As the deadline for raising the government debt limit fast approaches, and wrangling on the issue in Congress intensifies, Mariana Mazzucato reminds us of the difference between public and private debt. Professor of economics at the University of Sussex, Mazzucato is the author of "The Entrepreneurial State: Debunking Private vs. Public Sector Myths." Her provocative "they-didn't-build-that" thesis, that the government funds most of the initial research and development on which the private sector capitalizes, has generated a lot of buzz in the financial press, including Martin Wolf's review in the Financial Times calling it "basically right." So we asked her to explain her thinking to our Business Desk audience.


"You didn't build that" is an annoying meme because it is -- partly -- true. It would be stupid to claim that government investment produces no benefits. But it is also stupid to evaluate investment by doing benefit analysis instead of cost-benefit analysis.

    I argue that businesses are typically timid -- waiting to invest until they can clearly see new technological and market opportunities.

In other words, businesses, like the rest of us, don't like to waste their money on projects not likely to produce good results. Politicians and bureaucrats, spending other people's money, can afford to be far less "timid."

    And evidence shows that such opportunities come when large sums of public money are spent directly on high risk (and high cost) technological missions.

"High risk" means there is a good chance that no value will come of the spending. It will be a waste. Of course, now and then there will be a lucky win. Is this a wise way to use resources?

We are reminded to count the Internet, and men walking on the moon, among the valuable wins that came after government investment. For the Internet, can anyone claim that no one would have thought of wiring distant computers together if DARPA were not around? One might once have protested that if business interests created the Internet, it would be overly commercialized, but that sounds like a quaint objection now. The Apollo program indeed produced real-world benefits, but at a tremendous cost.

We rarely hear about the losing bets, except when an example is made of the Bridge to Nowhere or Solyndra. Much more is "invested" and lost on myriad invisible projects.

If you would like to have a peek, here's a link to the Small Business Innovation Research annual report:

It shows how your tax dollars support the R&D that timid businesses wouldn't touch.

I tried searching for "penis" on a lark. I had heard that sex researchers struggle to find public funding because no one wants to authorize a study that could be used to embarrass them later, and figured no one would approve funding for penis-related R&D. But SBIR appears to have no such qualms.

Here's $210,200 to "demonstrate the utility of magnetic attraction technology" (apparently they got one problem solved) to squeeze a penis so incontinent men won't leak. The applicant observes that "Successful human use of this technology will provide a significant competitive advantage over existing implantable devices and external penile compressive devices for male urinary incontinence, a market that currently exceeds $50 million annual sales...." But we can hardly blame him for looking for free handouts, rather than risking the capital of the "several medial [sic] device firms" he founded or co-founded, to pursue this new profit line.

You might be thinking a rubber band would be simpler, but Dr. Strickholm is way ahead of you. He has patented a "specially engineered elastic band" which, combined with a "back supporting plate," allows a man with erectile dysfunction to enjoy normal coitus. Any doubts you have about the likelihood of success of this contraption will presumably be allayed by the extensive description in Patent 6251067 (technical drawing not altogether safe for work).

$100,000 awarded for this "Prosthesis to Mitigate Erectile Dysfunction."

posted by scrimetime: 2095 days ago