
Innovation: The Government Was Crucial After All - mturmon
http://www.nybooks.com/articles/archives/2014/apr/24/innovation-government-was-crucial-after-all/?insrc=hpss
======
rayiner
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.

~~~
canvia
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/](http://www.wired.com/2012/03/f35-budget-disaster/)

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

~~~
rayiner
> 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.

~~~
selmnoo
Just wanted to say thanks for providing contrarian nuggets of thoughts. I once
used to think SV was the powerhouse of American innovation and that gov't only
retarded its growth, you've been a big part helping me in the process of
seeing better on these things.

Working now at a place that is pretty much all funded by the gov't - NIH,
specifically - and is decidedly good (medical stuff) has been another
datapoint.

------
firstOrder
> 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...](http://www.governmentcontractswon.com/department/defense/california_counties.asp)
). That doesn't even cover all military spending, and it does not cover non-
militray government spending.

------
twoodfin
_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.

~~~
beloch
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_.

~~~
nickff
> _" 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?

~~~
gopher1
It's bad because it's unfair.

If everyone, including small businesses, got to pay 0% tax, then you might
have a good argument. But as it stands, we have a 35% corporate tax rate for
everyone except large multi-national companies who have the means to take
advantage of the loopholes. Regular Joe Business does not have those means.

And of course, these same large companies are spending millions lobbying the
government to not reform the code.

~~~
tzs
Apple's income taxes in the US were $13.1 billion on $50.2 billion in
earnings, for an effective income tax rate of 26.2% [1].

I don't know why so many people think Apple pays little or no tax. They are in
fact the 3rd largest income tax payer in the US.

[1] [http://finance.yahoo.com/news/companies-paying-most-
taxes-17...](http://finance.yahoo.com/news/companies-paying-most-
taxes-174550448.html)

------
JackFr
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.

~~~
scotty79
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
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.

~~~
scotty79
I might imagine good scenario of goverment giving money to some large player
in non-innovative industry so they can modernize instead of waiting a decade
or so for small more up to date company to grow and eat old behemoth. It's
picking winners and it's not fair but it doesn't matter who wins as long as
technology advances. It's not like people are in the business only because
it's fair.

But generally I agree that examples you provided are bad goverment spending.
Subsidizing agriculture is actually subsidizing poor that would not be able to
afford food if consumers would need to pay for it 100% out of their pockets.
Bank bailouts came out of fear that economy could not take massive bank
bankruptcies. I can't even imagine what goes on with starbucks. Those are bad
reasons to give money. Money for food should be given to poor in form of basic
income and farmers should compete for that money like every other company. And
gambling banks should be allowed to fail if they were allowed to gamble. Real
economy is much more resiliant and it's pretty distanced from financial
markets "economy" to be seriously harmed by collapse of multiple banks.

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

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

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

~~~
logfromblammo
There's a little bit of Complex Cause in there, too.

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

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

~~~
gopher1
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.

~~~
logfromblammo
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.

~~~
avmich
I've got perception that bureaucrats are reluctant to change things for the
very reason the new things can come worse - and those specific bureaucrats
will be held accountable, in one way or another. In other words, I doubt there
is no reason to try to do better.

May be incentives as a whole are different enough - say, lesser, if we can
compare - with government-baked projects rather than with privately backed
ones.

Could it be so that government is less efficient, but only on some projects
where it can have good competition from private resources? May be government
is better - or actually the only option - with some other areas, where you
just can't find private backing?

------
maratd
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.

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

Both government and business merely provide incentives.

------
ctdonath
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.

~~~
rayiner
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.

~~~
JackFr
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."

~~~
rayiner
> All technological development in the The US and UK prior to WWI.

Like the transcontinental railroad?
[http://en.wikipedia.org/wiki/Pacific_Railroad_Acts](http://en.wikipedia.org/wiki/Pacific_Railroad_Acts).

~~~
glenra
America had a privately built and privately funded transcontinental railroad.
Without the _option_ of government land grants there presumably would have
been others, though their timing would have been different (they would have
been built more slowly with more economically sustainable routes).

[https://en.wikipedia.org/wiki/Great_Northern_Railway_(U.S.)](https://en.wikipedia.org/wiki/Great_Northern_Railway_\(U.S.\))

------
justin66
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...

~~~
mikeyouse
> 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...](http://upload.wikimedia.org/wikipedia/commons/8/86/InflationAdjustedDefenseSpending.PNG)
(2011 Dollars)

~~~
hagbardgroup
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.

