Innovation: The Government Was Crucial After All

http://www.nybooks.com/articles/archives/2014/apr/24/innovation-government-was-crucial-after-all/?insrc=hpss

by mturmon • 12 years ago

70 89 12 years ago

twoodfin2• 12 years ago

The debate over the nation’s budget deficit aside, government’s contribution to innovation is not financially rewarded. The benefits to government, it has always been argued, would be increases in tax revenues as companies grow based on its research. The fact that Apple avoids almost all taxes by international avoidance strategies, as do many other high-technology companies, shows such hypotheses to be largely bogus.

This sounds to me like a non sequitur. The government has collected massive tax revenue from a growing Apple, let alone the larger, more productive economy spurred by the internet as a whole. Income taxes on Apple's employees, capital gains taxes on AAPL stock transactions, sales taxes on Apple products...

If spending on basic research leads to even a tenth of a percent of higher annual GDP growth, it will almost certainly pay for itself as that compounds over time into a much larger tax base.

eli_gottlieb2• 12 years ago

This sounds to me like a non sequitur. The government has collected massive tax revenue from a growing Apple, let alone the larger, more productive economy spurred by the internet as a whole. Income taxes on Apple's employees, capital gains taxes on AAPL stock transactions, sales taxes on Apple products...

Compare the real taxes reaped by the state from companies that make use of publicly-funded research versus the alternative: the government holds all intellectual-property rights to publicly-funded discoveries and licenses them for a profit to commercial firms.

twoodfin2• 12 years ago

The government's goal isn't to turn a profit: It's to bring a better life to its citizens, improve its ability to defend itself, etc. Basic research being financially self-sustaining is a benefit, but it's not necessary or sufficient for the success of the programs.

But putting that aside, if the government owns the basic research that it funds, why would any (self-interested) researcher or institution choose to work for the government vs. private industry, which can offer a share of future revenue? How does the government set prices for its licensing? Don't we benefit that Jobs and Wozniak didn't have to have a large amount of capital to invest in licensing in order to take advantage of all that basic research?

beloch• 12 years ago

I don't understand why some feel the need to defend Apple on this count. They've evaded taxes to an outrageous degree and are sitting on a pile of cash so big it would take generations for the company to get anywhere near bankruptcy again. Had they been forced to pay the taxes any sane tax regime would say they owe, they'd still be the same company making the same products. They'd just have a smaller nest-egg.

Non sequitur or not, this actually cuts to the heart of the matter. Governments play a huge role in innovation, so we should stop using false claims to the contrary when rationalizing theft of revenues the government is owed for its work. Corporate tax evasion is a crime against innovation and theft from all of us who actually do pay our taxes.

nickff4• 12 years ago

"They've evaded taxes to an outrageous degree"

How did you arrive at this (normative) judgement? They are paying the minimum in taxes that they legally can, so that they can invest the money in research, buy back stocks, or hold it in reserve for some period of time; why is this bad? Do you have any evidence that the government's allocation of additional funds would be more productive than Apple's use of the money?

crusso5• 12 years ago

They've evaded taxes

The government screws up the tax laws through utter dysfunction and you imply/say that Apple and other big companies are breaking the law?

To my knowledge, Apple is paying all of the taxes required by US law. The fact that the government wants a bigger chunk doesn't change the fact that they aren't legally entitled to it.

djschnei2• 12 years ago

Do you actively avoid legal tax breaks because you feel the need to pay your "fair share"? I would bet not. Why should Apple act any differently? They don't evade taxes... They actively seek to pay as little as legally obligated. Anything else would be a disservice to every Apple employee, consumer and financial backer (the only people that should matter to Apple). They're a for profit organization, not a charity...

erehweb• 12 years ago

The terms of art may be important here. Tax evasion is literally a crime, and different from tax avoidance, which is reducing your taxes by legal means. http://en.wikipedia.org/wiki/Tax_evasion

sharemywin• 12 years ago

I do have a problem with foreign companies( or foreign subsidiaries) owning US patents, copyright trademark etc. if it's a US patent, trademark copyright you should pay a US tax on earnings from that.

Drakim• 12 years ago

On the flipside, imagine US companies licensing necessary patents (such as those for colored shapes or round buttons) from foreign companies that are made extremely expensive because the licensing is heavily taxed and full of fees by foreign governments.

