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Re: Government and Innovation

Student — Fri, 04 Dec 2009 19:34:11 GMT

I put "under innovate" in quotes for a reason. The initial question obviously assumes the market is (or was) "under innovating" in some way, otherwise the person would not have asserted "we needed" the government to create the internet. Knowing how hazardous arguments regarding normative economics arguments can be with Austrians, I decided to leave the term undefined. No one else bothered defining these terms in their responses. Of course, I am the only one to hazarded a few arguments in favor of intervention (though I explained why I found them unconvincing). Maybe that's why we're only now bringing this up?

As far as your second argument goes, I believe I already hinted at this by questioning the government's ability to pick "winning" technologies. I'm sure I don't need to explain to anyone here that the government might be bad at something.

And no one is forgetting Bastiat, I just felt no need to repeat what had been said only a few posts before.

PS* In terms of the definition I personally had in mind, I was sticking to what is used in mainstream economics to assess the welfare consequences of market outcomes: Kaldor-Hicks efficiency.

http://en.wikipedia.org/wiki/Kaldor-Hicks_efficiency

Re: Government and Innovation

David Z — Fri, 04 Dec 2009 19:17:36 GMT

Student:
I think the discussion has focused too much on the history of the internet and not enough on whether there are economic reasons that exist that suggest that markets might "under innovate" in such a way that the government might improve upon.

"Under innovate" compared to what?

Re: negative network externalities/effects.

Why did you bother building the "fax machine" (or whatever) if you weren't very certain there was enough demand to justify your undertaking? I mean, you can't justify intervention ex post, which is what this argument does. It says, "I think X is a good invention and it's probably that it would be very profitable if we could get it in the hands of a bunch of people". Isn't it telling, thought, that a "bunch of people" weren't clamoring for such a device in the first place? Again, we're neglecting to account for Bastiat's "unseen".

Re: Government and Innovation

Student — Fri, 04 Dec 2009 18:22:54 GMT

I think the discussion has focused too much on the history of the internet and not enough on whether there are economic reasons that exist that suggest that markets might "under innovate" in such a way that the government might improve upon.

Typically, the argument that markets may "under innovate" rests on the idea that many innovations generate benefits that are not accrued by the original innovator (a.k.a positive externalities). For example, suppose I came up with a way to improve the mouse trap. What would stop someone else from stealing my idea and making a product very similar to mine? Nothing really. You could try to keep the process a company secret (Coca-cola has done that for years), but that may not always be tenable. Sometimes that may not be a problem. For example, fashion designers can't protect their ideas from being copied, but there is always much innovation in the fashion industry. Of course, there is a difference in spending a few dozen hours designing a dress that flops or get copied and spending 8 *years* developing a new drug. So many people say (including the framers of the constitution) that the government should encourage innovation by protecting certain "intellectual property rights" through things like patents.

But what about more "proactive" government strategies to spur innovation? Well, some folks think that patents may not always work to fully internalize the present positive externalities. For example, there are some positive externalities that would be mostly unaffected by patent laws, like network effects. You may have a patent on a fax machine, but that machine is not going to make you any money unless people buy it. And as a potential buyer, I am not going to buy it unless other people are buying and using it. If no one else has a fax machine what good is it? So we have a kind of chicken and the egg problem that may prevent good ideas from getting off the ground. Maybe the government could help in these cases by providing initial funding or assistance? Maybe even the internet is an example of one of these situations?

Of course, its very hard to answer those types of questions in retrospect. Stephen Margolis at NCSU has written several well cited articles that I think pretty convinginly demonstrate that private organizations have been able to successfully overcome network problems in the past and that the presence of network effects alone is not a case for government intervention. And even if we found a case where government intervention might be warranted, you can't guarantee the government will pick able to consistently pick "winning" technologies (public choice argument should make you doubly skeptical of thinking they can).

So I think the best answer to your question of whether the government can foster innovation is "Maybe, but I doubt it."

Re: Government and Innovation

David Z — Fri, 04 Dec 2009 15:39:18 GMT

nirgrahamUK:
the shortest answer i would give against the supposed 'entrepreneurial' value add of the state, was if it was so capable of genius and productive power, then it would not need to rely on taxation/theft for its income, but would compete as a company with all others and without special privilege.

