28 March 2011

Like it or Not

Writing in Saturday's FT, Ed Crooks reviews several books on innovation.  Of William Holstein's book, The Next American Economy, Crooks writes:
The heart of The Next American Economy is nine impressively thorough case studies of “clusters” of successful US businesses, mostly making innovative products such as new types of batteries and adhesives. A veteran reporter, Holstein expended a lot of shoe leather in his researches, from Massachusetts to California, and he does an excellent job of describing what he sees and letting his subjects speak for themselves.

The point that crops up with startling regularity in their stories is the importance of government, both national and local, in helping these businesses to grow. A North Carolina technology company called Protochips, for example, pays warm tribute to the efforts of state and federal government agencies in helping it to export, including “excellent” Japanese translation.

Often, the positive contribution of government comes from the Pentagon, sometimes through its lavish spending on contracts with high-tech companies, and sometimes through its own research. As he and several of the other writers point out, the Defense Advanced Research Projects Agency laid the foundations of what became the internet.

The lesson Holstein draws is that, “Whether we like it or not, the federal government is involved in the economy, and must be.” In other words, for good or ill the government has a huge influence over the economy and it would do better to use that influence effectively in pursuit of thought-out strategic goals.
This is very well stated. The essential and unavoidable nature of government involvement in processes of innovation is a point that is often missed in policy debates. A better debate starts with the acknowledgement -- like it or not -- that government has an important role in innovation. The more interesting policy questions are what the role might be in particular contexts to help steer innovation in desirable directions.

20 comments:

  1. Wow i wonder how all those companies from microsoft to Bell to GE to Exxon to Apple to JP Morgan to Singer to Ford to .... started without government support. Just because government has become a part of the free markets (?) doesn't mean that innovation is doomed without it. In fact innovation is probably doomed with it. Only the naive and academics would think that bureaucracy was a boon to innovation. sad very sad

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  2. There were lots of network protocols that could have become the standard, and it isn't clear that TCP/IP is or was the best. Governments do not cause innovation, they exploit and choose winners, and not always or often the most virtuous.

    There is something intellectually wanting about using a list of government supported victors to argue that government is necessary. It's a fact that with such support they defeated rivals, or even prevented rivals from forming.

    To be credible the argument for government champions must be able to establish that there would not otherwise have been solutions, and that the chosen winners were in some way better. This is difficult because it is seldom the case that those who are not well versed in a domain have even rudimentary knowledge of the possibilities or histories, and so have little insight into just what happened, and what was lost.

    Still, even without knowing the specifics, everyone should know the dynamics of the general case. Innovations do not spring full blown from the brow of government, and they would happen with or without government, though the specifics would differ.

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  3. As a scientist and a small business owner, I've got to say I don't share your enthusiasm for heavy government involvement in innovation. I dread the thought that technical people must first be a good proposal writer to have the opportunity to be good scientists. I've written my share of proposals and run a number of projects, many of them meeting all the objectives of the technical reviewers. However you tend to be pulled to the trendy topic the government is most interested at the moment rather than find the find that odd little spark that takes you in a new direction that no one is looking in where the real pot of gold lies. The best things about science are the serendipity moments where something does what's not expected. Sadly, working under the constraints of government funding, the serendipity moments may be considered side tracks.

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  4. "microsoft to Bell to GE to Exxon to Apple to JP Morgan to Singer to Ford to .... started without government support"

    Is that a joke? Crack open a history book.

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  5. I certainly can't disagree that government has had a hand in innovation in some places. But like it or not, there is a world of difference between defense research and the pet projects of politicians and activists.

    A defense research project requires results, not completely unlike private research. Compare that to the UK government's attempts at energy innovation, where they've engineered an inadequate electricity infrastructure by fiat. Also, at least from an American Constitutional / limited government perspective, national defense is well within the area of legitimate government power.

    I guess I'd argue that most government attempts at intervention and innovation are more "strategic goals" than "thought-out."

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  6. If govt spent a trillion dollars to help create a 10 billion dollar industry, someone would surely laud govt's role in helping the development of that industry. The taxpayer would know he got screwed, but the media would focus on the employees, the owners and the smiling politicians who took all the credit.

    That was such a great quote on the govt's "lavish spending" being a positive contribution. Positive for everyone but the taxpayer.

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  7. Like others here, I think the government has a role. But "to use that influence effectively in pursuit of thought-out strategic goals" implies picking winners. The internet wasn't pursued as a consumer tool, it just worked out that way. The government did choose to put their money behind ethanol and low down-payment mortgages to people with bad credit ratings.

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  8. The governemnt support of Morse, the support of railroads by offering alternating sections of land along rail lines, the development of the IC chip, writing off drilling expenses and depletion allowances were all based on actually doing work and making things that accomplished something.
    This is completely different from subsidizing wind mill operating costs.