ARothfusz• 12 years ago

Presumably they do: a US patent only protects you if you are selling something in the US. Assuming that sale shows up somewhere as someone's profit, there would be an income tax from that.

firstOrder• 12 years ago

Government had nothing to do with Bill Gates, Steve Jobs, Zuckerberg

Gates and Jobs built their companies on the microprocessor, the development of which was completely dependent upon government contacts to Fairchild.

Zuckerberg's debt is even more so - the Internet was a government funded R&D project from 1969 until the 1991 entry of ANS/CIX. He built his business on top of a 20+ year government project, just like Google and other businesses did. To say that the government had nothing to do with it is absurd, and just highlighting Gordon's own ignorance of how technology, and for that matter the economy, works.

Just looking at the official government forms, tens of billions in military contracts have come into the Peninsula over the past decade ( http://www.governmentcontractswon.com/department/defense/cal... ). That doesn't even cover all military spending, and it does not cover non-militray government spending.

crusso5• 12 years ago

The problem with centralized government isn't that it doesn't succeed in cases.

The problem is that it's never allowed to fail.

gopher15• 12 years ago

Can you elaborate on this? Because there were plenty of projects funded by no-bid government contracts that failed. Likewise, plenty of government R&D dollars have also gone toward efforts that have failed.

Nobody bats 100%, but it all becomes worth it when they hit on something very big, like the micro-processor or the internet.

logfromblammo4• 12 years ago

Different people define failure in different ways.

In business, if you fail, your assets are liquidated and recycled or transferred to your former competitors, your customers go elsewhere, and you lose the ability to command economic resources.

In government, if your contract fails, your company/team/department/bureau/whatever still exists, and is still eligible to fail again the next year. There might be a reshuffling of personnel, if anyone is watching, but there is no real penalty for failing to deliver.

The important thing about business failure is that resources are reallocated away from the people who created the failure towards those less likely to fail (in the same way). This mechanism is not usually present with government.

ataggart• 12 years ago

So, X contributed to Y, therefore Y could not exist without X. Is there a name for that kind of logical fallacy?

wyager• 12 years ago

Perhaps a form of the fallacy of composition?

P(X) = "X exists due to the government"

S = "Scientific developments"

Fallacious statement:

∃x ∈ S (P(x)) ⇒ ∀x ∈ S (P(x))

logfromblammo4• 12 years ago

Post hoc, ergo propter hoc (after this, therefore because of this).

mpyne3• 12 years ago

That's not quite right either, because in this case there was some sort of casual relation, not merely a barrier in time.

scotty794• 12 years ago

Stating that this reasoning is always a falacy is in itself "coulda woulda shoulda" "falacy".

Strict reasoning is hard.

Kroem3r• 12 years ago

Ya, good call. It is a super interesting fallacy that people interested in disassembling dysfunctional status quo models should be good at calling-out. Something like a "post hoc rationalization".

For me, another use case is 'all the fantastic things that have been invented because of war'.

rayiner5• 12 years ago

I don't get why there is this tendency to try and avoid giving the government the credit it's due. It seems to me to be a distinctly West Coast "we pulled ourselves up by our bootstraps, which we made ourselves" attitude. It's foreign to me, as someone who grew up in the DC area, in a climate where innovators and the government had a comfortable relationship.

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.

epistasis• 12 years ago

This is hardly a West Coast attitude. It's just the typical narrow perspective on the world from people that overly rely on well tuned skills with first-order logic, and therefore use ridiculously leaky abstractions that fall down.

It's also ignorance, a lot of people don't know where ideas and implementations came from, and how various products got traction.

Combine that with politics, the most powerful tool that mankind has invented for turning off critical thought, and you get a bunch of people parroting "government bad" who are far louder.

nickff4• 12 years ago

Private industry tends to innovate in different ways from governments, and it has been crowded out of innovation in many areas, in most Western countries, making this comparison difficult. You could look at industries which have low levels of government regulation and intervention, and try to compare them to government-run industries, to find the comparative innovativeness of the industries. This analysis will give you a mixed bag, with some government-related fields having historically high levels of innovation (aerospace), and others having low levels (education and healthcare). The private sector has many innovative sectors (retail, software, semiconductors, IT) and probably some low achieving industries, though none come to mind.