~~~
mikeyouse
I largely agree that government influence is a market distorting, but a few
points;

* Solyndra received ARRA money which only existed because the economy blew up. The 'crowding out' effect of government money is greatly limited in recessions caused by low aggregate-demand. (The unemployment rate for those over 25 years old with bachelors degrees tripled from spring 2007 to spring 2009 when Solyndra received the loan[1])

* The type of accounting you're describing is nearly impossible for these extreme tech projects. Many of these types of companies are unprofitable until they aren't any more. Solazyme and Tesla are good examples. The 'straight accounting' said they were horrible investments for the government, but both have found success after a decade of struggling and both could be world-changing.[2][3]

* Politicians didn't 'commission' Solyndra, it was founded by ex-Intel employees in 2005, all of the initial R&D and pilot work was paid for by VC/PE and debt, and they only used the DOE loans to scale-up after four years of groundwork.

* It wasn't some ignorant bureaucrat running the DOE program, it was Nobel Prize winning physicist, Steven Chu.[4]

[1] -
[http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=x...](http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=xqm)

[2] -
[http://www.altenergystocks.com/archives/2014/03/solazyme_lau...](http://www.altenergystocks.com/archives/2014/03/solazyme_launches_biodegradable_encapsulated_lubricant_for_drilling_market.html)

[3] - [http://www.usnews.com/opinion/blogs/economic-
intelligence/20...](http://www.usnews.com/opinion/blogs/economic-
intelligence/2013/06/03/teslas-success-is-the-result-of-political-favoritism)

[4] - [http://energy.gov/contributors/dr-steven-
chu](http://energy.gov/contributors/dr-steven-chu)

~~~
hagbardgroup
Thank you for the added detail and for correcting gaps in my knowledge about
the company. It's been a while since I thought about it.

>The type of accounting you're describing is nearly impossible for these
extreme tech projects.

I thought I had made myself clearer. Obviously the company's losses are what
did it in, so of course it matters regardless of how ambitious the company is.
Investors can provide entrepreneurs with more time to discover a sustainable
business model. Governments do not have a great track record for producing
profitable enterprises that sustain themselves, to say the least.

The position that I subscribe to is that those sorts of stimulus methods make
it harder for companies to discover a business model rather than easier,
because it pushes the incentive towards politicking rather than building a
successful private company.

It was not my intention to impugn the original investors or even the people
who work there. I don't agree with your first point, but would rather not get
bogged down in it on HN. There is probably a substantial gap there between
what I have read, what you have read, and what our values are. We don't have
the time to bridge that difference in a discussion like this.

------
liber8
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?

~~~
mrxd
> 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.

~~~
liber8
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.

~~~
mrxd
It sounds like you might be falling into hindsight bias, to be honest.

Stock traders building high speed data links are actually a perfect example of
the limitations of private sector innovation. It was a $300 million project,
they started seeing profits after one year when the project was completed, and
they were able to calculate the speed increase well in advance and estimate
how much more profitable their trades could be. So it was a short term project
with very little risk and nowhere near the scale of government investment.

Mazzucato does talk about VCs in biotech and she thinks they have largely been
harmful to innovation.

~~~
liber8
First, the stock trader bit was an example, and doesn't demonstrate
limitations. It demonstrates that people will invest huge sums to generate
returns. I will agree that they likely could calculate the returns ahead of
time, and the payback time was very small. (This example is further
complicated, since the builders actually licensed the use of the cable to
other companies and essentially made their money back immediately.)
Nevertheless, I simply can't buy the argument that the military and a bunch of
academics were the only ones who foresaw the use of the internet, and thus the
private sector never would have built it. It simply doesn't make sense, even
without the hindsight bias.

Second, whether VCs in biotech are harmful to innovation is irrelevant, both
to the current biotech field and to the history of pharmaceuticals.

My point, again, is that if you want the government involved in research, you
should want it involved in research individuals aren't willing to pay for, but
has the chance to significantly improve society. Otherwise, you're going to
see a ton of taxpayer money ultimately flow into the pockets of the rich who
likely would have funded the work anyway.

------
logfromblammo
"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.

------
sunshinerag
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.

~~~
acdha
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.

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

~~~
acdha
You keep making the mistake of assuming that government only comes in one
type. My point was that there are good and bad outcomes on both sides of the
public / private line (not to mentioned grey areas like DARPA) and using
simplistic terminology prevents you from participating in the conversation
about how to use the strengths of both. Phrases like "bloated government" are
intellectual junk food — not to mention amusingly blinkered in a list
including Microsoft or Netscspe.

Your choice in examples underscores the point: all of those companies have
profited enormously by taking technology which was developed elsewhere, often
on government grants at universities, and successfully commercializing it.
None of them have in their combined histories funded even a fraction of what
NSF / DARPA / etc. funds every year because the business model for a public
company isn't really compatible with funding speculative research without a
proven path to market.

------
sharemywin
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
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.

------
mistakoala
Lemmeguesswithoutclicking... Mariana Mazzucato?

