You didn’t build that: Does Amazon’s Jeff Bezos really owe his $25 billion fortune to Uncle Sam?
It’s a tired, tired debate: is government or business most responsible for this or that revolutionary technology? Industrial policy or markets: choose one, please.
And thanks to Fortune magazine columnist Alan Sloan, we get to have this misframed argument of false choices yet again. Sloan mocks the idea that Amazon.com boss Jeff Bezos might be a libertarian. Smelling a potential lack of self awareness (at best) or hypocrisy (at worst) by Bezos, Sloan matter-of-factly notes that Amazon “after all, is based on the Internet, which was created during the Cold War by a military research-and-development arm of the federal government, the Advanced Research Projects Agency. No Arpanet, no Internet. No Internet, no Amazon, no $25 billion personal fortune for Jeff Bezos.”
Sloan, shorter …. wait for it … “You didn’t build that, Bezos!”
But Sloan’s simplistic, daisy-chain analysis doesn’t quite hold up. (My pal John Tamny calls the column a “hit piece.”) Robert Taylor, who ran ARPA in the 1960s before leaving to run Xerox’s famed PARC lab, put it this way: “The origins of the Internet include work both sponsored by the government and Xerox PARC, so you can’t say that the internet was invented by either one alone.”
While government has an important role in advancing basic scientific research, turning breakthrough invention into economic innovation requires a free enterprise economy where established players can be disrupted by new entrants employing new technology. Invention to innovation requires an ecology of maximum competitive intensity where the big boys can fail and startups have low barriers to entry. Ashwin Parameswaran points out, for instance, that although the Soviet Union’s scientific establishment was highly inventive, those breakthroughs and new technologies rarely moved out of the lab:
The economist Joseph Berliner estimated that a director of a coal-mine could earn as much as 150% of his base salary as a bonus just for outperforming plan production targets by 5%. On top of this, Soviet managers were provided with ‘innovation’ bonuses as the Soviet planning authorities became increasingly concerned with the slow pace of productivity growth in the 1950s and 60s.
But none of these bonuses worked. In fact the bonuses served to further discourage the rollout of any risky innovation that could endanger the fulfilment of short-term plan targets. Managers would focus on low-risk process innovation to fulfil their innovation targets and focused on maximising their short-term ‘plan fulfillment’ bonuses. Ultimately the Soviet system could not replicate the real threat of failure that compels firms in a free enterprise economy to chase disruptive innovation for fear that an upstart new entrant may overtake them.
Former White House economist Jared Bernstein, in a blog post countering an op-ed on innovation by Robert Shiller, falls into the same trap as Sloan by reflexively supporting President Obama’s plan to sprinkle manufacturing innovation institutes across America. Bernstein: “From machine tools, to railroads, transistors, radar, lasers, computing, the internet, GPS, fracking, biotech, nanotech — from the days of the Revolutionary War to today — the federal government has supported innovation often well before private capital would risk the investment.”
But is there any, like, evidence that Washington can mass replicate Silicon Valley? Here’s a sobering conclusion from economist Enrico Moretti, who has studied why some areas become innovation hubs and some don’t: “I haven’t found one example of an innovation hub in the US that has been created by deliberate policy that says,’‘We’re going to create an innovation hub here.'”
Understanding the limits of government’s ability to boost innovation might make Washington more predisposed to an idea such as phasing out capital gains taxes on long-term investments. And understanding the important role that government has in supporting invention should make Washington think twice about the nature of the sequester budget cuts. But creating phony arguments with false choices is a recipe for intellectual and economic stagnation.
No Arpanet, no Internet. Really? Nobody would have conceived of an Internet-like communication network without the government? It’s probably true that it would not have started out as a world-wide network (maybe some network only available to ATT customers?), but to suggest that without government, nothing like this would have happened is ludicrous. If Bill Gates and Paul Allen had not been born, there would be no PCs?
And then there’s the value chain. Does the guy who invented the Multimixer that Ray Kroc sold have a claim to the value of McDonald’s?
If government research were really that valuable, that great an investment, shouldn’t we now be running a huge budget surplus from all the license revenue? Any sane person would structure their investments that way.
The arguement that the government created it is even sillier when you realize it is the government that is 100% dependent on private industry for it’s funding.
The government can build things like roads and bridges and computer networks but it is worth noting that the equipment and materials used are provided and perfected by the private sector
1) The Merit Network in Michigan pre-dates ARPANet and employed some the same concepts that ended up in ARPANet.
2) Most of the initial concepts for ARPANet’s design came from Donald Davies, who is from Wales and worked at the National Physical Laboratory (in England.)
One can reasonably assume that had ARPANet not been built the internet would still exist. Plus, ARPANet was not built to invent the internet. It was built to serve a specific need of the government – that is to reduce the cost of connecting researchers (that DoD was funding) with computing resources.
After ARPANet came 20 years of innovation – some private sector and some government – pursuing needs until we get to the early 90s with HTML on HTTP that met up with a drop in prices for home computers and affordable dial-up internet access: that is what built the internet we have today. None of that innovation was “hey lets spend government dollars to create something that will spur commercial business”, it was done piece-by-piece to meet specific needs that people had at the time.
Good comments all! Obviously, based on our history, what works best for society as a whole is for the two actors in this drama to play their respective parts and to refrain from crossing the boundary into the other’s territory. It is not difficult to keep private enterprise out of the govt. arena since the risk/reward parameters are skewed against private funding due to size of projects or need for such a project in the commercial arena, i.e. no way to generate revenue or make a profit. The task of course is how to keep govt. out of the private arena.
Much of the “you didn’t build that” mentality however seems to imply one step further and that’s the case which has not and to my mind cannot be made. Let’s take the internet, “Bezos didn’t build that” ok, agreed, so what. Neither did the millions of other business and non profit entities which use it on a daily basis. The development of the internet was paid for by U.S. taxpayers, so WE(the people) have already bought and paid for it to advance the governmental purpose for which it was initially created. It was then made available to WE(the people) to utilize,commercialize, improve, further develop, etc. I fail to see how any of this justifies any quid pro quo from the govt. For example does Bezos (or any of the other millions of individual and business users) owe some further compensation to the government because they found a way to profit from this invention? This is a nonsensical conclusion and yet it appears from the various articles and comments from the left that this is indeed what they mean. To reach such a flawed conclusion, one also has to believe that the People (or society) and the government are identical, the same thing, if it’s good for the govt., then it’s good for the People. One only has to read the opening lines of the Constitution to see the fallacy in this line of thinking, “We the People of the United States, in order to ————– do ordain and establish this Constitution.” So it’s clear the People created the federal government, they are NOT synonymous terms.
To me, this is what the left is required to answer, they should be required to finish the sentence; “you didn’t build that, therefore _____________WHAT?
Their is no need to answer that. The entire “you didn’t build it” is simply a facade — another ruse to disguise their real contention, which is, simply:
You’ve got it. We want it.
I’ll be less polite than Jared Bernstein: this post and most of the comments are complete crap. Nobody says Jeff Bezos “didn’t build that.” He did. So did Gates and Jobs. But most assuredly none of them, in fact, built the infrastructure they used to build what they built. It’s the alleged libertarians who started this fight. He owes taxes, including the same taxes that every other retailer has to pay to support the states whose infrastructure they all use to conduct their business.
“You’ve got it, we want it”? What the hell does that mean?