Democracy and Governance

President Obama received a lot of outraged criticism from the right during the 2012 campaign for his remark, “You didn’t build that.” What he meant, though he uncharacteristically said it in a fairly clumsy way, was that for every proudly self-made entrepreneur there is a huge web of supporting institutions and infrastructure built by the government. These essential supports include the obvious – the courts, the Interstate highway system, police and fire departments, etc. – but also a tremendous array of investments undertaken by national governments, many of which have provided a platform on which entrepreneurs can build. A recent article in The Economist, reviewing a new book entitled “The Entrepreneurial State,” by Mariana Mazzucato of Sussex University in England, makes this explicit. And nowhere is this investment activity more influential than the United States, supposedly the cradle of unbridled individual enterprise.

Beneficiaries of these investments include Apple: “The armed forces pioneered the Internet, GPS positioning and voice-activated ‘virtual assistants.’ They also provided much of the early funding for Silicon Valley. Academic scientists in publicly funded universities and labs developed the touchscreen and the HTML language. An obscure government body even lent Apple $500,000 before it went public.” They also include Google, which received early funding from the National Science Foundation. Pharmaceutical and biotechnology companies benefit from the $30 billion in annual funding for biomedical research from the National Institutes of Health.

As Ms. Mazzucato argues, “The entrepreneurial state does far more than just make up for the private sector’s shortcomings: through the big bets it makes on new technologies, such as aircraft or the internet, it creates and shapes the markets of the future. At its best the state is nothing less than the ultimate Schumpeterian innovator—generating the gales of creative destruction that provide strong tailwinds for private firms like Apple.”

There are reasons to be skeptical of some government investments. The Solyndra debacle, in which the Federal government provided $500 million in loan guarantees to a California manufacturer of solar panels, which promptly went bust in the face of low-cost competition from China, is a cautionary example of the dangers of bureaucrats playing at being venture capitalists. But the rallying cry of the Tea Party – the Randian (Ayn and Paul) notion that the state is essentially a parasite feeding on the efforts of bold and visionary individual entrepreneurs – is a pure fairy tale.

The Economist article asks “why are some states successful entrepreneurs while others are failures?” and it provides an answer:  “Successful states are obsessed by competition; they make scientists compete for research grants, and businesses compete for start-up funds—and leave the decisions to experts, rather than politicians or bureaucrats. They also foster networks of innovation that stretch from universities to profit-maximizing companies, keeping their own role to a minimum.” This sounds much like the blueprint for Silicon Valley, or any other successful technology-based industrial cluster.

In our current budget-cutting environment, these essential investments are under threat. According to a recent article in The Huffington Post, sequestration will cost the NIH 5% of its budget, or $1.7 billion, forcing the cancellation of 700 competitive research grants in the current Federal budget year. Similarly, the National Science Foundation is expected to issue 1,000 fewer research grants this year as a result of sequestration.

According to a statement by the Congressional Budget Office, the Federal Highway Trust Fund, which is funded by taxes on gasoline and diesel and which provides a substantial portion of the money states use to maintain state and national roads, is essentially insolvent and will run out of money completely by 2015. The only way to avoid this would be to cut transportation funding by 92% or raise the Federal gasoline tax by 50 cents a gallon, and it’s hard to imagine the Republican-controlled House of Representatives going along with the latter.

In the current political environment, much of the public investment that enables American businesses to innovate and prosper is under threat, mainly from ideologues who refuse to recognize the essential role that government initiative and funds have played since the founding of the Republic, from the Erie Canal to the interstate highway system, to nanotechnology research.

It is worth considering these facts in the context of the current legal battle between Verizon and the Federal Communications Commission. Verizon is challenging a net-neutrality order adopted by the FCC in 2010, which states that internet service providers (ISPs) cannot block lawful content and mobile broadband providers cannot block lawful websites. Verizon contends that the order violates its First Amendment rights. More to the point, Verizon and its competitors, including Comcast and AT&T, maintain that they spent billions of dollars to build their networks and should be able to grant or deny access as they please, or charge different customers different rates for transmitting on their networks. This is a spurious argument. The broadband companies are “common carriers,” a term that applies not only to telecoms companies but also to airlines, railroads, and trucking companies: they offer their services to the general public under a license or authority granted by a public regulatory body. Common carriers are subject to licensing requirements because they are using a public resource: radio spectrum, rights of way, public roads, or air traffic control systems, without which they would be unable to operate. In the case of the telecoms company, they are also using a resource – the Internet – that was developed by DARPA, the U.S. Defense Advanced Research Projects Agency.

