Government Innovation
General Motors is now back in business, albeit as a diminshed version of its former self. The company is still largely owned by the American and Canadian governments which means that the taxpayer is footing the bill when it comes to GM’s operating expenses. One of the stipulations that the Obama administration has for GM is the expectation that the company will increase their efforts to build more fuel-efficient vehicles and become a
technological innovator. I don’t see how a government owned company could ever innovate like a private entity can, and I certainly don’t expect GM to become a technological innovator that out-performs their non-government owned competitors.
Government sponsored innovation will never produce results equivalent to those bourne out of market driven competition. GM’s main source of funding is more concerned with creating and maintaining jobs than they are with improving technology and finding new solutions for more fuel-efficient cars. Keeping those jobs was the primary driver for the government takeover of the company, so why would it be any less important to them moving forward? The ability for GM to innovate will be hindered by the fact that they know the government will not let them fail. This comfort does not produce a more efficient company; it breeds laziness. Just look at how innovative GM was before the government bailout. You might say that they were one of the least innovative companies on the market, and yet the US and Canadian governments decided to keep them afloat. These governments have set a precedent that GM will surely take advantage of as they continue to fund their research
and development operations with taxpayer money. The government will surely not be as hard on GM as they say they will be when there are jobs at stake, a fact that gives GM license to become a bloated beauracracy where nothing gets accomplished.
Another issue to consider is that if GM actually does stumble upon some new technology, or new method of manufacturing that improves efficiency or reduces costs, who will own the rights to that idea? At any other company, a new product or idea is patented or copyrighted to ensure the ownership is retained by that company for their exclusive use. At GM, a new idea is essentially a government funded initiative that the government may see as their property. This new product or idea could then become public domain that GM’s competitors may use in their own operations, possibly even improving upon it and beating GM at their own game. The fact that the government has control of GM because of the funding they provide makes GM less able to compete in the marketplace through innovation. A government controlled by special interests and beauracracy cannot competitively control a company in the marketplace and expect to win.
The fate of GM is still unraveling. It will be interesting to see how the government performs in the vehicle manufacturing business, and even more exciting to see how GM’s competitors will win out over the taxpayer funded entity in the market. I see GM’s ability to innovate severely limited by this takeover, but perhaps it’s better to still be in business, unable to innovate, than to not be in business at all.
July 20th, 2009 at 15:46
“Government sponsored innovation will never produce results equivalent to those bourne out of market driven competition”
That’s a pretty strong statement. I can think of many cases where government sponsored innovation has produced some impressive results. You don’t need to look much further than the list of inventions patented by NASA, which is impressive, or the scientific advances spurned by war.
Would these inventions have been produced without government sponsorship? Perhaps but perhaps not. Are we better off for them? Probably.
July 21st, 2009 at 15:47
a lot of those things that are innovated are created by private companies like Lockheed Martin (such as space and air craft, missles etc). They are sold to the government, not sponsored. This company was a private company that mostly sells to governments and government programs, but the innovation itself is private.
July 21st, 2009 at 19:07
Right, but would a market for them exist absent the government program? Also, NASA itself holds over 6,000 patents, so this is government innovation.
July 21st, 2009 at 19:14
Sorry, 1,000 patents. Either way the point remains.
I think the whole “Hands Off” argument fundamentally ignores the fact that some research may not be as beneficial to any private firm as it is to the society as a whole. Inventing a flu vaccine not only prevents the flu for individuals who take and pay for the vaccine, but also prevents its spread. Preventing the spread of the flu is not something the firm will internalize, but the government might. Thus, the government may pay for the beneficial vaccine to be developed when it would not have been developed without the government.
July 21st, 2009 at 19:56
-would a market exist for them if there wasnt a govenrment?- i don’t know, the government is their market- NASA specifically, yes it is innovative, but it doesnt earn money and it doesnt do anyone any good to walk on the moon just because we can, so i would think no- there wouldnt be a market for it since it is useless…its progress, but useless. and govt is the only entity that would spend money on something useless that I know of
As for military based innovation, governement should spend money on this as its a constitutional obligation of the fed govt to support and build up a military and defense for the nation- and a private company helps with that innitiative
I am not sure what you meant by your second comment Geoff…i know at my company, they pay for its employees to get a flu shot every year which works with both private insurance and the provate company-no govt at all- and as far as I know, most vaccinations and medicinal drugs are created by and paid for private research pharmicutical companies.
I think Andrews point is there are some research industries that are better suited without the government- i believe its most all industries personally, but as for GM thats a definite. There is no motivation to compete with other car companies like Honda or Ford, when you dont have the strain of worrying about losing your business, which obviously GM wont b/c of constant bailouts. Their cars will always be sub-par to those companies that have to make a profit, and they will NEVER be able to re-pay the American people because they will never be able to sell as many cars to do that because of that very reason.
July 21st, 2009 at 20:13
I agree with you about GM and about a lot of things Drew says.
The second comment is an example, not a fact, although the US government had a large role in developing the flu vaccine through the military with further advances later on in the private sector. Furthermore, as I understand it the CDC is spearheading the swine flu vaccine so the example isn’t so far off. I also didn’t mention insurance at all.
It’s an example of an externality…a case in which private markets are inefficient on their own.
My general point is that I feel like too often the thinking is just “government bad…private good.” In general, I agree with this. There are always exceptions that are important to recognize.
July 21st, 2009 at 20:19
I say we drink to that in 3 weeks time… I will be bringing an example of private innovation in the form of Justin Timberlakes new tequilla 901…and then we will use it for the greater good of society in WVA
July 21st, 2009 at 20:51
I heard Timberlake’s Tequilla was invented by the government with the cooperation of the FDA. In either case, I’ll drink it like a son of a gun.