But, but, but, public goods and junk!

Re: Government and Innovation

nirgrahamUK — Fri, 04 Dec 2009 02:08:30 GMT

the shortest answer i would give against the supposed 'entrepreneurial' value add of the state, was if it was so capable of genius and productive power, then it would not need to rely on taxation/theft for its income, but would compete as a company with all others and without special privilege. any statists that believe the 'present administration' or 'any administration' were truly superb value adders in the manner with which the internet is dropped into convo, must for consistancy believe that it would be well for them to be the 'last administration', since their talents would see them through to phenomenal success on the market (and, advantageously, in the future, their actions might be consistent with justice)

the fact that activities require theft to persist is a good sign that consumer sovereignty is not the thing; This stands despite statist's allegations that the governments developing the internet at the cost of messing everything else up and stealing from the productive in society, somehow, meet higher felt needs of consumers than would be met without government interference.

Re: Government and Innovation

Le Master — Fri, 04 Dec 2009 01:56:56 GMT

Slightly off topic, but check out this really short, great video from 1993 I saw today on the Internet. It even goes as far as saying how the net is a self-regulated anarchy.

Re: Government and Innovation

David Z — Wed, 02 Dec 2009 22:48:24 GMT

rayendra:
However, a friend of mine said to me, "Then what about the internet? Isn't the government created it?". It kinda struck me, because as far as I know, it was DoD (or CERN based on Dan Brown's novel) who invented the internet, and both are not private entity. Is anyone can come out an answer for this? Thank you!

Generally true that the government created DARPANET about 40 years ago, which later led to e-mail and the internet, etc. However I might add that the development of the internet in to what it is today, was largely driven by individuals and private organizations, and not so much by government. (When was the last time you went to a government web site and said, "Wow, this site is really cool and/or functional and/or helpful?")

But that's all a digression. The correct response is "So what if the government did invent the internet?" (I'm not contending that the government invented the 'net, they did. But this tells us nothing meaningful!)

It is a case of the seen vs. the unseen. We see the internet and it is hard to imagine what life would be like without it. You wouldn't want anyone to take it away from us, having now experienced it, would feel like we're cast back to the stone-age.

The unseen is what might've been developed in its stead. We have no idea what that would've been. Better? Worse? I have no idea. But if that something else had come about, instead of the 'net, we'd be getting along relatively fine without ever knowing what we're missing.

The mistake in your friend's logic is this: he is making a value judgment where a value judgment is simply not possible; essentially assuming that these things exist because they are better than alternatives in a natural-selection sort of way. IOW, "without the internet we'd be worse off!" but there's no way to prove this argument - nor anything even close to it!

Same for highways, etc.: we have no idea what structure society might've taken in the absence of a national highway system. I'm fairly certain it would be very different. But we simply don't know whether it would be better or worse, accordingly we don't know what ought. We only know what is.

So, when people say "The government invented X, Y and Z! What would we do without the government?" they simply reveal their shortsightedness, and inability to imagine anything other than the world they've been given.

Re: Government and Innovation

MB — Wed, 02 Dec 2009 22:23:08 GMT

Adding to what fezwhatley says, the microcomputer was entirely a commericial/civilian product.

Am not sure what drove microchips, but they were developed by civilian companies. the first microprocessor (an entire CPU on a chip) was done by Intel for a Japanese calculator company (ie non government/military use). They then improved it to create the 8080 chip which was used for the first commericial microcomputer, which was done by MITS and aimed at hobbiests.

From this developed companies like Digital Research (CP-M), Microsoft, Apple, Commodore, Atari, etc, while other mainframe/mini computers got into the market (IBM, DEC, etc).

Re: Government and Innovation

auctionguy10 — Sat, 01 Aug 2009 02:53:24 GMT

rayendra:

Too bad that the internet was invented with some kind of government involvement.. Otherwise, it would be a great argument for defending private sector innovation...!

