Innovation: The Government Was Crucial After All
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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.
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.
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).
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?
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.
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.
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.
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.
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.
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?
For the same reason researchers choose to do so now: the government pays for a lot more fundamental research than private industry does.
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.
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.
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?
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.
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.
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...
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 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.
Why give the corporations who spend millions lobbying against tax reform a pass, just because they're "technically" lawful?
Because unfair taxation is just a symptom of the core problem of too much trust in an institutionally corrupt 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?
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 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.
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.
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.
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.
P(X) = "X exists due to the government"
S = "Scientific developments"
Fallacious statement:
∃x ∈ S (P(x)) ⇒ ∀x ∈ S (P(x))
Strict reasoning is hard.
For me, another use case is 'all the fantastic things that have been invented because of war'.
The problem is that it's never allowed to fail.
Nobody bats 100%, but it all becomes worth it when they hit on something very big, like the micro-processor or the internet.
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.
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?
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.
Both government and business merely provide incentives.
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.
Factory farming. Food costs have been driven down tremendously, and productivity increased hugely, by private farming.
Heck, Y Combinator. Smaller scale, but it sure isn't public money that's going into funding these startups which make a big difference.
That the government simply established standards amid otherwise competing options is a proper role (nice that we're all agreed to drive on the same side of the street). Government is also sometimes useful to force concentration of funds into something that needs development but has prohibitive startup costs.
But there are certainly plenty of vast proliferations of spending which occur absent of, or even contrary to, government involvement. Don't confuse the presence of free money (say, farm subsidies) with the successes; anyone will accept a large enough check. Don't overlook the destructiveness (say, many wars, or the "Cash for Clunkers" disaster that destroyed the used car market, or the multi-billion-dollar "bailouts" that lost vast sums of cash, or the 100M dead from government conquest spending including the Chinese Great Leap Forward).
Yes, there are some successes. Let's talk about private successes, which DO exist. Let's talk about public-funded failures, which DO exist.
Yes, large-scale government spending not pure evil incarnate, but it sure isn't the benevolent deity which many are increasingly making it out as.
The internet was highly developed and had been for decades by the time commercial industry got their hands on it. Government-funded research did all the "hard parts" (reliable communications over lossy protocols, etc). The private sector figured out how to make money off it with advertising and entertainment.
> Factory farming. Food costs have been driven down tremendously, and productivity increased hugely, by private farming.
Agriculture is the single industry in which the government has most and for the longest time intervened with subsidies. http://en.wikipedia.org/wiki/Agricultural_policy_of_the_Unit.... See also: http://en.wikipedia.org/wiki/Green_Revolution.
One other thing I might add, is that your last statement would be better phrased "It was the military that built the Roman road network, the military that split the atom, and the military that sent man to the moon."
Like the transcontinental railroad? http://en.wikipedia.org/wiki/Pacific_Railroad_Acts.
http://en.wikipedia.org/wiki/Longitude_Act Ed: "In total, Harrison received £23,065 for his work on chronometers. He received £4,315 in increments from the Board of Longitude for his work, £10,000 as an interim payment for H4 in 1765 and £8,750 from Parliament in 1773." which works out to around 4 million USD inflation adjusted.
Also, NASA is not part of the military, the air-force has it's own space program that was sending a lot of unmaned missions during that time period. But, the moon shot had no military applications.
But, the moon shot had no military applications.
Both von Braun and Rudolph (along with many others in NASA) developed their rocketry skills in the German military while designing the V2 among other implements of war.
For comparison an actual 1969 ICBM has about 1/33's that payload to LEO. http://en.wikipedia.org/wiki/LGM-25C_Titan_II making a single J-2 overkill.
Because ICBM's don't need 5 Rocketdyne J-2's
http://en.wikipedia.org/wiki/Silverstein_Committee
All of the early research was performed by the military (US or German), all of the early rockets were commissioned by the military, and all of the scientists were trained by the military.
I'm honestly having a hard time believing you think the moon launch happened in a vacuum of higher purpose and not as a direct result of decades of DOD work on ICBMs.
The internet is a direct result of years of hard work by the US military, but nobody calls it a military network. GPS is still run by the air-force but nobody calls there iPhone a piece of military hardware. So, sure NASA used a lot of military know how and plenty of people from the military but it was a civilian agency and focuses on non military applications.
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.
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...
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)
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.
* 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...
>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 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 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 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.
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.
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.
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.
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.
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.
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.
Perhaps your binary thinking is not adequate for explaining the complexities of the modern economy.
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.