The Internet and the public airwaves are not the property of those companies to use as they please, free from any oversight or interference. It is time to tell them, “No, you didn’t build that.”

 

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In principle, the decision by House Republicans to strip the food stamp program out of the current farm bill is not a bad thing. In practice, it may not be so bad either.

For the past 40 years or so, agricultural subsidies and supplemental nutrition programs (food stamps) for poor people have been joined at the hip, the idea being that combining the two, otherwise unrelated, initiatives could help win bipartisan support for an omnibus bill that contained something for every constituency: farmers, agribusiness, advocates for the poor, etc. The problem with such an approach is that it embodied the worst of interest-group politics, legislative back scratching, and pork barrel giveaways. No liberal legislator would vote against subsidies for rich sugar or cotton or tobacco farmers for example, if it meant cuts to the food stamp program. No Florida conservative would vote to cut food stamps if it also meant cuts to subsidies for his or her rich, sugar-growing constituents. Everyone got pretty much everything they wanted, and no serious policy debate ever occurred. So separating the two makes profound sense. But encouraging a serious policy debate is the last thing on House Republicans’ minds.

In drafting and voting on a pure farm bill, House Republicans have laid bare their hypocrisy by showing, in black and white, the hollowness of their claims to budget-cutting rigor. It turns out that it’s not government spending per se they object to: as long as it benefits the wealthy, they are quite okay with it. Indeed, in drafting the new farm bill the House Republicans rejected all calls to cap or eliminate subsidies to wealthy individuals and corporations. [click to continue…]

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I met Taymor  Kamrany in 2003, just over a year after the U.S.-led invasion of Afghanistan had ousted the Taliban. We were both in Kabul, working on a USAID program to improve the environment for business and help government institutions rebuild their capacity to support a market economy. It was not an easy task. I was working with the management and staff of the Export Department of the Ministry of Commerce. Apart from the Head, a man in his fifties who had worked in the ministry throughout all the upheavals of the previous 30 years, no one in the Department could speak any foreign language. Though Afghanistan had once a thriving export economy – until the civil war of the 1990s, it was the world’s largest exporter of raisins, which were the most delicious I have ever eaten – its productive capacity was largely destroyed, its fields strewn with landmines, its best and brightest long ago departed. I was there for just a month, but in spite of these daunting challenges facing the country,  I sensed a lot of optimism among both Afghans and foreigners.

Taymor, an Afghan-American, born in Afghanistan and relocated with his family to the U.S. when he was a small child, was bright, ambitious, idealistic, and very American in demeanor and outlook. Apart from speaking Dari, the main language of Kabul and the northern part of the country, and having some relatives he visited from time to time, he seemed to be little more at home there than I did. After we had each left Afghanistan, I learned that he had entered an MBA program at the University of Southern California, and still later that he was working for one of the Big 4 consulting firms. Then we more or less lost touch. But most people never prune their e-mail address books, so a while ago I received  a broadcast e-mail from Taymor, linking to an article he wrote, which is published on the web site of the Middle East Institute, entitled Afghanistan 2002-2012: A Decade of Progress and Hope. No question mark. [click to continue…]

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About 10 days ago I sat at breakfast  in Lomé, the capital of Togo, a sliver of a country in West Africa, watching French TV news of the capture, and what turned out to be false reports of the liberation, of seven French tourists in northern Cameroon by the Nigerian radical Islamist group Boko Haram. It was hard not to feel concerned about the future of this part of the world. Lomé is a good 800 miles as the crow flies from where this most recent drama occurred – and a similar distance from northern Mali, where fierce fighting continues for control of the city of Gao – and I was in far more danger there from motorcycles going the wrong way down one-way streets than from terrorist kidnappers. But the fairly recent emergence of economic dynamism in much of Africa after decades of stagnation due to poor governance and political and ethnic strife remains fragile, and these developments highlight the risk. [click to continue…]

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I am not a great fan of Jeffrey Sachs, the former Harvard development economist now Director of Columbia University’s Earth Institute, whose main claim to fame is having administered shock liberalization to the Bolivian and Russian economies in the 1980s and 1990s, respectively. Though his prescriptions did put an end to Bolivia’s hyperinflation, neither Bolivia nor Russia is a paragon of economic dynamism, and the main beneficiaries of his Russian experiment were the soon-to-be oligarchs who snapped up state-owned companies at a fraction of their real value. Nevertheless, Sachs, writing in yesterday’s Financial Times, has neatly identified the culprit in the U.S. fiscal sequester, which went into effect at noon today. It is not the Tea Party, nor even the House Republican leadership, but Obama himself, counterintuitive as that may appear. [click to continue…]

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