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  9. To continue the critical take: let's look at DARPA. The Defense Department wanted to create a hardened communication system to protect against government breakdown during nuclear war. No one can possibly argue that a nuclear war-fighting technology was funded IN ORDER TO produce the Internet. The creation of what we know of as the Internet was serendipitous.

    Now compare that to funding energy research - goal-oriented from the start. This is the difference between a woman putting a dollar down for a lottery ticket on her way home from work - and winning the big money - and a man emptying out his bank account to buy lottery tickets - and expecting to actually live on his winnings. One is backward looking - and looking only at winners - and the other is forward looking - with no idea what the outcome will be.

    And yes, the government did finance the railroads - at least in the West - by giving away land. Which was one of the great scams in American history. It also lead to the first American "Great Depression" when the overbuilt industry collapsed. Not the example I'd rely on.

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  10. While I'm at it - how did that syn-fuels thing work out for you? There's goal-directed energy research for you.

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  11. Actually, the railroads in the US are a perfect counter example. Of all the transcontinental railroads only one never went bankrupt and was consistently profitable. It was also the only one that received no government help (no subsidies, no land grants, etc.) The Great Northern.

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  12. With respect to the land given away to the railroads, there's still a big difference between that and spending tax money on subsidizing some speculative business. It's not like there was anything going on with that land.

    I'd be pretty surprised if there wasn't a significant net benefit to everyone who wasn't a railroad as a result, even though the railroads obviously did pretty well.

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  13. It's pretty historically ignorant to include a picture of the founding fathers in a post about federal government influence on the economy. I'm pretty sure the founding fathers would consider 90+ percent of what the federal government does to be unconsitutional.

    "A North Carolina technology company called Protochips, for example, pays warm tribute to the efforts of state and federal government agencies in helping it to export, including 'excellent' Japanese translation."

    As James Madison once said, "I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending..."

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  14. -13-markbahner

    Alexander Hamilton, 1791:

    "a criterion of what is constitutional, and of what is not so. This criterion is the end, to which the measure relates as a mean. If the end be clearly comprehended within any of the specified powers, and if the measure have an obvious relation to that end, and is not forbidden by any particular provision of the constitution--it may safely be deemed to come within the compass of the national authority. There is also this further criterion which may materially assist the decision: Does the proposed measure abridge a pre-existing right of any State, or of any individual? If it does not, there is a strong presumption in favour of its constitutionality; and slighter relations to any declared object of the constitution may be permitted to turn the scale."
    http://press-pubs.uchicago.edu/founders/documents/a1_8_18s11.html

    See also:

    http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=17&invol=316

    From these two came the rational basis test for constitutionality.

    Thanks for this, brings me back to grad school readings and debates from 20 years ago ;-)

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  15. Hi Roger,

    Quoting Alexander Hamilton on what the Constitution means is like quoting Dennis Kucinich on what the Congress is thinking or Ruth Bader Ginsburg on what the Supreme Court is thinking.

    If Alexander Hamilton's vision of what the federal government should look like had prevailed, we would have:

    1) senators and a national "governor" would be chosen by special electors, and the senators and national dictator, er, "governor" who would all serve for life;

    2) members of an assembly would be elected directly by citizens; each member would serve a three-year term; and

    3) state governors would be chosen by the national "governor"-for-life.

    Hamilton was unquestionably the biggest supporter of a big federal government among all the founding fathers.

    http://www.humblelibertarian.com/2010/03/james-madison-vs-alexander-hamilton.html

    I can't find the quote, but James Madison once observed bitterly that, if Alexander Hamilton's view of the powers given to the federal government by the Constitution was to be followed, it would be better that the Constituion be burned.

    Here are quotes from Thomas Jefferson and James Madison that demolish the idea that all the founding fathers shared Alexander Hamilton's vision:

    "...our tenet ever was, and, indeed, it is almost the only landmark which now divides the federalists from the republicans, that Congress has not unlimited powers to provide for the general welfare, but were to those specifically enumerated; and that, as it was never meant they should raise money for purposes which the enumeration did not place under their action; consequently, that the specification of powers is a limitation of the purposes for which they may raise money."--Thomas Jefferson

    "With respect to the two words ‘general welfare,' I have always regarded them as qualified by the detail of powers connected with them. To take them in a literal and unlimited sense would be a metamorphosis of the Constitution into a character which there is a host of proofs was not contemplated by its creators."--James Madison

    "[Congressional jurisdiction of power] is limited to certain enumerated objects, which concern all the members of the republic, but which are not to be attained by the separate provisions of any."--James Madison

    "The powers delegated by the proposed Constitution to the federal government are few and defined . . . to be exercised principally on external objects, as war, peace, negotiation, and foreign commerce."--James Madison

    P.S. Even your own Hamilton quote doesn't support your view of the Constitution, because he says, "If the end can be clearly comprehended within any of the specified powers..." But the "specified power" in this case is the power to "regulate commerce among the several states". Even Hamilton almost certainly would not have agreed with you that banning candles (as you say is permitted by that clause) falls within the power to "regulate commerce among the several states."

