Industrial policy for me but not for thee

by Daniel on April 23, 2004

I realise that this is about the fourth time I’ve had a hit-and-run shot at an Airmiles column, while crying off doing the proper Globollocks analysis for lack of time. I am a bit short of time at the moment, but the real reason is thatit’s so dispiriting; the general miasma of Globollocks overwhelms any specific instance. Check out today’s example.

Friedman believes that it would be a danger to the USA on a par with global terrorism if someone in India working for a US-owned firm were to invent something useful. Think I’m joking? Read the bugger. He actually uses the phrase “war for innovation”.

Apparently the USA isn’t bringing through enough research scientists. What’s the solution? Presumably the rush to global competition of the free market. Nope, sorry, wrong, the solution is massive amounts of government money. In the Airmiles world, agricultural subsidies are terrible, awful anticompetitive, protectionist. But massive subsidies to the science industry are imperative, because of globalisation or something.

Wretched analysis. Someone has told Airmiles that “basic research” is a phrase meaning “science that it’s OK to want a subsidy for”. And he’s taken it as the intellectual equivalent of a Sapphire Class Admiral’s Club pass to support the contention that we need to incentivise domestic private research to keep its facilities onshore. What about “Susie Smith at the pillow factory?”, who would also presumably like a say in how this tax-funded largesse is to be distributed? Scrwe her, apparently; her role in Friedman’s weightless globalised world is a source of funds and a punchline to jokes. What a piece of work.

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04.19.05 at 4:00 pm



tim 04.23.04 at 8:50 pm

okay, I’ll bite. While I don’t think the loss of our technological leadership is really on a par with terrorism, from where I’m sitting like it looks like a bad thing.

I’m not an economist, so you’ll have to be patient with my naive understanding of the situation.

The US is losing manufacturing jobs to overseas workers who are willing to do the jobs cheaper (and, perhaps, with fewer benefits and rights).
The US is losing its low skilled service jobs to immigrants, illegal or otherwise, willing to work for the wages.
(And these pressures are driving down the pay for the jobs that do remain in the US.)
With all due respect to the lawyers, lawsuits don’t really strike me as a good way to generate wealth.
On the other hand, technological innovation does seem to me to be a pretty good way to generate wealth and (good) jobs. Furthermore, if we are at the leading edge, it seems a pretty good way to generate exports – and work on that trade deficit thing.

Public funding for university research strikes me as a sensible investment. Grad students work on the cheap. The results get passed to industry, which invests further, creates jobs and wealth, sells products, pays taxes, and hires the students.

Maybe I’m just prejudiced because this pretty well describes my work. University research, spun off to industry, selling products around the world, creating good jobs in the US … and hiring on the H1B because we have to (bringing smart, hard-wroking, enthusiastic, innovative people from other parts of the world to create wealth here). (FWIW, I pay in taxes every year more than the government spent to fund my education in a year – so it certainly looks like a win-win situation.)

Why is it wrong to worry that the brain drain from asia and europe might reverse (leading the best and brightest to leave the US instead of come to it)? Why is it wrong to see funding for research as investment in the economy?

Anecdote isn’t evidence, however, and I’m way out of my depth arguing economics – so correct my misunderstandings.


hkim 04.23.04 at 9:32 pm

I am a trained economist, so I’ll respond to the comment made…which, by the way, doesn’t make much sense. There is a fundamental difference between basic research and other forms of economic activities–basic research often brings no profit. They simply add to the basic stock of knowledge among mankind, but they lack immediate practical application, even if they may lay foundation for more practical innovations of the future. The consequence is that people won’t engage in basic research unless someone subsidizes them. The reason people like Friedman offer for the desirability of subsidizing basic research is wrong–competitiveness is irrelevant. But, economically speaking, subsidizing basic research is desirable, as is.

In fact, comparing subsidizing basic research to agricultural subsidy is particularly misleading because the economic problem is exactly the oppsite. Agriculture is subsidized to increase profitability, when prices are depressed by excess production. The subsidy, in effect, is to buy off either excess production capacity–i.e. pay farmers not to farm–or the excess production itself–which, eventually, has to go somewhere–with the effect of flooding the market with surpluses. This is actually BAD for the developing world because their are already short of capital to begin with…so they can’t produce crops as profitably as their first world counterparts. They may be able to keep up somewhat since their labor costs are low, but subsidies in the First World undercuts them even further.


tim 04.23.04 at 9:51 pm

“The reason people like Friedman offer for the desirability of subsidizing basic research is wrong?competitiveness is irrelevant. But, economically speaking, subsidizing basic research is desirable, as is.”

Okay, I still don’t understand. Why is it desirable, economically speaking, but irrelevant to competitiveness?

Wouldn’t having more scientists and engineers make us more competitive, especially if we are attracting the best scientists and engineers from other countries?

And doesn’t the subsidization of research contribute to this?


