Dogma Versus the Future

It's become the holy word of Republican orthodoxy, as well as a well-worn mantra of the business class: government doesn't innovate, create jobs or do anything well except spend the money they steal from citizens through taxes.  The way to promote innovation and economic growth is shrink the government, cut taxes on businesses and rich people, then sit back and watch the economy take off.

Despite certain cautionary tales like the Great Depression, this has become a dogma, even though some thinking Republicans recognize it lacks so much nuance as to be self-destructive.  Still it remains the only theology the short shelf of Republican factions can all embrace, and still hope to draw in non-believers.

That it's not true is more than a minor inconvenience.  It's a prescription for failure, and specifically for American failure in the near future.  That's one major conclusion of a couple of new books that Jeffrey Madrick reviews in the April 24 New York Review of Books.

These books in different ways affirm that major innovations--including  recent ones in the tech sector that the Enteprenerurial Liberation Front likes to cite, such as the iphone--were made possible by government funded research.

The two books are The Entrepreneurial State by economist Mariana Mazzucato and Doing Capitalism in the Innovation Economy by William H. Janeway.  Reviewer Madrick quotes:

"For example, she [Mazzucato] shows in detail that, while Steve Jobs brilliantly imagined and designed attractive new commercial products, almost all the scientific research on which the iPod, iPhone, and iPad were based was done by government-backed scientists and engineers in Europe and America. The touch-screen technology, specifically, now so common to Apple products, was based on research done at government-funded labs in Europe and the US in the 1960s and 1970s.

Further: Two researchers cited by Mazzucato found that in 2006, the last year sampled, only twenty-seven of the hundred top inventions annually listed by R&D Magazine in the 2000s were created by a single firm as opposed to government alone or a collaboration with government-funded entities."

Much was made in the 2012 election campaign of the bankruptcy of the solar energy company Solyndra, which received $500 million in government loans.  Apart from the fact that most of the investment money came from private hedge funds, there's this: "But including Solyndra, only roughly 2 percent of the projects partly financed by the federal government have gone bankrupt."

Still, the media loudspeaker made Solyndra a brand name, while nobody much has heard of First Solar--a solar energy company that is both a success and would not exist without government funding.

Mazzucato moves on to show in detail how the technologies for those visionary tech products the Ipad and Iphone "were almost completely dependent on government-sponsored research." One of the crucial ingredients in almost all new tech devices was the government created Global Positioning Satellites, or GPS.  Earlier it was the government-formed and supported research partnership of semiconductor firms (Sematec) that both insured US supremacy in microprocessors when Japan threatened to take over, and continued to innovate to make them smaller and better, making all mobile devices possible.

And of course even earlier, it was government research that created the Internet, and (beginning in the 1940s) to computers.  "Federal funding accounted for more than 50 percent of all US R&D from the early 1950s through 1978"--which includes the last decades when big corporations like Bell, GE, Dupont and Alcoa were spending a lot on research.  They haven't done so since.

But even though President Obama talks about supporting research, Republicans often vote against it.  Meanwhile, the review notes, China is investing heavily, with the threat of dominating future innovations.

It's true that a lot of funding for tech innovation came from or through Defense.  Not so much however in health.  Though the ELF makes Big Pharma into the innovative heroes, sources quoted in these books show that government research was responsible for 75% of the "major original breakthroughs known as new molecular entities between 1993 and 2004" and that of seven high priority drugs created in 2002, only three were from Big Pharma, four from government labs--and arguably they were the more significant.

The review also cites some interesting history, some economics concerning investment in innovation and some ideas on how to better finance innovation through public and private means.  But politically the nub of it all is this:“Many of the problems being faced today by the Obama administration,” she writes, “are due to the fact that US taxpayers…do not realize that corporations are making money from innovation that has been supported by their taxes.” That they are not aware of the benefits to competition seems to be a triumph of free-market ideology over good sense. How many Americans are aware that Google’s basic algorithm was developed with a National Science Foundation grant?"

The review concludes:

"But Mazzucato’s criticism of US innovation strategies goes deeper than the lack of adequate funding. She makes one of the most convincing cases I have seen for the value and competence of government itself, and for its ability to do what the private sector simply cannot. It is not only, as economists argue, a matter of reducing the risk of research and innovation for private enterprise. She argues that government efforts are the source of new technological visions for the future, and—very persuasively—she cites the innovations of the past sixty years to make her case."