Those arguing for the positive role of government in disruptive innovation should also avoid allowing the government to 'take credit' for anything in any field which it has ever been involved in, as the private sector is not given the same deference; (McDonnell built Mercury and Apollo, Grumman made the moon lander, and Rockwell designed the space shuttle; Rocketdyne and P&W designed, tested, and built the engines).

canvia2• 12 years ago

That same innovation could be funded without also funding weapons development and other destructive wastes of resources. How much more innovation would there be if 100% of the funds went to R&D of non-military applications?

Yes some good does come of it, but at what cost? The whole point of MAD was that it was no longer necessary to develop better killing tools, because any war should be unthinkable. Yet we continue to waste valuable resources, 100s of billions of dollars that could be used for education or humanitarian efforts, on shit like this: http://www.wired.com/2012/03/f35-budget-disaster/

What's the point, other than making a small number of people rich?

rayiner5• 12 years ago

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.

ctdonath2• 12 years ago

That vast resources were confiscated from the public at large and spent with some notable successes (waste & failures are conspicuously absent), does not trump the conspicuously absent analysis of what that money would have been used for outside of confiscation.

rayiner5• 12 years ago

Sure, but what's notably absent is any sort of major counter-example. What civilization has build massive technology and infrastructure without government-coordinated programs? The U.S. government has had a tremendous impact on everything from aerospace to medicine to nuclear energy to computing. Where in the world does that development happen without the government? Not in China, where centralized government is transforming the country from a backwater into a world power. Not in Singapore or Taiwan, where government investment into R&D turned poor countries into rich ones. Not Great Britain, not Rome not Ancient Egypt. It was government that built the Roman road network, government that split the atom, and government that sent man to the moon.

ctdonath2• 12 years ago

The Internet. Government served only to set some basic standards and fund initial military & research networking.

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.

JackFr2• 12 years ago

The industrial revolution in the Great Britain. All technological development in the The US and UK prior to WWI.

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."

Retric4• 12 years ago

On average, governments spend a higher percentage of their income on innovation and investments for the future than individuals or corporations do. Infrastructure, Education, Innovation, and Civil Order are critical to society's long term success. Eating out does not.

nickff4• 12 years ago

"[G]overnments spend a higher percentage of their income on innovation and investments for the future than individuals or corporations do"

I would like to see a citation for this, as it seems unlikely (due to the vast sums of money which governments spend on redistribution); but even if I assume arguendo that you are correct, the spending is not at issue, the results of the expenditure are what is important.

maratd• 12 years ago

In all of the examples given, government contributed funds toward the creative process.

At no point was the government itself the source of the creativity. Which makes sense, since those who create are scientists, artists, industrialists, etc. etc. ... not politicians and bureaucrats.

Politicians do not create. Well, that's not exactly right, there are political and legal works which can be considered great contributions, but they seem to come only every few decades.

pessimizer• 12 years ago

Governments can't be faulted for not being creative because they are not human. Employees of the government are the creative ones.

bowlofpetunias• 12 years ago

By the same logic, entrepreneurs and businessmen do not create either.

Both government and business merely provide incentives.

mpyne3• 12 years ago

At no point was the government itself the source of the creativity. Which makes sense, since those who create are scientists, artists, industrialists, etc. etc. ... not politicians and bureaucrats.

No doubt, but you could just as easily have said that about the USSR and been right. The inventor of Tsar Bomba was a scientist, not a politician, after all. Does that mean a Communist planned economy is a bad way to advance science?

When people are saying government needs to be involved in science it's almost never because they think the government itself should be training administrative clerks to do science and then engaging in research. It's because they want the government to ensure that our existing pool of trained scientists are tasked with doing research, either directly or indirectly.

avmich3• 12 years ago

There are plenty scientists, who are paid from government grants. Government even participated in training them - in state universities or with federal grants. Saying that it's not "government" which does research shouldn't imply that government can't be critically important in the process which led to research results.

sunshinerag2• 12 years ago

A government that prints money to spur innovation is merely redistributing wealth around. Arguably it does pull top talented citizens to do it's bidding in a captive economy. But eventually it goes down in a spiral despite more and more poured in. The govt. is an inefficient machine for such ventures as it eventually attracts scammers who systematically drain the pipe. For every 1 of successful outcome there are millions of screwed up endeavours for which it guzzles our money.

acdha3• 12 years ago

Government investment got us the internet. Private investors and rent-seeking gave us GEnie, CompuServe, and AOL.

