On Fri, May 16, 2003 at 10:55:50AM -0700, Tim May wrote:
-- public choice analysis (who benefits?) -- market distortions (markets are ignored) -- rent-seeking (control of resources means continuing rent); shakedowns, governments banning competition for its monopolies -- central planning (inefficient allocation) -- laws no longer connected to morality, but to rent-seeking (gov't. running gambling) -- a general inattention to market, as politicians are not spending their own money (hence bad investments in urban renewal, factory subsidies, highways, railroads, etc.)--their own money is not at risk.
All that is right, of course, and very concise. I guess I'm inefficient because I wrote a piece recently that used many more words to say the same thing. :) See below. It's on nanotech pork barreling and public choice. -Declan --- The best case for a government subsidy of R&D is to fund vital research that the private sector would fail to do on its own. Proponents of government nanotech funding argue that, as in other "basic research" areas, corporations have only short-term profit horizons. They say that government must pay for basic research because that's not profitable--only applied research is. This point has some validity, but there are three counter-arguments. First, private sources will pay for basic research. It may not be at the level that all researchers would prefer, but if it can lead to applied research results, the private sector will still do some of it. Second, nanotechnology includes a mix of early-stage research and late-stage research. Third, by having private funders, you avoid the public choice problems. Real-world subsidies rarely, if ever, follow the ideal found in economics textbooks. Instead, government-funded R&D in the real world is subject to the lobbying and rent-seeking that takes place whenever government dangles money. As the nascent world of nanotechnology develops, we have a chance to see how the political process steers research in political ways that need not parallel scientific goals. Bureaucrats, special interest groups, and members of Congress have strong incentives to channel nanotech funds to politically popular recipients or into trendy research areas that may or may not have legitimate scientific value. This has already lent itself to pork-barrel politics, as illustrated by a March 2002 speech by House Science Committee Chairman Sherwood Boehlert (R-NY) delivered in New York City. In it, Boehlert pledged to steer a disproportionate amount of cash to businesses and universities in his home state. "I will do everything in my power to ensure that nanotechnology research gets the funding it deserves," Boehlert said. "I will do everything possible to see that a significant portion of that research takes place right here in New York state." Without the traditional yardstick of profit and loss, there is no straightforward way to measure what is a wise course of spending. Rational economic calculations tend to be replaced by the routine of a guaranteed budget increase every year. Money often goes to favored or well-connected groups, and controversial but promising research may be ignored. Replacing market decisions with ones made on Capitol Hill could lead to highly-politicized results and inefficient allocation of nanotech funds. ... It's too early to predict what might happen in the case of nanotechnology, but early signals indicate Congress is eager to tie strings to funding. A bill introduced by Sen. Ron Wyden (D-Or.) would "ensure that philosophical, ethical, and other societal concerns will be considered alongside the development of nanotechnology." Last week, a House committee added an amendment to a nanotech funding bill that would require an evaluation of the racial diversity of organizations applying for nano-funding. During a presentation last year at a Foresight Institute conference, a former national security advisor for Vice President Al Gore predicted increased control. "These guys talking here act as though the government is not part of their lives," said Leon Fuerth, now a professor of international affairs at George Washington University. "They may wish it weren't, but it is. As we approach the issues they debated here today, they had better believe that those issues will be debated by the whole country." Among groups that benefit from nanotech spending, we're starting to see a lot of unhealthy jockeying for position and rent-seeking going on. Rent seeking is obtaining wealth or power through government action. In general, it grants special interests short-term gains at the expense of the long-term economic health of a society. To bolster its rent-seeking abilities, the Nanobusiness Alliance trade group signed up former House Speaker Newt Gingrich as its chairman and Rep. Robert Walker, former House Science committee chairman, and former Transportation Secretary Rodney Slater as advisors. Corporations that hand over up to $25,000 a year to the alliance can be part of all "legislative tours at no charge" and receive "free access to legislative" lists of key members of Congress and their aides. Alliance members include both startups and the billion-dollar firms Lockheed Martin, Agfa, Gateway, and GE. If these CEOs viewed nanotech research as too risky to fund themselves, there might be more justification for government dollars. Instead, private investment is flourishing. According to a statement from the Nanobusiness Alliance: "Some of the world's largest companies, including IBM, Motorola, Hewlett Packard, Lucent, Hitachi, Mitsubishi, NEC, Corning, Dow Chemical and 3M have launched significant nanotech initiatives through their own venture capital funds or as a direct result of their own R&D." A venture capital company devoted exclusively to nanotech, Lux Capital, already exists. Lux Capital estimates that from 1995 to 2000, the number of news articles referencing nanotechnology jumped sixfold, and a billion dollars of venture capital flowed into the nanotech industry last year. A recent report from the firm said companies "are increasingly conducting pure or basic research to keep competitive... Private spending on pure research is supposed to surpass public spending in the next year. Other firms turn to partnerships with academia, essentially outsourcing R&D initiatives." Evidently, basic research in the case of nanotechnology can be funded privately. While a firm may not be able to capitalize on all the benefits of basic research it pays for itself, CEOs seem to believe that a sufficient understanding of the fundamentals leads to applications that can be profitable. ---