Scott Galloway on Government Spends on R&D

Srinjoy Bhattacharya, a regular reader of EFE, sent along a recent post by Scott Galloway:

What’s the most successful venture capital firm in history? Kleiner Perkins and Sequoia Capital backed many Internet-era success stories. Andreessen Horowitz? No, one organization towers above. This firm was there before the first transistor was printed, and it will be there after we receive brain implants. One investor funded the computer, the internet, speech recognition, last-mile distribution, mapping the human genome, the core technologies of fracking, and the first horizontal shale drill, and today it’s driving down the cost of solar and wind power below that of coal. Even better news: If you’re a U.S. taxpayer, you’re a limited partner.

https://www.profgalloway.com/welfare-queens/

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I have covered this topic before, about government spending on R&D, here and here. If you are curious about how countries can go about fostering an ecosystem geared towards better outcomes in terms of research and development, please do read these posts, and much, much more. More importantly, please click on the links in those posts, and read more!

Scott’s article is written in defense of the idea that government spending matters for development of the R&D ecosystem, and I have more than some sympathy for that view, especially in the Indian context. But I’m going to take a contrarian stance in today’s blogpost and ask how Scott (and I!) might be wrong about there needing to be a bigger role for government in this area.

This blogpost isn’t a “gotcha” post about trying to prove specific points in his post or mine as being wrong. It is, instead, a way to try and understand for myself how arguments I am sympathetic towards might be wrong. And that is the meta lesson in today’s post: if you find yourself in strong agreement with something while you’re reading/listening to it, force yourself to disagree. Ask how you might be wrong. Remember, certitude is the enemy, and doubt is your friend!

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1. Be cognizant, always, of opportunity costs. What is the opportunity cost of having government spend on R&D?
   1. Will the government spend the money as efficiently as possible? How will the government define efficiency differently from the private sector?
   2. What are the incentives of the private sector in this regard, and what are the incentives of the public sector? Which incentives, in both cases, might exist but are not publicly acknowledged?
   3. Will bureaucratization be a problem when it comes to government spending? Will this problem be more in government relative to the private sector? Will the answer remain true throughout, or will the relationship change over time? If it will change, according to you, on what grounds?
2. Is investing in public universities the best way to generate higher long-run returns? Note that the answer may well be yes, especially in the case of the USA, but I would argue that the question should be asked, and on an ongoing basis. If not in public universities, where else? Should government be spending money on rethinking what universities do and how?
3. An additional point on bureaucratization: might some entrepreneurs be turned off by the pace of bureaucracy and the extent of paperwork? Might government agencies end up playing it too safe relative to the private sector? If yes, how might this problem be solved?
4. Might the fear of a public backlash in the case of a failure prevent more investments being made in that area again (Solyndra is a classic example, but there are others too)? If so, how do we solve this problem?
5. At what stage should governments think of getting out of investments in R&D? The answer may well be never, and that’s fine, but the question should be asked. If the answer is not never, how does government exit? How should government exit?

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Again, I believe there is absolutely a role to play for governments when it comes to R&D expenditure, and at least in India’s case, I think it to be urgently required. I therefore agree with much of Scott’s post. But precisely because I find myself in agreement, I tried to take the other side of the debate.

But that contrarian stance aside, let me once again reiterate the urgency for more R&D expenditure on India’s part, with a large role for government for the foreseeable future. We have a neighbor that necessitates this, and said neighbor has been a little too good at government expenditures in R&D. We need to catch up – but we also need to (always) question our premises.