Perhaps your binary thinking is not adequate for explaining the complexities of the modern economy.

sunshinerag2• 12 years ago

And Netscape, Microsoft, Apple and Google.... why do you think it would not have happened in the absence of a bloated government?

JackFr2• 12 years ago

I think the author and many people who look at this fail to distinguish between a research grant (good thing for the government to do) and investment/tax break/subsidized loans for an on going business concern (iffy thing for the government to do.)

It's a good idea for the government to get involved in basic research, research which might not have a positive economic return for at least a generation. On the other hand, if the government is involved in trying to make unprofitable companies profitable, it's social policy not technology research.

Grant proposal -- good; Business plan -- bad.

scotty794• 12 years ago

I don't see much difference between giving science team a grant and giving research company money to develop cool robot. Either way it's giving money to the people that free market doesn't want to fund so they can do the stuff that free markets deems too risky to undertake.

zhemao• 12 years ago

I don't think JackFr sees a problem with giving grant money to an R&D company. JackFr is most likely referring to tax breaks, subsidies, and other assistance that government gives to non-R&D companies in order to prop them up. A few examples:

Agricultural subsidies for big agricultural companies

Starbucks gets real estate deals that smaller cafes cannot. That's why there is a frickin' Starbucks on every street corner.

Bank bailouts

In those cases, government is actively picking economic winners and losers, not funding basic research.

justin66• 12 years ago

As much as I agree (the central point is very obvious), the author does something pretty common which I think might be a mistake: defending current government-sponsored projects as having a low bankruptcy rate. Right now that's true, but it's also an indication that they might be doing it wrong rather than an indication of that spending's correctness.

Government money would best be spent on things that might have an outsized impact but are too risky, expensive or unfashionable for private enterprise to fund alone. If government is taking the same amount of risk as private funds, they should probably be looking a little harder. On the other hand, try selling that to voters...

mikeyouse4• 12 years ago

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)

hagbardgroup2• 12 years ago

There are some additional negative consequences that are neither readily apparent nor easy to measure.

Think about if you were trying to run a competitor to Solyndra. You would not be able to hire qualified engineers, because your subsidized competitor does not need to care about what the market will bear.

You could say that the solar market worldwide has been a boondoggle because of these government subsidy price wars, as you note yourself. All that has resulted is a lot of junk equipment that can only be manufactured at a loss when you factor in all the layers of production.

Accounting performs a business function that many modern people like to ignore. Perhaps because math is scary, or accounting as a concept has become politically unpopular in America. Accounting matters even in technology research and development. It tells you whether or not the underlying market and societal conditions can actually support a particular project or not.

Extended losses on a process inform managers that that process must either be reformed or eliminated. Government does not operate based on profit-loss accounting, but on the dead-reckoning decisions made by political leaders and bureaucrats.

Voters are not relevant to this because almost none of them know what a solar panel is, how it works, or anything else relevant to energy issues. Almost no voters make decisions based on such issues. Almost no voters are even vaguely informed of the issues in general.

Projects that do not use accounting to improve the decision-making process fall prey to corruption and cost over-runs in a systematically predictable way. This is what happened to Solyndra. I don't blame the people in charge. I don't even blame the politicians who commissioned the project. Our intellectual culture has decayed in such a systematic way so that no one with social status even recognizes that it has.

logfromblammo4• 12 years ago

"The government" does not exist. It's just individual people, manipulated by psychological tricks into identifying with a certain tribe.

It's a lot like "the company", actually.

Those two metanymic illusions should probably be compared more on the basis of how efficiently they allocate resources to productive people than their absolute number of successes.

Given only $100 apiece, which could make more--"the company" or "the government"? Remember also that the same $100 cannot be given to both at the same time.

mistakoala• 12 years ago

Lemmeguesswithoutclicking... Mariana Mazzucato?

liber84• 12 years ago

The author's hilarious use of the Medici family[1] as an example of government contributing to great advances of civilization aside, one of the things that is often overlooked is not that government has successfully contributed to some major technological advances, but why, and whether government contributions were really necessary.

The examples of government successes range from those that almost certainly required government backing to those that almost certainly did not. I have a hard time imagining that anyone but a government is going to finance atomic research. The profits simply aren't there to justify it, particularly when compared to existing means of energy production.

