Home > Government intervention, Internet, Regulation > Who’s better at innovation, Government or Private Citizens?

Who’s better at innovation, Government or Private Citizens?


I was listening to this weeks Econtalk podcast with Nassim Nicholas Taleb. Taleb is the author of the Black Swan, which by now I’m sure everyone has at least heard of in one way or another. Russ and Taleb were talking about a bunch of different things, one of them that really interests me is the idea that only Government can provide basic research.

Evolution works because it’s a free option; it’s convex. Mother Nature knows it cannot produce a perfect baby; goes through a lot of trial and error. Often the mother doesn’t if know, if there was a spontaneous abortion. Growth of knowledge. Libertarians. Government funding of research has led nowhere; we had the data. Book, trying to find places where government funding of knowledge has helped. Do the opposite. It’s not science-technology-business; it’s business-technology-science. How much do we spend on the war on cancer for how much we gain, versus how much we spend versus the gains from the outside. Pretty black and white? Confirmatory thing: universities are much better at public relations. Not saying business-technology-science is 100%. Myth is that basic research won’t be done by individuals; have to have government sponsorship. Silly argument. Industrial revolution by businessmen. Medicine is obvious; heuristic science, not top down. During industrial revolution, Germany was top down and was copying England. Always have to read the opposite; attacks of black swan idea. Same concept as Fooled by Randomness–people overestimate the amount of luck–people overestimate the amount of skills. Convex luck: trial and error, costs very little; exploiting the option of nature.

I’m pretty much in 100% agreement with Taleb. My only qualm is the idea of Government sponsorship. I think Taleb is right in that research done by Government is a waste. If Government was superior to private research, then we should all be speaking Russian by now. I think that’s pretty much a given at this point. Yet, Government continues to fund research, how effective is it?

Most of everything we use on a regular basis was created privatly. Light Bulbs, computer, mp3, cell phones, etc were all created by private groups or individuals. These are the kinds of innovations that change everyone’s standard of living. You look at medical science and Telab is right, most of the real breakthroughs have come privately, penicillin is the obvious example. The CT scan is another example, invented by a Brit working for EMI Central Research Laboratories. Yes, that’s the same EMI that was the Beatles label. Where do you think they got the money to use for research huh? Yes, that’s called Capitalism.

Now that’s not to say Government doesn’t do anything in the area of science breakthroughs. They have, most, if not all involved in Military spending, which is one of the legitimate functions of Government. DARPA is a prime example. Yet, even thinking about DARPA, how do they get all those neat gadgets and breakthroughs? From private companies of course!

So the question is not which one is better, Government lead research or private lead research. I think that’s been answered convincingly and it is private. Now the question remains which is the better source of funding?

That’s a harder question and it’s empirical. I haven’t seen any studies, even though I’m sure they are out there. I would wager to say, that even there private funding trumps Government funding. The reason is that while Government might have more money to spend, they do so in a haphazard way, usually through politically motivated means. Who gets the money? Those people or organizations with the best political ties. Who has the best political ties, those involved with the status quo. And who has a vested interest to keep things the same? The status quo group.

Anyway, suffice to say. I think Taleb’s overall point is right. Governments aren’t good and creating things. They tend to use the top-down approach, which rarely works. Most innovation is spontaneous, organic or just random dumb luck.

I know people talk about the Internet a lot. Well ALGORE didn’t invent the internet. DARPA helped get the concept down, but everything that you and I do and use on the Internet was made possible from private funding of research. Apple, IBM, Microsoft, Sun Microsystems, Intel, Google, Comcast…all private companies. Of which is they weren’t around, this glorious internet wouldn’t be possible.

But that’s not to say the Government can’t come in and fuck shit up! They are trying really hard to ruin the Internets (ie FCC and net neutrality).

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  1. yttik
    May 7, 2010 at 21:29

    Well, you have to admit, the government is more innovative when it comes to cooking the books. They’re pretty innovative when putting the spin on things, too. I’ve never seen a private citizen come close to their creativity in those two areas.

  2. Seth
    May 17, 2010 at 22:30

    I agree with you and Taleb that top-down attempts at innovation are not as effective as bottoms-up trial-and-error experiments.

    I witness this firsthand even in the private sector with mature businesses using bad innovation models. They try to design the “next best thing” from HQ using people motivated more by politics than markets, and constrain products to meet guidelines the market could care less about like fitting with the brand image, using existing assets, and meeting the CEO’s preferences, for example, and they can’t figure out why the products don’t get much response from customers.

    They give an idea one shot and move on in a serial fashion to the next one if it doesn’t seem to show much promise on the first try.

    They fail to recognize that their main business itself originated from an accidental, bottoms-up experiment that just so happened to pan out due to a couple of mini-Black Swans. It wasn’t designed in some company’s HQ.

    Using Taleb’s ideas, I’ve thought they should decentralize innovation and push it down to the level of bottoms-up, trial and error experiments and not worry so much about each one panning out or whether each meets the CEO’s preferences. It’s more important that it meets the customer’s preference.

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