J Edgar 04.23.04 at 10:35 pm

Perhaps a confusing point is that the Silicon Valley execs that hang around Friedman really don’t give a rats ass about basic research or science in the schools (except those attended by their kids). They want business investment subsidies and tax credits; the equivalent of agriculture subsidies. And when there is then no government money for science basics, well, too bad, that’s life, let’s check out India. Someone put it succinctly – business executive concern over American education is the equivalent of advertising an SUV for seeing the great outdoors.


hkim 04.23.04 at 10:53 pm

If you have, say, better scientists, you may be more competitive in the long run–that’s quite iffy, btw. But the more significant economic point is that, if you help train better scientists anywhere, say in India, their work in basic research–which, for the lack of immediate profit, would not have taken place–can make the whole world better off in the long run.

Indeed, since basic research does not confer immediate benefits, subsidizing basic research probably would not yield much competitive advantage in the short run, and even in the long run, there’s no guarantee that you’ll benefit from it. For example, advances in theoretical physics (a field of basic research) may lead to star trek-type starships centuries later, but who knows who exactly will benefit from this (perhaps an extreme example)? For competitiveness’ sake, better to invest in what you know…and those things don’t need public subsidy.


Simon Kinahan 04.23.04 at 10:55 pm

Talk about rank hypocrisy. This is a man who thinks (as I do) that its great when Indians and Chinese do jobs Americans wouldn’t take and get a leg up that way. But then, when the inevitable next step occurs, and they do things Americans would do, that apparently requires government intervention. That apparently requires tax money to be poured into the pockets of people who, a few years ago, were profiting off the giant internet stock pyramid scheme. Sod that.


hkim 04.23.04 at 11:06 pm

I should have written “no reason you will benefit from it competitively, since the knowledge probably will not be limited to you only.” Sorry!


anand sarwate 04.23.04 at 11:36 pm

Actually, as a current graduate student in a theoretical end of engineering, I can say that we feel the pinch even from the government funding that does exist. Even though what we do is engineering, it doesn’t have an immediate application, and thus is less desirable. What interests government funding agencies (primarily the Department of Defense, DARPA, NSF, etc) now is having a deliverable. A friend of mine just had the grant for his theoretical research pulled out from under his feet.

But on to the topic of the thread, which is Friedman’s hypocrisy. Friedman claims that having fewer international students is bad because we don’t get to brain-drain the rest of the world and because we don’t get to spread “American Values” to the rest of the world when we send them back. To me, these seem contradictory. It’s my experience that the students who stay are the ones who like the US and its values, and the ones who leave don’t like it here, so they are less likely to export those values. My parents came from India and stayed (my father is a prof now) because they liked it here. They’re not exporting pro-Americanism back in India.

Secondly, he needs to disentangle the idea of “innovation” and “fundamental research.” As has been pointed out, Friedman talked to a bunch of execs who don’t want product development to happen overseas because they can’t get H1-B workers here. Fundamental research in particle physics (for example) requires huge accelerators, and it’s unlikely that Asian Tigers are going to invest in building one of those sometime soon.

The final problem is the whole Susie Smith thing. Why make an insensitive ad-hominem attack? It just weakens the whole pro-outsourcing argument, much as when so-called progressives talk about “Joe Sixpack.”


Jay 04.23.04 at 11:43 pm

When you pay for basic research, you get more than just the knowledge. You get trained scientists and engineers, who can sometimes be persuaded to put their training to use on commercial enterprises or programs serving the national interests.

Where do you think all those scientists who worked on the Manhattan Project came from? How were they trained?

Stanford University’s existence, and to a lesser extent, Berkeley, has a great deal to do with the creation and success of Silicon Valley. As does MIT and the tech beltway of Boston.

There seems to me to be a major multiplier effect, economically, to basic research spending.

I feel a definite thread of animosity in this site to me and my sibling Silicon Valley engineers. Why is that? I’m used to the math-hate and anti-intellectualism of American culture, but I didn’t expect to find it here.


Barry 04.24.04 at 2:46 am

“But then, when the inevitable next step occurs, and they do things Americans would do, that apparently requires government intervention. That apparently requires tax money to be poured into the pockets of people who, a few years ago, were profiting off the giant internet stock pyramid scheme. Sod that.”

Posted by Simon Kinahan at April 23, 2004 10:55 PM

Actually, he doesn’t mind that in the slightest; read his earlier columns. However, the ‘good jobs’ for which people were urged to retrain themselves seem to be following the ‘bad jobs’ overseas. This has led many to question what Americans can do, which would earn more than $8/hr. After only a few years of that, Friedman finally noticed. So he’s come up with the idea that pumping more money into resarch will generate ‘good jobs’, in the US.


Elaine Supkis 04.24.04 at 3:25 am

Many of the people including the theorists who worked on the Manhattan Project were refugees from fascist countries where people were persecuted for religious or political reasons.

Few native Americans worked on this because few were very well trained. When our rocket program started, it was heavily involved with hiring Nazis for the same reason.


Nabakov 04.24.04 at 5:27 am

Couple of points.

