Llewellyn King: Government's no-win conundrum

Government's no-win conundrum

Hearst NewspapersApril 8, 2013 

The U.S. government can't get anything right.

If a speaker wants to bring a business audience to its feet, declare that the government is the problem: The government takes good money in taxes and spends it frivolously on pet projects.

The speaker can make this point by citing any obscure line of research, like chaos theory or the mating habits of snails.

The line about government incompetence suggests that whatever the government has done that works could have been done better and cheaper in the free market.

Now comes an American-educated European economist and business professor who says forcefully and elegantly: "It ain't necessarily so." Not by a long shot.

Mariana Mazzucato, who was born in Italy and graduated from Tufts University and the New School for Social Research, is a professor of business and economics at the University of Sussex in England.

In an article published in the Harvard Business Review and republished in The Globalist, a daily online magazine, Mazzucato takes Apple as an example of a company that not only got early stage funding from the government's Small Business Investment Company (SBIC) program but also incorporated many government-funded innovations into its products. She writes: "In fact, many of the revolutionary technologies that make the iPhone and other products and services `smart' were funded by the U.S. government. Take, for instance, the Internet, GPS, touchscreen display, as well as its voice-activated personal assistant, Siri."

Apple hasn't been the only company that has benefited hugely from government investment in innovative technologies. Mazzucato lists other Silicon Valley companies, "such as Google whose search algorithm was funded by the National Science Foundation," as being similarly assisted and immensely enriched by the government.

"In fact, many new economy-type companies that like to portray themselves as the heart of U.S. `entrepreneurship' have very successfully surfed the wave of U.S. government-funded investments," she writes.

Hence, she argues, the secret to Silicon Valley's success was the government's "active and visible hand in stark contrast to the Ayn Rand/Adam Smith folklore often bandied about."

Mazzucato says that in energy and elsewhere the government has proved to be less risk-averse than the venture capitalists. She cites the government 1970s role advancing energy technologies in oil and gas recovery that has changed the energy supply equation.

But Mazzucato's real message is not that the government can get it right, and in a big way sometimes, but that the corporations -- and Apple is her example -- grow fat on technologies developed with public money. And the providers of that money -- we the taxpayers -- get no dividend, no return on our investment, and, as with Apple until recently, no jobs when these grand Americanââ¢

“invented technological products are manufactured in Asia.

(Apple is making a small effort to make some products in America.)

Worse, not only do the investors, in this case the U.S. taxpayers, get no return on their dollars, but these companies, again Apple is cited, are masterful at avoiding taxes by keeping profits overseas and seeking every loophole in the code.

I can vouch that it is not just Silicon Valley corporations that are making out magnificently with government-funded technologies. Civilian aircraft are loaded with technology and improvements funded or invented by the National Aeronautics and Space Administration and the military. Boeing's new Dreamliner is positively bristling with these inventions, from wingtip devices to navigation systems. But there is only one U.S. maker of large airframes: Boeing. So NASA has become a private lab for Boeing.

This isn't the way it's supposed to work.

A similar imbalance exists in the pharmaceuticals industry, where public risk leads to private profit. The government funds research to the tune of $31 billion a year, but it sells no drugs. The drug companies are the beneficiaries.

When the government does get it right, it gets robbed.

Llewellyn King, executive producer and host of "White House Chronicle" on PBS; lking@kingpublishing.com.

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