lenders. https://www.responsiblelending.org/research-publication/map-...
"By 1775, the British government was consuming one-fifth of its citizens’ GDP, while New Englanders were only paying between 1 and 2 percent of their income in taxes."
https://foreignpolicy.com/2012/07/03/tea-taxes-and-the-revol...
The level of invasion is hard to equate given the centuries, but safe to say that pre-revolution Americans paid far far less in tax. And there weren't police officers like today. I'd say, for the common man in america, the pre-revolution monarchy was much less invasive than our government today.
If you are estimating the invasiveness of government in taxes, you are wrong.
We are talking about regulations. Back in the days, much of the big biz couldn't simply exist without a patronizing king and monopoly rights.
Since you are talking about the US colony, let's take a look at the East India Company as an example.
https://en.wikipedia.org/wiki/East_India_Company
It was allowed by the Queen, since none busyness could be started without it. It was frequently intervened by the crown, despite the crown had no share.
Back in the days the king had almost ultimate rule over any busyness, and could establish monopolies like this:
https://en.wikipedia.org/wiki/History_of_copyright_law#Early...
>Early copyright privileges were called "monopolies," particularly during the reign of Queen Elizabeth, who frequently gave grants of monopolies in articles of common use, such as salt, leather, coal, soap, cards, beer, and wine. The practice was continued until the Statute of Monopolies was enacted in 1623, ending most monopolies, with certain exceptions, such as patents; after 1623, grants of Letters patent to publishers became common.
Monopolies were a thing long before the united states was a thing. They have existed in all ares of human endeavor, under every form of government. It is unfair to say that "all" of them come from current government policies.
Before the united states was a thing an average government was significantly more invasive than the contemporary one.
A few hundred years ago a huge bunch of big biz were simply patronized by a king, sure the were monopolies. Back in the days a monopoly right was a norm rather than an exception.
Yeah, no. The kings could simply deprive you from your busyness without any trial. They could simply prohibit you to do busyness without any law, since their word was the law. They granted monopoly rights to close and loyal people, so that the whole industry could be subjugated to a single person because he was granted a monopoly right.
https://en.wikipedia.org/wiki/History_of_copyright_law#Early....
>Early copyright privileges were called "monopolies," particularly during the reign of Queen Elizabeth, who frequently gave grants of monopolies in articles of common use, such as salt, leather, coal, soap, cards, beer, and wine. The practice was continued until the Statute of Monopolies was enacted in 1623, ending most monopolies, with certain exceptions, such as patents; after 1623, grants of Letters patent to publishers became common.
It's ridiculous to compare a contemporary liberal democracy to a monarchy in terms of interventionism.
We need to aggressively ensure competition, and not just three or four entities. There needs to be more viable businesses in a market. We will stagnate if we don't have smaller thriving companies that compete.
You don't have a free market in US. Try to sell a drug, for example. You need to get FDA's approval. And FDA is run by big pharma, so even if your drug is used in EU and proved fine, you need to spend quite a lot to push it on american market.
US is more a classic corporate (i.e. fascist) state than a free market state.
That's why I warn any american of any sort of increase of gov's presence. It will cause a great calamity, because the centralized power can never be controlled by many.
It's fine if you have a small/local transparent government controlling and regulating. But when you have a big opaque one, you end up in a crony/fascist state.
EU is very different in that regard: EU parliament is a very weak political entity, the states' governments are much stronger, and the govs of local provinces are even pore stronger, so the whole political system is very healthy. US seems to be just the opposite to that.
Yes, but if you consider the size of economy and population, France = California, and EU = US federal government. And France, being centralized, is quite independent and self-governed, unlike California.
Implicit in this passage is a judgment of Wall Street, a laying of blame, but that is misplaced, because while investors may be in a good place to assess the national security implications of the company's strategies, they are not in a position to address them. Failing to maintain critical supply chains and human capital is not their mistake to make. If the government (or governments, the 50 states matter just as much) allows or encourages certain mergers, permits off-shoring of critical industries and does little to ensure the technical capability of a new generation of Americans, investors are basically stuck with that. They can choose to buy or sell; they aren't policy makers.
That said, my opinion is that equally to blame as Wall Street is the schism between the military and the coasts, which house most of the country's intellectual power. It's hard to imagine today that the Bay Area was the center of defense R&D two generations ago. Today there is largely the perception that the U.S. military is acting in a manner counter to what we perceive ourselves to be as a liberal democracy. Evidenced by the recent Google and Amazon protests, knowledge workers bristle at the possibility of their work being used for purposes that aren't entirely positive. As far as I'm aware, the Chinese have no such hang-ups. Is it the fault of the military for appearing too evil, or is it the fault of progressives singing the siren song of non-aggression in a hostile world, who knows.
Now, the part I agree with is the supply chain issues. I go out of my way to buy American and local whenever possible, even if it means a higher price, because I realize the importance of domestic production will play in a future where the U.S. isn't the undisputed leader of the world.
This is a direct consequence of starting the Iraq war on very false premises (even lies) and then continuing to wreak havoc in the entire Middle East for the the sole interest of a few people and corporations. Eventually lies do get to you.
Edit: If you are a Chinese business man and make decisions perceived by the PRC as selling out your people to America you would probably disappear in the night. In the US you can do this with impunity. How to succeed without becoming totalitarian ourselves?
This is similar to the NATO principle: entangle the countries' military objectives together but don't make it worthwhile for them to invest in actual military power -- essentials bribing them to not be able fight wars (this is why complaining that they don't pay "enough" is potentially destabilizing and could cost more later).
It is horrible. It is full of stupid security flaws, something that may or may not be linked to the NS concerns. It is "best value" because it ticks all the performance boxes, but is total junk in every other area. To cite Clarkson, it is like a kid with a turbo on his honda civic. It may be as fast off the line as a Ferrari, but in no other way is is anything like a Ferrari.
