3 ms·

> But I have an equally hard time believing that the internet or pharmaceuticals wouldn’t have come to market if government had nothing to do with them. The ar

by mrxd 13y ago

> But I have an equally hard time believing that the internet or pharmaceuticals wouldn’t have come to market if government had nothing to do with them. The argument is that the private sector invests for shorter time frames. VCs look for commercial viability within 3-5 years. They're unlikely to fund biotech and green energy, which have 10-20 year time frames, or the internet, which took 30 years to reach commercial viability.

liber8 13y ago
That's an extremely narrow argument though. There's a huge world of funding outside of VCs. Of course, this also overlooks the fact that even VCs fund tons of biotech work, and are funding green energy right this very second. (In fact I personally know one VC who made his 9-figure fortune almost exclusively from funding biotechs in the 90s. I'm sure there are many others.) The internet may have taken 30-years to reach commercial viability, but that doesn't mean it would not have happened privately. Again, as soon as people began using computers as more than simply adding machines, it was pretty clear how beneficial it would be if computers could talk to each other. Eventually, the internet would have happened. Who knows if it would look like it did today (or would be better, or worse) without government involvement. It's impossible to say. But, when stock traders, for example, are willing to invest hundreds of millions of dollars to build a fiber cable to shave 3 milliseconds off their trade times, I have no doubt they would have invested similarly to have the communication abilities afforded by the internet. My original point was, be careful when people hold up the fruits of government investment. Government fertilizer might have had nothing to do with the size or taste of the fruit. And moreover, that fertilizer might have been much better used on some other type of fruit.
- mrxd 13y ago
  It sounds like you might be falling into hindsight bias, to be honest. Stock traders building high speed data links are actually a perfect example of the limitations of private sector innovation. It was a $300 million project, they started seeing profits after one year when the project was completed, and they were able to calculate the speed increase well in advance and estimate how much more profitable their trades could be. So it was a short term project with very little risk and nowhere near the scale of government investment. Mazzucato does talk about VCs in biotech and she thinks they have largely been harmful to innovation.
  - liber8 13y ago
    First, the stock trader bit was an example, and doesn't demonstrate limitations. It demonstrates that people will invest huge sums to generate returns. I will agree that they likely could calculate the returns ahead of time, and the payback time was very small. (This example is further complicated, since the builders actually licensed the use of the cable to other companies and essentially made their money back immediately.) Nevertheless, I simply can't buy the argument that the military and a bunch of academics were the only ones who foresaw the use of the internet, and thus the private sector never would have built it. It simply doesn't make sense, even without the hindsight bias. Second, whether VCs in biotech are harmful to innovation is irrelevant, both to the current biotech field and to the history of pharmaceuticals. My point, again, is that if you want the government involved in research, you should want it involved in research individuals aren't willing to pay for, but has the chance to significantly improve society. Otherwise, you're going to see a ton of taxpayer money ultimately flow into the pockets of the rich who likely would have funded the work anyway.
acdha 13y ago
It's also illustrative to look at the alternatives – e.g. prior to the internet catching on there were many competitors which had been privately funded but the desire to obtain short-term returns ultimately relegated things like CompuServe, GEnie, etc. to also-rans because the private funding model favors centralization and rent seeking over qualities like openness and independent innovation. Absent something like the academic internet we'd no doubt have some of the abilities we now have but it'd almost certainly look like those older services or the pre-iPhone cellphone app market – costly, high barriers to entry and centralized designs.
glenra 13y ago
The private sector plants tree farms that aren't harvested for 40 years. So long as there are strong property rights, profitable investments can be made at just about any time scale. In fact, the main reason the private sector might in some cases not want to make investments that take a long time to pay off is regulatory uncertainty. If every year you own that tree farm entails a significant chance the government might pass a new law banning logging there, you'll want to chop those trees down sooner rather than later. The more the government regulates and the more regulations change over time, the less sensible it is to make long-term plans and long-term investments.

by mrxd 13y ago

liber8 13y ago

That's an extremely narrow argument though. There's a huge world of funding outside of VCs. Of course, this also overlooks the fact that even VCs fund tons of biotech work, and are funding green energy right this very second. (In fact I personally know one VC who made his 9-figure fortune almost exclusively from funding biotechs in the 90s. I'm sure there are many others.) The internet may have taken 30-years to reach commercial viability, but that doesn't mean it would not have happened privately. Again, as soon as people began using computers as more than simply adding machines, it was pretty clear how beneficial it would be if computers could talk to each other. Eventually, the internet would have happened. Who knows if it would look like it did today (or would be better, or worse) without government involvement. It's impossible to say. But, when stock traders, for example, are willing to invest hundreds of millions of dollars to build a fiber cable to shave 3 milliseconds off their trade times, I have no doubt they would have invested similarly to have the communication abilities afforded by the internet. My original point was, be careful when people hold up the fruits of government investment. Government fertilizer might have had nothing to do with the size or taste of the fruit. And moreover, that fertilizer might have been much better used on some other type of fruit.

mrxd 13y ago
It sounds like you might be falling into hindsight bias, to be honest. Stock traders building high speed data links are actually a perfect example of the limitations of private sector innovation. It was a $300 million project, they started seeing profits after one year when the project was completed, and they were able to calculate the speed increase well in advance and estimate how much more profitable their trades could be. So it was a short term project with very little risk and nowhere near the scale of government investment. Mazzucato does talk about VCs in biotech and she thinks they have largely been harmful to innovation.
- liber8 13y ago
  First, the stock trader bit was an example, and doesn't demonstrate limitations. It demonstrates that people will invest huge sums to generate returns. I will agree that they likely could calculate the returns ahead of time, and the payback time was very small. (This example is further complicated, since the builders actually licensed the use of the cable to other companies and essentially made their money back immediately.) Nevertheless, I simply can't buy the argument that the military and a bunch of academics were the only ones who foresaw the use of the internet, and thus the private sector never would have built it. It simply doesn't make sense, even without the hindsight bias. Second, whether VCs in biotech are harmful to innovation is irrelevant, both to the current biotech field and to the history of pharmaceuticals. My point, again, is that if you want the government involved in research, you should want it involved in research individuals aren't willing to pay for, but has the chance to significantly improve society. Otherwise, you're going to see a ton of taxpayer money ultimately flow into the pockets of the rich who likely would have funded the work anyway.

acdha 13y ago

It's also illustrative to look at the alternatives – e.g. prior to the internet catching on there were many competitors which had been privately funded but the desire to obtain short-term returns ultimately relegated things like CompuServe, GEnie, etc. to also-rans because the private funding model favors centralization and rent seeking over qualities like openness and independent innovation. Absent something like the academic internet we'd no doubt have some of the abilities we now have but it'd almost certainly look like those older services or the pre-iPhone cellphone app market – costly, high barriers to entry and centralized designs.

glenra 13y ago

The private sector plants tree farms that aren't harvested for 40 years. So long as there are strong property rights, profitable investments can be made at just about any time scale. In fact, the main reason the private sector might in some cases not want to make investments that take a long time to pay off is regulatory uncertainty. If every year you own that tree farm entails a significant chance the government might pass a new law banning logging there, you'll want to chop those trees down sooner rather than later. The more the government regulates and the more regulations change over time, the less sensible it is to make long-term plans and long-term investments.