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Tuesday, November 5, 2013

The Government R&D Canard

Mariana Mazzucato is woefully wrong-headed on State tech investment

You’ve probably found yourself in a debate with someone who wants to remind you that the Internet was a government-funded project. The implication is that without government, certain wonderful things like the Web would not have come about.

In the case of the Internet, some aspects of the original networking technologies were developed by government employees in the military-industrial complex, while other aspects were developed independently. These pieces were stitched together and commercialization occurred after quite some time. Yes, there was involvement by public-sector employees, but was said involvement necessary for the Web’s development?

In the above video, we get more of these kinds of stories. Mariana Mazzucato cherry-picks aspects of a mobile device that were developed originally within government (mostly by the military). But there are numerous problems with this sort of thinking. And Mazzucato’s breathless boosterism of the State’s involvement in R&D should not obscure the tremendous problems with her rationale.

Let’s enumerate some of these problems.

1. The Unseen. Mazzucato, despite her laurels as an economist, uses the fallacy Bastiat identified in emphasizing the seen (benefits) as opposed to the unseen (costs). Not only does she fail to identify the tremendous government waste surrounding all those State-funded gems, she doesn’t tell us how much they cost anyone at the time. The fact remains that the private sector tends to be far more productive and efficient than the public sector simply because the incentives are wildly different within a profit-and-loss system. (I would love for Mazzucato to go back and list all of the great aspects of the phone that came from the private sector—right next to her cherry-picked list).

2. Lost Counterfactual. Mazzucato’s argument depends on the fact that we can’t know what would have happened otherwise. Because it did happen this way, she concludes it’s the best way, which is not clear at all. Of these sorts of arguments, Startup Cities innovator Michael Strong says:

Does any of this imply that government is “innovative”? Not at all. It simply shows that some innovators took government money. Put differently, does the fact that I went to public schools and received government financial aid for college imply that government can take credit for anything I do? Not at all. Had government not undermined private education and private college loans, I might have had a much better education without government involvement. In order to claim that government is innovative, she would have to show that x dollars “invested” through government resulted in more innovation than did x dollars invested privately. She doesn’t even begin to make such a claim, less alone justify it.

All of which relates directly to the next point.

3. Crowdout. When government hogs a bunch of bright people and resources, they cannot be used for other types of innovation elsewhere, including the private and philanthropic sectors.

a. Opportunity Costs: A dollar spent on researching and developing something in a less efficient, less productive sector is a dollar that cannot be used to research and develop something in a more efficient, more productive sector—notwithstanding the benefits.

b. Brain Drain: A talented, innovative person hired to work in a less efficient, less productive set of institutional constraints is a person that cannot work in a more productive, more efficient sector.

4. Time Lag. Many of the criticisms of government involvement in the private sector have more to do with the time it takes for an existing technology to get to market. Often, because the military develops technology in secret for other applications, it can be ages before these innovations become commercialized. Would the Arpanet technology have come into existence or to market much sooner, for example, had these folks been employees at Xerox PARC or MIT instead?

5. Bad Investors. Mazzucato argues that government needs to do certain types of research because certain innovations require longer time horizons (though she doesn’t explain why, or indicate what sorts of innovations require such time). If you want get an idea of what government “investment” looks like, just take a look at the string of failures in green technology thanks to “investments” by the Obama administration.

6. Soviet Technology. If all of these wonderful long-term technologies come from long-term investments by governments, then why with more government involvement don’t we see more innovation? As tech-watcher Michael Gibson says, “I’d love to hear about all those successful spin-off technologies from the Soviet space program.” (Not to downplay the contribution of Big Muff distortion pedals or Sovtek tubes.)

So there we are. Our readers often encounter the government R&D canard. Feel free to poach any of these counters to such specious reasoning.

  • Max Borders is author of The Social Singularity. He is also the founder and Executive Director of Social Evolution—a non-profit organization dedicated to liberating humanity through innovation. Max is also co-founder of the Voice & Exit event and former editor at the Foundation for Economic Education (FEE). Max is a futurist, a theorist, a published author and an entrepreneur.