DEBUNKING THE "CORPORATE AMERICA AND ENTREPRENEURSHIP IS THE “GREAT INNOVATOR” MYTH. [219*7]

You have driven a stake through the heart of the conservative view of federal spending, My Esoteric. Government spending has fueled invention for years through NASA and our military. These public-private partnerships should be expanded along with our research grants. We are falling behind the rest of the world especially in cutting edge technologies. We were the creators of alternative renewable energy technologies. Now China is at the forefront. Conservatives need to use a bit more forethought concerning these matters. They also need to look at our history instead of myopically sticking with their ideologies. Great Hub.

Are you really trying to suggest that companies don’t spend money on research. The Pharma industry you cited doesn’t spend money on research ??? Merck alone spends about 10 billion a year in R&D. Although it is true that there are many areas, especially for the Pharma field where they actually develop ideas for new drugs and don’t spend the money to create them because the cost of getting through the FDA is in the billions every time you bring a new product to market that they may not approve. It is too costly in many cases. But that is often because the cost of gov’t approval is too large. What your comments fail reference is the increasing role of gov’t and what it has does to creativity. We have laws for damn near everything now. Regulations that tell American Standard how much water capacity a toilet bowl can have before it’s flushed. That’s what stifles innovation. You probably couldn’t invent an airplane today if it wasn’t already around. If I wanted approval today because I had an idea to put 200 people in an aluminum tube and propel them 500 miles per hour through the sky at 30k feet, they’d call me crazy. And many of these inventions that you cite by gov’t such as NASA and the military were ideas invented by private contractors like Lockheed Martin or Gumman. I could be wrong, but I don’t believe the technology behind the stealth bomber was designed by a gov’t bureaucrat. The gov’t simply funded the idea. That is just a function of how gov’t has opted to take an increasing role in the control of research dollars be creating a web of rules to maneuver that make no sense for a private company to put money behind an idea unless it’s blatantly obvious it will sell.

One clear cut example is a charity I contribute to as a new and innovative way to treat cancer. The Kanzius Foundation http://www.kanziuscancerresearch.org/ originated with John Kanzius a retired engineer who unfortunately is now deceased, has been in the lab being worked on for several years. And now thankfully they plan to ask the FDA for the approval to attempt human trials. This was thought of by a private engineer. But it ultimately did have to get delegated to University level research. Kanzius himself died never having a chance to use his own idea because the FDA would never allow it. Yet he was going to die anyway. The cost to get something through the gov’t to the market is now immense if you have a new product of any significance. If the cost was not so significant, you’d see more in the way of R&D.

When the Wright Brothers invented the actual airplane they had less paperwork to go through then I did to file my last quarterly income tax returns. The point is that people invent things. Not legal entities and gov’t agencies. Many of these ideas get sent back to the laboratory of universities because they get huge taxpayer funding to research things. This is simply a question of where currently it is easier to obtain funding to pursue an idea. Yet all of these tax dollars must come from the private sector to begin with. The private sectors productivity pays the bill for the gov’t. The gov’t dictates where they will redistribute those dollars. And if those same grants where redirected back to their sources without such a huge cross to bare to implement something, you’d likely see more even more innovation privately. Depending on the industry, particularly in cases of a tangible product the cost of regulation and approval is dramatically higher than for example what it once was during the industrial revolution. This is why so many of the most notable new innovations are web based services like facebook and twitter and not something you can hold in your hand. Now you may argue that the benefits of consumer protection outweigh the costs. Maybe that is true to some extent. But all you have cited here is that the regulatory and approval process is now so cumbersome that it suffocates capital investment, which is in no way shocking. I think you entirely miss the Conservative argument. It is not generally that people in gov’t agencies can’t invent anything. It’s that they don’t produce anything. Gov’t doesn’t have the capacity or incentive to mass produce a product or service with any degree of efficiency. That doesn’t mean that an engineer working for NASA can’t conceive of a brilliant new idea. It means that if he delegated the idea to gov’t bureaucrats and the civil service force to mass produce his revolutionary new idea to the public and improve their lives in some way, it would be an exercise in futility. They’d turn the benefits of his ideas into the torture of a trip to the DMV and the Social Security office in one day.

Capitalism is not altruistic. And neither is Gov’t. Unless your naïve enough to believe that these elected officials care about you. When you meet one of these altruistic politicians, let me know. At least in a Capitalist system that is a well organized market I can say no without having to wait 4-6 years to cast a vote and hope the majority agree with me. That is a luxury I don’t get when dealing with gov’t.

