The Mercatus Center has just released a new special study that I co-authored with Connor Haaland entitled, “Does the United States Need a More Targeted Industrial Policy for High Tech?” With industrial policy reemerging as a major issue — and with Congress still debating a $250 billion, 2,400-page industrial policy bill — our report does a deep dive into the history various industrial policy efforts both here and abroad over the past half century. Our 64-page survey of the historical record leads us to conclude that, “targeted industrial policy programs cannot magically bring about innovation or economic growth, and government efforts to plan economies from the top down have never had an encouraging track record.”
We zero in on the distinction between
general versus targeted economic development efforts and argue that:
whether we are referring to federal, state, or local planning efforts—the more highly targeted development efforts typically involve many tradeoffs that are often not taken into consideration by industrial policy advocates. Downsides include government steering of public resources into unproductive endeavors, as well as more serious problems, such as cronyism and even corruption.
We also stress the need to more tightly define the term “industrial policy” to ensure rational evaluation is even possible. We argue that, “industrial policy has
intentionality and directionality, which distinguishes it from science policy, innovation policy, and economic policy more generally.” We like the focus definition used by economist Nathaniel Lane, who defines industrial policy as “intentional political action meant to shift the industrial structure of an economy.”
Our report examines the so-called “Japan model” of industrial policy that was all the rage in intellectual circles a generation ago and then compares it to the Chinese and European industrial policy efforts of today, which many pundits claim that the US needs to mimic. Continue reading →
In my latest column for The Hill, I consider that dangers of government gambling our tax dollars on risky industrial policy programs. I begin by noting:
Roll the dice at a casino enough times, and you are bound to win a few games. But knowing the odds are not in your favor, how much are you willing to risk losing by continuing to gamble?
This is the same issue governments confront when they gamble taxpayer dollars on industrial policy efforts, which can best be described as targeted and directed efforts to plan for specific future industrial outputs and outcomes. Throwing enough money at risky ventures might net a few wins, but at what cost? Could those resources have been better spent? And do bureaucrats really make better bets than private investors?
I continue on to note that, while the US is embarking on a major new industrial policy push, history does not provide us with a lot of hope regarding Uncle Sam’s betting record when he starts rolling those industrial policy dice. “How much tolerance should the public have for government industrial policy gambling?” I ask. I continue on:
Generally speaking, “basic” support (broad-based funding for universities and research labs) is wiser than “applied” (targeted subsidies for specific firms or sectors). With basic R&D funding, the chances of wasting resources on risky investments can be contained, at least as compared to highly targeted investments in unproven technologies and firms.
I also argue that “The riskiest bets on new technologies and sectors are better left to private investors,” and note how, “America’s venture capital industry remains the envy of the world because it continues to power world-beating advanced technology.” Accordingly, I conclude: Continue reading →
“You want to spend $20 billion of taxpayer money creating jobs?” Mr. Friedman wrote. “Fine. Call up the top 20 venture capital firms in America” and invest the money with them.
But I see three more reasons why those interested in technology policy should pay attention to this encouraging episode.
First, the groundswell of opposition seems to have been driven largely by the Internet, both as a vehicle for disseminating the bailout proposals and for voicing opposition to them:
Venture capitalists certainly agree that innovators and start-up companies, not bailed-out GMs or Chryslers, will create the new jobs. They rightly brag that almost 20% of U.S. gross domestic product is generated by companies built by venture capital, such as Intel, Apple and Google. Still, they almost universally panned the notion of taxpayer support. Their real-time rejection is an excellent example of how social media — here, the venture community dissecting a proposal online — can now quickly take down bad ideas.
Second, it should almost go without saying that venture capital is the fountainhead of innovation, especially the disruptive innovation that is constantly pushing the envelope of technology policy. A healthy VC sector is the bedrock of a dynamic, free and innovative economy. The VCs realize that this requires, more than anything else, avoiding the market distortions caused by government funding: Continue reading →
MIT’s Technology Review has a great review of a new biography of Georges Doriot (Wikipedia) by Businessweek Editor Spencer E. Ante entitled,
Creative Capital: Georges Doriot and the Birth of Venture Capital. Born in France, Doriot fought in World War I, then studied at Harvard Business School, served as director of the U.S. military’s Military Planning Division during World War II as a brigadier general, and in 1946 launched American Research and Development Corporation (ARD) as the first publicly owned venture capital firm.
Doriot’s legacy looms large today, even if his name is new to most:
Contemporaneously with ARD’s watershed investment in [Digital Equipment Corporation], others began walking the trails Doriot had blazed: Arthur Rock (a student of Doriot’s in the Harvard class of 1951) backed the departure of the “Traitorous Eight” from Shockley Semiconductor to form Fairchild Semiconductor in 1957, then funded Robert Noyce and Gordon Moore when they left Fairchild to found Intel; Laurance Rockefeller formed Venrock, which has since backed more than 400 companies, including Intel and Apple; Don Valentine formed Sequoia Capital, which would invest in Atari, Apple, Oracle, Cisco, Google, and YouTube.
Doriot himself would likely have felt at home among today’s embattled and outnumbered regulation-skeptics in the technology policy community:
he opposed both the dirigiste political economy of his native France and the tax hikes and anticompetitive laws enacted in the United States under the New Deal. Such regulations, he maintained, arrogated to bureaucrats the function of the markets; their worst feature was that they let government lend money to failing businesses. Ante notes that a former colleague of Doriot’s, James F. Morgan, recalled him as “the most schizophrenic Frenchman I’ve ever met”–devoted to his original land’s wine, cuisine, and language even as “the French capacity to make very simple things complicated drove him nuts.”
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology. Learn more about TLF →
In my latest column for The Hill, I consider that dangers of government gambling our tax dollars on risky industrial policy programs. I begin by noting:
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.