Wednesday, July 29, 2015

Entrepreneurial Spirit


"The saintly Alan recently gave a talk to newspaper editors in the US. He spoke passionately about the miracles of the market, the wonders bought by consumer choice and so on. He also gave some examples: the Internet, computers, information processing, lasers, satellites, transistors.28 It's an interesting list: these are textbook examples of creativity and production in the public sector. In the case of the Internet, for thirty years it was designed, developed, and funded primarily in the public sector, mostly the Pentagon, then the National Science Foundation, that's most of the hardware, the software, new ideas, technology and so on. In just the last couple of years it has been handed over to people like Bill Gates who, at least, you have to admire for his honesty: he attributes his success to his ability to 'embrace and extend' the ideas of others, commonly others in the public sector.29 In the case of the Internet, consumer choice was close to zero, and during the crucial development stages the same is true of computers, information processing, and all the rest, unless by 'consumer' you mean the government; that is, public subsidy.
"In fact, of all the examples that Greenspan gives, the only one that rises maybe to the level of a joke is transistors, and they are an interesting case. Transistors, in fact, were developed in a private laboratory - Bell Telephone Laboratories of AT&T - which also made major contributions to solar cells, radio astronomy, information theory, and lots of other important things. But what is the role of markets and consumer choice in that? Well again, it turns out, zero. AT&T was a government supported monopoly, so there was no consumer choice, and as a monopoly they could charge high prices: in effect, a tax on the public which they could use for institutions like Bell Laboratories where they could do all of this work. So again, it's publicly subsidised. As if to demonstrate the point, as soon as the industry was deregulated Bell Labs went out of existence, because the public wasn't paying for it any more: its successors work mostly on short-term applied projects. But that's only the beginning of the story. True, Bell Labs invented transistors, but they used wartime technology which, again, was publicly subsidised and state-initiated. Furthermore there was nobody to buy transistors at that time, because they were very expensive to produce.
"So, for ten years the government was the major procurer, particularly for high-performance transistors. In 1958 the Bell Telephone supplier, Western Electric, was producing hundreds of thousands of these, but solely for military applications. Government procurement provided entrepreneurial initiatives and guided the development of the technology, which could then be disseminated to industry. That's 'consumer choice' and the 'miracle of the market' in the one case that you can even look at without ridicule. And in fact that story generalises, even the most ignorant economist must know this. The dynamic sectors of the economy rely crucially on massive public subsidy, innovation and creativity; the examples that Greenspan gave are mostly some of the most dramatic cases of this. It's a revealing set of choices. A lot of this is masked as defence, but that's not all, the same is true in biotechnology, pharmaceuticals and so on.
Naturally, business is delighted with all of this: the public pays the costs, assumes the risks (a kind of 'socialism for the rich'); and profit and power are privatised -- that's really existing market theory. It goes back for centuries, but it is dramatically true now.
"Particular cases make it even more dramatic. Take the leader of the conservative revolution in Congress, Newt Gingrich. He is a fount of very impressive rhetoric about the work ethic, and getting off the cycle of dependency, how seven-year-old children have to learn responsibility and that sort of thing. But, year after year, he holds the championship in bringing home federal subsidies to his rich constituents, in a sector of Georgia where the economy is even more dependent on federal subsidies than in most places.30 His favourite cash-cow is Lockheed-Martin. There is a two-hundred-dollar annual Lockheed-Martin tax per capita in the US"

- Noam Chomsky, Power in the Global Area, 1998

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