By the way…the data you cite from future progressive about 4 new “Major” inventions per year. I guess the term Major is open to interpretation. The aggregate of 100’s of small “non-major” inventions can have a substantial impact in economic terms. I am an insomniac and watch countless infomercials for 2 decades. I see about 4 new inventions a month. I am not sure who invented the mighty sealer…but it works great.

I think that the notion that they do almost no innovating is a bit off the mark. There are a lot of innovations that are not always tangible products. I don’t mean just high profile creations like Facebook. For example in my industry the cost of compliance was always a huge overhead. Several years ago a number of companies popped up that allow you to outsource the cost of compliance to a third party entity. This allows smaller practices to compete better against large multi-national brokerages firms. That was a huge innovation for my industry. But that is not likely captured as an “innovation”. I do think when it comes to products, that there is a diminished commitment to capital investment in the area of R&D. I would attribute that first to the role of gov’t getting so big that it crowds out that type of research. Why would you spend the money when the gov’t is going to create all of these initiatives anyway . You just take the few success stories that pop up an run with it. In effect the gov’t actually transfers a portion of the cost of new ventures and the corresponding risk to the taxpayer. But whenever gov’t gets involved in anything they crowd out private industry. The second reason is the abundance of companies that have gone public. While I don’t think the ability to go public should be restricted because it comes with many advantageous to the system as a whole. There are disadvantages. Private companies are often much more willing to deploy capital when they don’t have to answer to shareholders every 3 months. There private shareholders are typically accredited investors and tend to be much more patient. This is exactly why Dell Computer opted to go private recently. Michael Dell realized he needed to completely retool the company to compete with the Apple dominance that has taken hold. But the ability to restructure the company means they’ll miss earnings estimates for some time. So he decided to go private. Whether or not they’ll be a turnaround remains to be seen. But I do think that some companies go public for the wrong reasons at the wrong time.

Gov’t is supposed to be altruistic. But because it has never been and never will be, the founders wanted to greatly limit its authority with numerous checks and balances. Because in a practical world, we all act on what is in our best interest. And they came from an oppressive gov’t. So the notion of gov’t oppression was not foreign to them by any means. But it is in the markets best interest to make the consumer happy when the market is competitive. Once gov’t officials gain power they only care about keeping it. Markets allow for split second votes every time we go shopping at the local store.

I am not totally disagreeing with you in relation to things like the FDA. But to know the difference as to whether or not they are doing more good than harm would require us to know all the wonderful things that might otherwise come to the market without them. You can’t create various agencies like the FDA, DEC, EPA and countless other bureaucracies without slowing the process of innovation and in general productivity. But the gov’t is far more productive when they react to bad behavior then create a web of complex rules to maneuver through. More often than not, those heightened regulatory environments simply price out small business from competing with large corporations. Many of the regulations are also based on false accusations against industries that went unproven. Sometimes it just pays to pay a fine and make the gov’t go away. Politicians have taken the regulatory environment to a level of outright extortion. FINRA for examples basically fines almost every financial institution in the country annually for obscure nonsense. The regulators come in knowing exactly what your revenue and profit margin is, and exactly what you can afford to pay. They’ll fine you for some obscure rule that nobody knew existed and did nothing to protect anyone. But the firm will pay it regardless, because it is now looked at as a cost to do business. A good example is the recent controversy around fracking. We see all these documentaries about people turning on their sink as it causes a fire. Yet they often fail to tell you that this also happens naturally in areas where there is no fracking taking place. The reality is the fracking process isn’t new and had been around for over 60 years. It has just advanced in technology in recent years. That being said, I don’t think anyone is opposed to having safe sensible rules that can allow for advancements in energy development and still protect the consumer. The problem is that regulators rarely see themselves as there to help you through the safety process to further your business goals. They are there to punish you with their unlimited wielding power. And they create adversarial relationships with industry in many cases, almost as though they are trying to put them out of business. I have had to deal with the DEC twice on two personal issues. They are the most ruthless group of obstructionist I have ever met.

