It’s no secret that I enjoy economics. It’s also not closely held that I think that the government is far too large and should receive a substantial haircut (and perhaps a few limbs cut off as well). Some of my co-workers don’t quite see eye to eye with me on this. They believe that the government should have a larger role than I do; particularly when it comes to healthcare.
In the course of one of these healthcare debates a co-worker pointed out that “the government doesn’t bungle everything, just look at the internet.” He then proceeded to point me to an article in the L.A. Times by Michael Hiltzik entitled “The Internet is proof that government doesn’t bungle everything.” The article is a good illustration of how the left doesn’t really understand capitalist principals. What follows is a discussion of the article and, hopefully, a clarification of what many capitalist, such as myself really do believe.
Hiltzik’s basic claim is that companies don’t do a good job at “basic” research because they have a profit motive that clouds their perspective. He claims that the internet is a good example of this because AT&T and IBM both rejected Taylor’s idea for a universal network that could connect all types of computers together. Thus, in his view, this is proof that the government doesn’t screw everything up and goes on to claim that the government should be entrusted with fundamental research and possibly even things like healthcare.
Hiltzik fails to give much definition to his outrageous claims. In particular, he claims, “His experience underscores the importance of a government role in fields like basic research, which profit-seeking enterprises tend to shun.” What constitutes basic research is not defined; which is convenient for him, because any attempt at a definition would reveal that private industry does in-fact engage in a great deal of research that many would consider “basic” in nature. But perhaps, carbon nanotubes are not basic research? NEC funded the research that lead to this discovery which is a bedrock in modern nanotechnology innovation. Or maybe, Ted Hoff’s research at Intel that lead to the invention of the microprocessor was not significant? These are not isolated cases. Look at nearly every major company in existence today and you will find that they engage in a great deal of research on a regular basis and much of this research may not yield fruit for many years into the future.
The second problem with the article is the implicit claim that the government should continue to fund research because the internet was funded by the government and it proved useful. In general, capitalist don’t believe that the government shouldn’t fund research because it cannot succeed in any of it. However, the problem lies in the inefficiency of it. None of the protections that the free market affords apply to government. This is where we take issue with it. There are no controls to prevent government from continually wasting the peoples money on failed research and funneling money to political allies. The profit motive of corporations does not make them ineffective at basic research, there have been and will continue to be many companies and individuals who engage in a great deal of research that will not yield benefits for many years. Many of these projects will fail; however, the market balances how much money should be spent on them versus investment in current things like new houses, etc. If a company is particularly bad at doing the right research or effectively bringing it’s research to market (ie, making it useful), it will run out of money and go bankrupt. There is no such protection when it comes to the government.
Hiltziks understanding of capitalism is underscored by the comment: “Take the government out of the equation, whether as regulator or competitor, and they will continue to pursue their own interests, not yours and mine.” Any student of Adam Smith knows that the “invisible hand,” as Smith calls it, aligns selfish interests to the benefit of society. Large corporations may only care about making a dollar; however, it doesn’t matter because to make that profit they must do things that are useful to society. Governments have no such requirement; they only have to do what they believe is right, even if it’s not. They can continue on the wrong path indefinately whereas failed corporations go out of business (unless the government intervenes).
There is nothing about government that makes it more efficient at research than corporations. There will be some research projects it engages in that will be fruitful; however, this is not proof that the government should engage in them because we forgo all the protections of the free market.
In closing, we should remember the very apt words of our founding fathers as they declared our independence from a tyrannical government: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed…”