    Also, even Alexander Hamilton at least pretended to believe in a limited federal government (before he got real power as the Secretary of the Treasury):

    "This specification of particulars [the 18 enumerated powers of Article I, Section 8] evidently excludes all pretension to a general legislative authority, because an affirmative grant of special powers would be absurd as well as useless if a general authority was intended." - Alexander Hamilton, Federalist 83

    Of course, as I noted, he wrote that before he got into power. When he got into power, like most men, he preferred to ignore any laws that might restrain his power.

    P.P.S. What do you think is the "specified power" to which Hamilton is referring in the paragraph you quoted?

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  16. -15-markbahner

    Let's not lose focus. Your question is what makes a particular government action constitutional or not. The simple answer is that which the Supreme Court say are constitutional, plus those things that is does not say are not constitutional.

    More specifically I referred you to the "rational basis clause" which derives from McCulloch vs. Maryland. And while you are right that the entire government is not in the image of Alexander Hamilton, arguably the rational basis clause is to some degree.

    Thanks!

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  17. Hi Roger,

    You write, "Your question is what makes a particular government action constitutional or not."

    I didn't really have a question. I offered an opinion, which was that it is likely that the founding fathers (not capitalized, to include people like Thomas Jefferson and Patrick Henry, who were not present at the Constitutional Convention) would have considered 90 percent of what the federal government does now to be unconstitutional. But I do have a question about that: do you agree or disagree?

    I also offered a second opinion, which was specifically that James Madison would probably find nothing in the Constitution that authorizes the federal government to provide Japanese translations for a company in North Carolina. Do you agree or disagree with that opinion?

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  18. -17-markbahner

    Thanks ... I thought your question was the constitutionality of the government providing Japanese translations to a NC company. At least that is the one I've been addressing;-)

    As far as what Jefferson, Henry, Madison might think about 2011 USA, these would be fun to discuss in a history class or in a pub, but not really relevant to the question of constitutionality of Japanese translation for an NC firm.

    So, sure, for purposes of discussion I'll grant your suggestions that these founders wouldn't be happy with today's government. And so?

    Thanks!

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  19. -18- Roger,

    From a perspective of whether or not a branch of government will decide to live up to its oath regarding the Constitution, I agree with you. However, in today's environment of looking for places in the budget to cut, that sort of thing could be a useful discriminator.

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  20. Hi Roger,

    You write, "As far as what Jefferson, Henry, Madison might think about 2011 USA, these would be fun to discuss in a history class or in a pub, but not really relevant to the question of constitutionality of Japanese translation for an NC firm."

    Well, that's your opinion. And it's shared by a lot of people; but it's also *not* shared by fair number of people.

    Specifically, I expect that several current Supreme Court judges would consider what the people who wrote the Constitution and its amendments thought when they were writing (i.e., their "original intent") to be not only relevant but highly significant. (Note: This would only apply to Madison, the "Father of the Constitution"...since Jefferson was in France and Patrick Henry refused his invitation to the Constitutional Convention, because he "smelt a rat," anticipating what he thought would be an unacceptable increase in federal power.)

    "So, sure, for purposes of discussion I'll grant your suggestions that these founders wouldn't be happy with today's government. And so?"

    So...we seem to agree that Madison and the other people who wrote the Constitution would not consider supplying a NC firm with Japanese translations to be a constitutionally authorized function of the federal government. (Correct?)

    Therefore, people (like me) who think that the "original intent" of the writers of the Constitution is important would say that, absent a Constitutional amendment to the contrary, supplying an NC firm with Japanese translations is still an unconstitutional action, just as it was when the Constitution was written.

    So, to summarize ;-):

    1) Your use of a picture of the Founding Fathers, which implied that the Founding Fathers decided that the federal government should look something like what it does, was inappropriate, and

    2) Your use of the headline, "Like it or not" and the whole tone of your post was rather like saying, "Like it or not, the federal government is breaking the law. We should accept that."

    As the Borg used to say on Star Trek TNG, "Resistance is futile." But it's not, as shown by the elections of Ron and Rand Paul, Michelle Bachman, and others.

    Given your position, it's not surprising that you should advocate simply accepting that the federal government should be as big or bigger than it currently is. Or that you deride as ignorant Rand Paul and others who point out that Founding Fathers never intended the Commerce Clause to allow what you say it allows.

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