Huh? It was private sector innovation that made the internet what it is today. If the state completely controlled the internet then there would never ever be billions of different websites decided to provide information/services/entertainment for every little niche market you can possibly think of.

Re: Government and Innovation

rayendra — Fri, 31 Jul 2009 02:46:42 GMT

So based on the anwers above, I conclude that the 'joint venture' of Government and Private entity that first invented the internet, right? And the first reason it was invented is for the government self-interest, right?

Too bad that the internet was invented with some kind of government involvement.. Otherwise, it would be a great argument for defending private sector innovation...!

Re: Government and Innovation

Stranger — Thu, 30 Jul 2009 16:43:21 GMT

rayendra:

I know to some extent that all innovation comes from private entity, and that government only to hinder that innovation. However, a friend of mine said to me, "Then what about the internet? Isn't the government created it?". It kinda struck me, because as far as I know, it was DoD (or CERN based on Dan Brown's novel) who invented the internet, and both are not private entity. Is anyone can come out an answer for this? Thank you!

The state, like all private bodies, is capable of producing innovations for itself. For example, it can innovate itself more powerful state police forces to monitor and control the people, because that is what serves its own interests. So, in order to make its military more powerful, it can innovate itself a war-proof computer communications network.

What it can't innovate is the transformation of this network into a worldwide public infrastructure. Only the capitalist market enterprise could do this, and in the case of the Internet this is what took place, somewhat to the dismay of the state planners who saw this innovation take more and more of their power away.

Re: Government and Innovation

Jon Irenicus — Thu, 30 Jul 2009 16:03:00 GMT

Private sector came up with the computer, why is it a stretch to think it could actually connect said machines?

Re: Government and Innovation

fezwhatley — Thu, 30 Jul 2009 10:18:18 GMT

Government supporters like to suggest that the internet is a government project. They claim that the computer industry owes its existence to the Pentagon. Neither of these claims is true. The internet grew when the Pentagon took its hands off of it. Computers were developed without the Pentagon.

These inventions have military applications and defense departments have always been very interested in them, but the defense departments did not develop them.
Actually the explosive growth of the internet occurred when the net went civilian and grew out of its military background and control. The defense department control was holding it back. Private capital and ideas poured in. It is true that people at subsidized universities and NSF grants also contributed.

If there had been none of the defense involvement, would the internet have occurred? Yes. Can we say that it was pure free market capitalism? No. We cannot say this because the major companies that would have done this anyway all had defense and government links anyway, such as IBM and ATT.

But the internet would have occurred anyway, and the lure of profits for these big companies played a role. In fact, the defense department’s ARPANET project (started in 1969) only occurred because of earlier inventions by capitalists.

IBM and ATT had major labs and were vitally interested in computers talking to one another as early as the late 1950s and early 1960s. Bell Labs invented UNIX in 1969; it made the internet possible. IBM invented FORTRAN and hard drives in 1956. Bell transmitted packet data over lines in 1958. Texas Instruments invented integrated circuits in 1958. In 1961 Leonard Kleinrock published a paper on packet switching networks. Bell Labs made the first modem in 1961. The mouse was invented in 1963. Digital Equipment Corporation produced the first minicomputer in 1964. In 1965 time sharing at MIT and mail command started. Intel began in 1968. The year 1966 saw the first use of fiber optics to carry telephone signals.

After the defense department got involved, it was still companies like Honeywell and Bolt Beranek Newman (a tiny company) that made headway on making the internet work.

There were only 500 hosts on ARPANET when it split into military and civilian sections in 1983. Then the explosive growth began.

There is much more history than this. I am sure by now there are entire books on the subject and hundreds more major internet developments of which I am blissfully unaware.

http://www.lewrockwell.com/blog/lewrw/archives/023540.html

Government and Innovation

rayendra — Thu, 30 Jul 2009 10:10:34 GMT

I know to some extent that all innovation comes from private entity, and that government only to hinder that innovation. However, a friend of mine said to me, "Then what about the internet? Isn't the government created it?". It kinda struck me, because as far as I know, it was DoD (or CERN based on Dan Brown's novel) who invented the internet, and both are not private entity. Is anyone can come out an answer for this? Thank you!