But I have an equally hard time believing that the internet or pharmaceuticals wouldn’t have come to market if government had nothing to do with them. The profit potential, even in those early years, was simply too staggering for the market to ignore. The fact that, in many cases, companies were able to persuade governments to share their costs or flat-out underwrite their research doesn’t change this. And so, because government was persuaded to share or pay for many of these costs, I think we get a distorted view of history, including success stories that can be attributed to government involvement, even though we don’t know whether government involvement was really necessary at all. [2]

[1] If you're unaware, the House of Medici became so wealthy that they were able to essentially buy control of Florence, then most of Italy, and turn it into their own little kingdom. They used their wealth to foster wars that expanded their sphere of control, but are now generally known for underwriting the production of some of the great art of the 15th century. Shockingly, much of that art lionized the House of Medici. Claiming that the House of Medici is an example of a government contributing to the advancement of the arts is like claiming Brunei contributed to the advancement of the automotive industry because the Sultan spent a billion dollars on Ferraris, Lamborghinis, Bentleys, and crazy one-off concepts.

[2] Another example from the article highlights this: touch-screens. Once it was clear computers would eventually be more than simply adding machines, was there any doubt that users would eventually want touch-screens? (The Jetsons, in the early 1960's, featured consumers using touch-screens, for reference.) And is there any doubt that this is something that absolutely could have been developed privately?

mrxd2• 12 years ago

But I have an equally hard time believing that the internet or pharmaceuticals wouldn’t have come to market if government had nothing to do with them.

The argument is that the private sector invests for shorter time frames. VCs look for commercial viability within 3-5 years. They're unlikely to fund biotech and green energy, which have 10-20 year time frames, or the internet, which took 30 years to reach commercial viability.

liber84• 12 years ago

That's an extremely narrow argument though. There's a huge world of funding outside of VCs. Of course, this also overlooks the fact that even VCs fund tons of biotech work, and are funding green energy right this very second. (In fact I personally know one VC who made his 9-figure fortune almost exclusively from funding biotechs in the 90s. I'm sure there are many others.)

The internet may have taken 30-years to reach commercial viability, but that doesn't mean it would not have happened privately. Again, as soon as people began using computers as more than simply adding machines, it was pretty clear how beneficial it would be if computers could talk to each other. Eventually, the internet would have happened. Who knows if it would look like it did today (or would be better, or worse) without government involvement. It's impossible to say. But, when stock traders, for example, are willing to invest hundreds of millions of dollars to build a fiber cable to shave 3 milliseconds off their trade times, I have no doubt they would have invested similarly to have the communication abilities afforded by the internet.

My original point was, be careful when people hold up the fruits of government investment. Government fertilizer might have had nothing to do with the size or taste of the fruit. And moreover, that fertilizer might have been much better used on some other type of fruit.

acdha3• 12 years ago

It's also illustrative to look at the alternatives – e.g. prior to the internet catching on there were many competitors which had been privately funded but the desire to obtain short-term returns ultimately relegated things like CompuServe, GEnie, etc. to also-rans because the private funding model favors centralization and rent seeking over qualities like openness and independent innovation.

Absent something like the academic internet we'd no doubt have some of the abilities we now have but it'd almost certainly look like those older services or the pre-iPhone cellphone app market – costly, high barriers to entry and centralized designs.

glenra2• 12 years ago

The private sector plants tree farms that aren't harvested for 40 years. So long as there are strong property rights, profitable investments can be made at just about any time scale.

In fact, the main reason the private sector might in some cases not want to make investments that take a long time to pay off is regulatory uncertainty. If every year you own that tree farm entails a significant chance the government might pass a new law banning logging there, you'll want to chop those trees down sooner rather than later. The more the government regulates and the more regulations change over time, the less sensible it is to make long-term plans and long-term investments.

avmich3• 12 years ago

The question is not only about what could be invented with private funds. No, we also consider if it was actually invented with private funds - or if the government did that first, and now we are not sure when - or if - private capital would actually do that without government.

I'd agree that there are examples of advancements which almost certainly would be delayed without government involvement, and there are examples where it's almost certain that even without government we'd have results in almost the same time. Human genome sequencing comes to mind.

Innovation: The Government Was Crucial After All

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