Friedman seems to think innovation is all about technology whereas often innovation is about new ways of using existing technology, eg: Federal Express and Wal-Mart using ICT to transform their logitistics or Amaon or Ebay developing new transction models using existing channels of communciation and distribution.

This doesn’t take investment in basic research but rather investment in new business models – one of Ameroca’s basic strengths that shows no sign of being dissipated by a brain drain.

Secondly, and correct me if I’m wrong, but isn’t around 50% of US exports now in the form of intellectual copyright and knowledge-based products; ie: software, films, games, franchises (MacDonalds etc), media, porn, education, branding royalties (Coke, Nike) etc, etc.

A domestic manuafcturing base is not essential to making money out of these products and services. Just good lawyers to enforce the flow of royalty streams and license payments back home.


John S 04.24.04 at 2:38 pm

hmm… is my link on the blink? My reading of that article is quite different:

(1) Restricting visas undermines US science because science flourishes when fed by a stream of new people with new ideas, including people from outside the US;

(2) Basic science education is not being funded properly, but should be because that would provide a domestic stream of people with new ideas… etc, see point (1);

(3) Being good at science will provide a firm foundation for future US competitiveness;

(4) Where the US government is currently spending money on science, it’s misguided and so could be better spent (ie, he’s talking redirection, not expansion);

(5) US investment in science is threatened by the budget deficit.

He doesn’t explain the last point; I suppose he’s worried that the budget deficit is crowding out private investment in science, and that efforts to control the deficit are leading to cutbacks in funding on basic science (whereas taxing the rich more is the answer).

As for “Susie Smith”: I think you’ve missed the point. First, that’s precisely the kind of folksy writing Friedman’s reputation is based on. He could have written “Congress is obsessed by delocalisation and outsourcing”, but it doesn’t have the same zing, does it? Second, his point isn’t to sneer at “Susie Smith”; if anything, it’s to sneer at Congress for protecting industries the US can’t hope to compete in, in the process failing to consider what industries the US SHOULD focus on to compete in the future.


dsquared 04.25.04 at 4:06 pm

Precisely because basic research doesn’t generate profitable products, any discussion of trends in corporate R&D has to be irrelevant to a discussion of basic research.


alf 04.25.04 at 6:29 pm

Yes, basic research is good, that’s the political equivalent of saying “I support mothers.” The problem with Friedman’s article is that it’s a misdirection based on total bullshit. Where is the evidence that these Asian countries are becoming more innovative than the U.S? I teach Chinese engineering students. Believe me, they will be lucky if they can reverse engineer a wide mouth beer can. Besides “The war for innovation” makes no sense; How is the U.S. hurt if somebody in India designs a better cell phone? Despite what Friedman’s friends say, most evidence still shows that U.S. companies start factories overseas because of the cheap labor. We are supposed to take his assertions at face value just because they come from “Silicon Valley Executive”?

“Susie Smith” is the real problem with America’s economy. You can educate her all you want but if she can’t find a good job, she’s still screwed. Outsourcing wouldn’t be a problem if the U.S. economy wasn’t based on a ponzi scheme.

Sorry if I’ve said things that have already been said, only stupider, but the thought of my Chinese engineering students competing for the same jobs as M.I.T. students was to ridiculous to pass up. China has at least half a century before it’s education system catches up to mediocre American universities.


Lynne 04.26.04 at 7:27 pm

Why not put more time and effort into educating our own children? I thought that the University systems were set up to educate American children and that is why we support them with our tax dollars. Chasing the almighty dollar in the form of foreign students just might come back to bite us someday. After all, aren’t there presumably Universities in every country in the world?

I really, really, dislike Tom Friedman. He seems to support stupid policies, (Iraq, outsourcing) just to generate controversy and get write ups in blogs, etc. My personal opinion (for what it is worth) is that he is a hack. However, this is the one column of his that I support. I have two sons who would love to go into reasearch and the sciences and want to be engineers. My 2 brothers and my father are engineers as well. More public funding would be great for us, since it is virtually impossible to work and attend engineering school at the same time.

Moreover, I am concerned about Suzie’s job at the pillow factory and am interested in saving it. Someone in North Carolina means more to me than someone in China and I admit it freely. It is called a shared culture and nationality. I’m sure people in China are more concerned with each other than they are with people in the U.S.


Tom 04.26.04 at 10:08 pm

“Wouldn’t having more scientists and engineers make us more competitive, especially if we are attracting the best scientists and engineers from other countries?”

May I suggest state-subsidized provision of Hot Babes (or Hot Hunks, according to preference) as partners for well-qualified engineers and scientists moving to the US?


Gary Farber 04.27.04 at 12:11 am

“He seems to support stupid policies, (Iraq, outsourcing) just to generate controversy and get write ups in blogs, etc. My personal opinion (for what it is worth) is that he is a hack.”

That’s definitely why he spent all those years in Beirut during the war, and all those years in Jerusalem.

I suggest reading his two books before concluding his life’s ambition is to be linked to by blogs.

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