Socialism For The Rich; Capitalism For The Poor

Welcome back Tweedsters, many people are quick
to point out failing socialists states like Venezuela and there by dismiss the whole socialist
system and quickly come to the conclusions that therefore Capitalism must be the answer,
never mind the grey areas like Finland and Sweden. Instead the USA as the upholder of
capitalism is still sold to the public, in a country where it's very much capitalism
for the poor and socialism for the rich. In the movie Steve Jobs, a character asks,
“So how come 10 times in a day I read ‘Steve Jobs is a genius?’” The great man reputation
that envelops Jobs is just part of a larger mythology of the role that Silicon Valley,
and indeed the entire U.S. private sector, has played in technology innovation. We idolize
tech entrepreneurs like Jobs, and credit them for most of the growth in the US economy.
But University of Sussex economist Mariana Mazzucato makes the argument that it is the
government, not venture capitalists and tech visionaries, that have been heroic. “Every major technological change in recent
years traces most of its funding back to the state,” says Mazzucato. Even “early stage”
private-sector VCs come in much later, after the big breakthroughs have been made. For
example, she notes, “The National Institutes of Health have spent almost a trillion dollars
since their founding on the research that created both the pharmaceutical and the biotech
sectors–with venture capitalists only entering biotech once the red carpet was laid down
in the 1980s. We pretend that the government was at best
just in the background creating the basic conditions (skills, infrastructure, basic
science). But the truth is that the involvement required massive risk taking along the entire
innovation chain: basic research, applied research and early stage financing of companies
themselves.” The Silicon Valley venture capitalist model, which has typically dictated
that financiers exit within 5 years or so, simply isn’t patient enough to create game
changing innovation. Mazzucato’s book cites powerful data and
anecdotes. The parts of the smart phone that make it smart—GPS, touch screens, the Internet—were
advanced by the Defense Department. Tesla’s battery technologies and solar panels came
out of a grant from the U.S. Department of Energy. Google’s search engine algorithm
was boosted by a National Science Foundation innovation. Many innovative new drugs have
come out of NIH research. And it's not just tech companies, Over the
course of 15 years, the federal government has distributed $68 billion in grants and
special tax credits to businesses, with two thirds of that transferred to large corporations.
Six companies have received $1 billion or more, while 21 have received $500 million
or more. You can find the government fingerprints on
many renewable energy technologies (solar, wind) or even in cars! For instance, the technologies
that made the airbag a reality in the 1970s – those that enabled the device to sense
a collision and inflate faster than a blink of an eye – all came from earlier state-funded
military and space research. Then there's Tesla, which in the third quarter
of 2018 received $713 million in U.S. subsidies, compared to its $312 million profit. Overall US agricultural subsidies in 2010
were estimated at $172 billion by a European agricultural industry association; however,
the majority of this estimate consists of food stamps and other consumer subsidies. And let’s not forget the bank bailouts,
the Emergency Economic Stabilization Act of 2008 created the $700 billion Troubled Asset
Relief Program to purchase toxic assets from banks. The U.S. government’s $80.7 billion bailout
of the auto industry lasted from December 2008 to December 2014. The U.S. Department
of the Treasury used funds from the Troubled Asset Relief Program. In the end, taxpayers
lost $10.2 billion. All the most important technologies that have
driven growth — what economists call general purpose technologies — trace their funding
back to government. These are the technologies whose effects permeate across large parts
of the economy, not just a single sector, and nurture decades of growth. These include
aviation technologies; space technologies; the Emergency Economic Stabilization Act of
2008 created the $700 billion Troubled Asset Relief Program to purchase toxic assets from
banks, the Internet; nuclear power; and nanotechnology. So we’re not talking just gadgets here,
but revolutionary technologies that drive innovation led-growth — and it’s these
technologies that are embedded inside the gadgets. Elon Musk’s new car, the Tesla, would have
never gotten off the ground without initial government support. The U.S. Government was
Tesla’s venture capitalist. And government funding is increasingly required because venture
capital — which was initially thought to provide the kind of early-stage high-risk
finance that traditional banks won’t provide — is itself becoming risk-averse and short-termist,
seeking returns in three to five years. Innovation, especially in science intensive areas, takes
15-20 years, not three! And that’s the point: truly radical innovation
needs patient, long-term, committed finance. This type of finance is hard to find in the
short-termist private sector. So it’s no surprise that modern capitalism has seen the
increased role of the State in providing patient capital and directly investing in innovation
development. For example, NASA's budget for fiscal year
2019 is $21.5 billion. … Since its inception, the United States has spent $601 billion (in
nominal dollars) on NASA. When adjusted for inflation the cumulative figure is $1.32 trillion,
an average of $22 billion per year over its entire history. What is interesting is that the investments
that led to these important innovations occurred irrespective of the business cycle. This is
important because it is often believed that we simply need government to pull us out of
the recession, with no real theory of government’s role in also driving the boom. But most of
the public investments that led to these revolutionary new technologies occurred in boom periods.
The investments were not just about fixing different types of market failures where private
finance won’t fund roads and basic research because it's hard to profit from them. They
funded the basic research, the applied research all the way to early stage financing of companies
themselves. Well, for all these successes, there are of
course many failures. Indeed, for every Apple there is a rotten fruit somewhere. That is
inherent in innovation, which is a very uncertain process based on trial and error, and serendipity.
But while we are very quick to blame government for the failures like Solyndra, we don’t
admit its role in the successes, such as the Internet or Apple. Solyndra received the same amount of money
as Tesla. One ended in bankruptcy, the other, in success. The critique is that big government is bad
for growth, and that programs like Obamacare “meddle in your healthcare.” Without taking
sides in this debate, simply imagine how different the debate would be if we people understood
the role that government has really played in the healthcare sector. Not only does the
government regulate health, but it is one of the lead innovators. Most new molecular
entities with priority rating trace their research back to public labs. And by not admitting
it, not only do we describe its role in the wrong way, but we also don’t make sure that
the taxpayer does not pay twice! The USA is socialising the risk, but privatising
the rewards. Indeed, some authors have recently written about a case where a new medicine
marketed by Genzyme treats a rare disease that was initially developed by scientists
at the National Institutes of Health. They claim: “The firm set the price extremely
high: $350,000 for a year’s dosage. And while legislation exists to make such drugs
sell at ‘reasonable’ prices, the asymmetric power relation between the State and business
has resulted in policy makers not taking advantage of that right” So the taxpayer in fact is
paying twice. So, before we quickly dismiss socialism as
failing we need to dig more deeply into what socialism means and what success it does bring.

  1. Many major advances in technology come from state back finances. The idea that capitalism pushes innovation while socialism destroys it are massively exaggerated.

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