Are Ericsson and Nokia free of EU surveillance facilities? Is any American equipment free of surveillance facilities? This is the real problem, lack of open hardware that we can readily validate as "better" or "worse". With a Honda and a Ferrari, we're free to pop the respective hoods and look into what we find. Heck, we can go way further than that if we know our OBD equipment well enough. But not so with, say, your average router.
So people out in the non American parts of the world say, "Meh, one's just as good as the other. They're all spying. May as well get the cheapest equipment I can." And right there, market share is won.
https://en.wikipedia.org/wiki/TACLANE
(just an example, one of the few publicly-available descriptions of such networking products.)
That's how the Chinese are winning market share. Because in a world where everything is compromised, well, price all of a sudden is the dominant consideration.
https://en.m.wikipedia.org/wiki/First_World_War_glass–rubber...
I see our brightest minds instead going into finance to work to enrich themselves with no clear moral framework. Our best problem solvers in science and engineering fields, who we need in positions of government at this moment, are horrified at the prospect of how they would be treated by our media and shy away.
I disagree that the brightest minds go into finance. That may have been true in the 80s and 90s but since the dot com era the brightest minds have gone into tech (as distinct from science and industry).
So qualcomm doesn't exist?
Monopolies aside, investment flows to the most efficient ways of doing things. Right now in a globalized world that really is to produce in China. If you want the most strategic and adversarial way that is a different problem. Globalization has been a drive for American governments the last half a century, was it wrong? You can't blame the investment community for globalization.
I guess this means that there is a faction of the moneyed class which thinks monopolies aren't such a good idea.
Edit: some background on OMI: https://www.wired.com/story/freedom-from-facebook-open-marke...
In January 2017 Chinese CEO Jack Ma (Alibaba) commented on the United States' gifts to China [0]: "Ma says blaming China for any economic issues in the U.S. is misguided. If America is looking to blame anyone, Ma said, it should blame itself.
"'It’s not that other countries steal jobs from you guys,' Ma said. 'It’s your strategy. Distribute the money and things in a proper way.'”
"He said the U.S. has wasted over $14 trillion in fighting wars over the past 30 years rather than investing in infrastructure at home.
"To be sure, Ma is not the only critic of the costly U.S. policies of waging war against terrorism and other enemies outside the homeland. Still, Ma said this was the reason America’s economic growth had weakened, not China’s supposed theft of jobs."
Another Jack Ma quote from the same time period [1]: "'The past 30 years, companies like IBM, Cisco and Microsoft made tons of money.'
"The question is: where did that money go? It was wasted, Ma explained.
"'In the past 30 years, America has had 13 wars at a cost of $14.2 trillion. That’s where the money went.' He also questioned America’s decision to bankroll Wall Street after the 2008 financial crash, arguing the money would have been better spent in other areas.
"'What if they had spent part of that money on building up their infrastructure, helping white-collar and blue-collar workers? You’re supposed to spend money on your own people.'"
[0] Chinese billionaire Jack Ma says the US wasted trillions on warfare instead of investing in infrastructure - https://www.cnbc.com/2017/01/18/chinese-billionaire-jack-ma-...
[1] Jack Ma: America has wasted its wealth - https://www.weforum.org/agenda/2017/01/jack-ma-america-has-w...
Over the past 50 or 100 years, US Presidents from both parties have tended to be 'useful idiots'. Maybe Kennedy would've figured things out, but a loan gunman took him out before he could stand up to the "military-industrial complex" his predecessor had warned about. The peanut farmer (Carter) wasn't so bad, but he didn't seem to have a big-picture understanding of what he was up against. Reagan might've been effective, then he got shot by a loan gunman early in his first term [2], and was kind of useless after that. GHW Bush was indoctrinated in the dark arts due to his stint at the CIA. Clinton picked up Bush's "globalization" policies (NAFTA, WTO) and ran with them. GW Bush was a dyslexic useful idiot extraordinaire. Obama meant well, but he didn't have any life experience other than community organizing, academics, and politicking.
[2] https://en.wikipedia.org/wiki/Attempted_assassination_of_Ron...
Humanity's traditional problem was scarcity. The onward march of technology has allowed our species to achieve liftoff. Our problem is now in figuring out how to share the abundance.
If you propose any program that broadly benefits the American public, concerns arise about "fairness": either that the money is being spent at all, or that it may benefit those undeserving -- either because it will benefit the slovenly or because it will benefit "the rich"[1]
[1] An aside: When talking about social programs in America, "rich" usually starts at 1.5x the median household income. But for taxes, you get long drawn-out arguments as to why a household making $500,000 a year is still middle class because they can't afford to quit their job and retire.
Not sure if it was on purpose, but given the topic, amusing. :)
https://twitter.com/realDonaldTrump/status/11431286428784107...
Both are strongly recommended.
In the early days of the MIC the companies were required to sell at cost because they were able to use the technology they developed with military resources in the commercial world.
I still don’t understand how a single missile “costs” more than a million dollars, even with absurd mark up
I assume the part that isn't profit is development. The actual unit cost of manufacture is quite small.
This is why military contracts should be fixed price payable on achieving deliverables. Let the vendor own the risk and price it in. The military picks the lowest credible price.
It was recognized that the tech that they developed depended on a lot of resources they got from the us gov - r&d, testing facilities, etc.
In exchange for only chargin actual cost, they were allowed to monetize technology and equipment that was developed in conjunction with the government.
That’s why they weren’t allowed to charge more than the cost of production: they didn’t pay for all of the r&d, they didn’t have to pay for cleanup (hence superfund sites). Their profit came from selling products using government funded research to non-gov entities