Saturday, May 4, 2019

The Entrepreneurial State #3

The author says that integrated circuits were designed by Jack Kilby and Robert Noyce. She omits that they did so when they worked at private companies. She then gives huge credit to the US Govt for the development of the microprocessor industry. “As the sole consumers of the first processing units based on the new circuit design, defense contracts helped fund the development of the infant microprocessor industry and those introducing complementary electronic equipment and devices were simply unaffordable in regular commercial markets. Large-scale demand for microprocessors by the US Air Force was created by the Minuteman II missile programme” (p. 104).

The microprocessors in the missile’s guidance system were made by Texas Instruments (and two other companies). However, the use of microprocessors in missiles was not the sole demand for microprocessors or the transistors in them. The hearing aid industry began making use of transistors a few years earlier. Also a few years earlier, the huge consumer demand for transistor radios spurred the development of microprocessors. Shortly after the surge in demand from defense contractors came another surge in demand for microprocessors for use in hand-held or pocket calculators. The author mentions none of these and thus gives no credit to the buyers of those things.

She also claims that “government agencies helped to drive down the costs of integrated circuits significantly” (p.105). This is another instance of her magnifying government and diminishing the private sector. The costs fell due to more efficient production, economies of scale, and competition.

She devotes an entire chapter to the State behind Apple. She praises Steve Jobs and Apple, but exaggerates the State’s role – for example, public schools buying Apple computers and a $500,000 State-backed investment. “[I]n 1980 Apple additionally secured $500,000 as an early-stage equity investment from Continental Illinois Venture Corp, a Small Business Investment Company (SBIC), which was licensed by the Small Business Administration (SBA), a federal agency” (100-101). Nothing is said about that $0.5 million being a drop in the bucket. In 1980 Apple’s net sales were $117 million and its profits $11.7 million. In 1979 the amounts were $48 million and $5 million (link). She says nothing about whether or not Continental Illinois might have invested with or loaned Apple the money without the SBA. She also says little about SBIC failures. The LA Times says about Apple’s case: “But such success stories are rare among SBICs. Since the program started in 1958, 465 SBICs out of a total of 1,597 have been placed in liquidation after defaulting on their payments. Since 1980, the backlog of the SBIC program's liquidation portfolio has grown from $100 million to more than $500 million, and the number of SBICs placed in liquidation has doubled in the past five years” (link).

I bet Apple Inc. and its employees paid billions in income taxes before Mazzucato finished writing her book. It apparently was not enough to satisfy her. Also, per its 10-Ks Apple Inc. paid $55.7 billion in income taxes 2014-18. Not all of it went to the US Treasury, but I wonder if she now believes that the US government has had an adequate return on its tiny support via Continental Illinois.

She doesn’t write about Internet browsers, which surprises me. The first very successful browser was Mosaic. It was developed by Marc Andreessen and Eric Bina at the National Center for Supercomputing Applications at the University of Illinois, which had been funded by the (Sen. Al) Gore Bill. (The Innovators, 415-6). Al Gore took credit, so why didn’t she credit the State?

She says the algorithm developed by the Google founders was funded by a National Science Foundation grant (27). She says this was while the founders attended Stanford University, but does not say Stanford is a private, not a public, university. She also says nothing about how much the government has benefited from Google. How much have government employees used Google without paying? She says, “After Google made billions in profits, shouldn’t a small percentage have gone back to fund the public agency that funded its algorithm?” I bet Google (Alphabet Inc), Page and Brin have paid income taxes many, many times the amount of the NSF grant, but she says nothing about that.

She asserts that the drug Taxol was discovered by the National Institute of Health (203). An Internet page belies this (link).  It credits two men at the Research Triangle Institute (RTI) for the discovery and the National Cancer Institute (NCI) for some further work. RTI International is a nonprofit organization headquartered in North Carolina that provides research and technical services. It was founded in 1958 with $500,000 in funding by local businesses and the three North Carolina universities (Wikipedia). NCI is part of the NIH. But why did she give all credit to NIH and none to those local businesses who helped fund RTI? Obviously, it is because she is very biased.

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