Government industrial policy, which
David Rotman considered in “
Capitalism Behaving Badly” (
November/Decem-ber 2016), follows a similar logic: it also
would like to have more successes than
failures. We accept that some ventures
fail in the private sector, and that cleaning up is the responsibility of the capitalist. We are less ready to excuse failure
of government-sponsored projects, and
more likely to call for punishment of
those responsible. Look at the development of the F35 VTOL fighter-bomber
as a case in point.
A more fundamental problem is that
the government sponsor’s objective may
not be economic at all, or only partially
so. The objective may be the advancement of scientific knowledge, in the
faith that history has demonstrated this
is good for the nation. Or it may be military—the invention of solid-state electronic components and circuits needed
for a ballistic missile system that does
not yet exist. It may be a blend of ecological objectives and concern about limits on resources—development of liquid
fuel from shale oil, or more fuel-efficient
aircraft and autos. Or it may be social—
accounting for externalities such as carbon emissions or creating employment at
a living wage in ventures that at least also
have some kind of economic usefulness
(like the Tennessee Valley Authority).
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You Can’t Avoid Failure Unless
You Do Nothing
When J. P. Morgan funds Thomas
Edison’s work, or California VCs put
money into a new venture, their motive
is economic—to make a lot more money
in the future than the original investment. That leads them to deep analysis
of the economics of a proposed venture,
and they fund only a carefully screened
portion of all proposals.
Even so, some of them fail. The technology may not succeed. The R&D and
execution costs may be much greater
than estimated. The market may not
exist as anticipated, or be much smaller,
or be contested by direct competitors.
The capitalists write off their investment
and look for the next opportunity. Capitalists pick their investments carefully,
and measure themselves by succeeding
more often than they fail.
If such noneconomic objectives are
achieved, we can reckon such industrial
policy a success. Their accounting may
not be as crisp as that of P&L or IPO, but
it is real nevertheless. And that may be
the case in our government’s battery and
Industrial policy has its uses. Picking
nothing but winners is impossible. Prudence, good management, and good luck
will minimize the failures. But unless you
do nothing, get used to the fact that there
will be some.
Robert Garvin worked for General Electric
for 42 years and is the author of Starting
Something Big: The Commercial Emergence of GE Aircraft Engines. He lives in
Letters and Comments
MIT Technology Review
Volume 119, Number 6
We accept that some ventures fail in the private sector, and that
cleaning up is the responsibility of the capitalist. We are less
ready to excuse failure of government-sponsored projects, and
more likely to call for punishment of those responsible.
The number of electric cars on
the road is around one million,
not 100 million, as we incorrectly
said in “Elon Musk’s House of
Gigacards” in November/Decem-ber. The story also should have
said 37 percent of U.S. homes
are occupied by renters; it erroneously said 63 percent of U.S.
homes are owned by a landlord
or condo association.