Sunday, September 29, 2013

Mazzucato’s Fantasy: The “Courageous, Entrepreneurial State”

Who drives technological advancement? It’s not private enterprise, according to Mariana Mazzucato, author of The Entrepreneurial State: Debunking Public vs. Private Sector Myths. In an article for Slate, she claims technological innovation is driven by the “risk-taking,” “interventionist,” “courageous, entrepreneurial state” through its funding of scientific research and development. “A quick look at the pioneering technologies of the past century points to the state, not the private sector, as the most decisive player in the game,” Mazzucato asserts.

But this is nonsense. In America, the government didn't get involved in science funding to any appreciable extent until after World War II. According to research by the journal The New Atlantis, President Truman initiated the modern era of systematic federal government funding of  research and development in the late 1940s. In F.Y. 1949, federal R&D outlays totaled less than $1 billion, mostly for defense. Yet look at what had already been accomplished in America by then.

In America’s first 150 years, we saw the advent of railroads, radio, TV, and motion pictures. America went from darkness to the electric light; from the horse and buggy to automobiles and airplanes; from word-of-mouth to the telephone; from an impoverished agrarian economy to a thriving middle class industrial dynamo. America saw enormous advances in agriculture, medicine, and energy. This is just a sampling. As Andrew Bernstein observes, inventor-entrepreneurs flourished during this time period, particularly between the Civil War and World War I. Did government funding drive this almost miraculous technological progress? Hardly. As CATO’s Terence Kealey notes, “Without government funding of science, the United States overtook Britain around 1890 as the richest country in the world.”

But even in the modern era of government funding—which, as Mazzucato points out, includes subsidies and loans to business—we see that the private sector is the real champ. In her brazen attempt to glorify statism, Mazzucato evades crucial facts.

First, the state gets its money from productive private citizens via taxes (in one form or another). Essentially, it is not the state that funds science. It is the private sector. Without a productive private economy, where would the state get its revenue? The role of the state—a role that is not legitimately a government function—is merely as a conduit for money to flow from the private sector to those who actually do the work. There is no courage in politicians voting to tax money away from productive private citizens. There is no risk in government bureaucrats doling out other people’s money in grants and loans.

Second, who actually does the creative work? It is not the politicians who legislate taxes or the bureaucrats who dole out the proceeds. The creative work is done by the scientists, researchers, and engineers who discover the new knowledge and create the technology. It is the risk-taking, entrepreneurial businessmen who turn those advances into amazing end products like the iPhone and countless other life-promoting goods. Politicians may partially finance them with other people's money. But they don’t direct the research or the business decisions. Whatever the source of funding, it is the scientists, researchers, engineers, and businessmen to whose minds and vision we owe technological progress.

Third, why are the creators—“men of the mind,” as Ayn Rand called them—able to flourish? Because they are free to do so; to choose their careers, pursue their own goals, values, and happiness, and act on their own rational judgment in their work. This freedom owes to the Enlightenment philosophers and America’s Founding Fathers, who created a government charged with protecting individual liberty. It is only to the extent that the state refrains from intervening in men’s lives and protects individual rights that innovation can flourish. If this were not so, then every dictatorship that ever existed would have ruled over an economic utopia. But it was substantially free America, rather than Nazi Germany or Imperial Japan, that developed the atomic bomb and won W.W. II. It was America that flourished economically and Soviet communism that collapsed, ending the Cold War. And today, it is the North Koreas, not the South Koreas, that are mired in poverty, stagnation, and hopelessness. (For an in-depth analysis of America's atomic bomb project, see Ayn Rand’s Hollywood screenplay proposal “Top Secret” in Journals of Ayn Rand.)

Though useful technologies may sometimes emerge from government funding, this is no justification to violate the rights of taxpayers to spend and invest their own money as they see fit. And given that government funding wouldn't exist but for the pre-existing private sector financial and human capital, it is ludicrous to suppose that the science emerging from government and private labs funded by government grants would not have come into existence otherwise. The politicians merely leach off of this financial and human private capital. As Kealey points out, government funding merely “displaces private research money.” 

In fact, given the inherent wastefulness, corruption, inefficiencies, cronyism, and politicization involved in government funding of anything—including subsidies, loans, and bailouts to business—the government’s usurpation of science funding undoubtedly retards progress. As Ari Armstrong points out in his blog post in The Objective Standard:

Mazzucato commits the fallacy that Frédéric Bastiat exploded in 1848: She recognizes what is seen—the government spending—but she ignores what is not seen—all the technological advances that did not take place because government confiscated the resources that otherwise would have funded them.

We’ll never know how much taxpayer money has been poured down the drain of cronyism (think Solyndra), and thus how much technological progress went down the drain with it.
As of 2010, according to The New Atlantis, taxpayers funded a little less than one-third of total American scientific R&D spending—including about two-thirds of basic research. But this unfortunate fact does not and can not erase cause and effect. During the 19th and first half of the 20th centuries, technological progress flourished without meaningful government funding of either R&D or business. There is no reason to believe it wouldn't have continued—and at a heftier pace—without government intervention in science and business funding in the last 60 years.

Contra state apologists like Mazzucato, the government is not decisive in driving technological advances. Government funding creates the illusion that “the government did it.” But it is just that; an illusion. It is private knowledge-seeking scientists and entrepreneurial, profit-seeking businessmen, each in pursuit of his own goals, passions, values, and happiness, that drive innovation. It is private, productive taxpayers who supply the “government funding.” The state’s only role is as an inept, immoral, quasi-criminal, redistributionist money-laundering “enterprise.”

The history of the past couple of centuries clearly shows that it is the free private sector, not the interventionist state, that is the fountainhead of technological progress. Americans should demand that the state stop violating rights and stop hampering economic and technological progress, get out of the “business” of financing research and development, business capital, and the like, and return to the function the Founders charged it with: protecting individual rights.

Related Reading:

About That "Government Help," Mr. Roumel

How You Build That

"Government Help" Leads to Totalitarian Socialism

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