I disagree with your premise. There is incentive for private industry to have basic R&D. If you don’t bring new innovations to the market you don’t grow. The fact that you mention there is less R&D than years ago (which I think is overstated), is not coincidental with the expansion of gov’t. That is a classic case of gov’t crowding out industry to the degree it has actually happened. That doesn’t mean that gov’t shouldn’t have R&D. It just means that R&D via gov’t should be rooted in essential services of the gov’t. So your example of national defense is an excellent example. I have no interest in seeing a decline in this type of R&D. Perhaps in dollars, we can do it in a far more cost effective way versus much of the waste that happens in the national defense budget. But the commitment to such projects is important. What I don’t want is gov’t picking industries that they feel they should invest in based on political correctness. The Solyndra example was classic. It had nothing to do with national security. This was just gov’t trying to appease a political base and invest in something that was already shown to be un-economical when there were clearly more advantageous ways to invest in new energy innovation. In fact that is a classic case of the private sector investing in R&D through many of the new developments in energy innovation. They didn’t need gov’t incentive to do it. All they needed was to know there was natural gas under the ground and want to get it out to deliver it to the market.

The gov’t is there to provide essential services that the private sector cannot provide. I certainly consider national defense among them. And I agree that NASA in today’s world falls into the category of national defense. But I don’t want bureaucrats spending tax dollars to figure out how to invent the next mighty puddy. I don’t see that as an essential service of gov’t. If they happen to discover it through the course of working on a national security issue, than terrific. But we have long passed that now. We have gov’t attempting to pick winners and losers in the marketplace.

I don’t think very many people want to ZERO regulations. I am simply stating that regulations have become excessive and overly complex. They need to be simplified and easier to understand. It is far more effective to simply take punitive measures when and if an individual or entity violates the public trust. Because no matter how complex the regulatory environment is, someone looking to hurt others will find away to do so. Ultimately, regulators are always 10 steps behind the bad guys and spend all their time harassing the legit businessman. We have declared murder illegal, but we don’t ask people to fill out forms everyday to prove they didn’t kill anyone. It is a detriment to small business trying to compete with larger entities. And it has helped further political corruptness. The big myth out there is that big companies want deregulation. It’s quite the opposite. As an example, the largest lobby for complex tax laws are the insurance companies. There is no larger opposition to the flat tax than the insurance industry. The larger the regulatory environment, the more corrupt the gov’t becomes. I don’t see much of a benefit in trading a potential bad actor in the marketplace whom I could have legal recourse against for what is virtually always a bad actor in the legislative body that provides me with little to no recourse.

Crowding out of industry doesn’t mean there is not enough room for both to have R&D. It means that in the case of R&D there would be little incentive to spend dollars on research that is already being done at a lab that is receiving Federal funding for such projects when the regulatory and compliance burden is so high. Why do something that is redundant. When you look at the total R&D budget of US companies and what they spend on R&D both here in the US and abroad from their own private funding, it’s well over 300 billion annually. I don’t consider that to be small. Historically it has always been the case that smaller companies spend more money on R&D, so it would make sense that the enhanced cost of compliance would slow them down, as it is harder for them to maneuver. Yet as the data has also historically shown, the amount of R&D that is spent is actually less significant. The global innovation study linked to below demonstrated once again that it is more of a factor of how effectively dollars are spent.

http://www.booz.com/global/home/what-we-think/glob...

Plus I think further research would reveal the notion that there are only 4 new inventions on average to be a bit ridiculous. Just off the top of my head, I can think of the new Google glasses, the self inflating tire and the new home HIV test that all came out recently, either this year or last year. There are countless new inventions that improve existing technology. Each one is a new invention in itself.

The problem with waste in the Federal Budget is that I have never seen nor heard of a Federal or State agency coming in under budget and then sending the money back to the tax payer. Bloomberg business news had some recently released data about the discretionary budget about a month ago. The data had figures that showed nearly 18% of discretionary spending happened in the last month of the year. And nearly 8% happened in the last week. That is little more than bureaucrats finding a way to waste taxpayer dollars at year end so there budget doesn’t get cut. I see this locally in my wife’s school district she works in. They run around at the end of the year buying a bunch of stuff they don’t need to avoid a budget cut. It’s totally uneconomical.

I don’t believe there is such a thing as being underpaid in the private sector. You value is simply a function of what someone is willing to pay you. If you’re worth more, than go and get it. If you can’t find someone willing to pay that amount, than you’re not worth it. Demand for ones labor is a function of their skill set. People all too often have an inflated view of what they bring to the table. When they don’ get what they want they assume they’re under paid. In fact very often they don’t offer very much economic value. The same can be said for someone being overpaid. I hear that all the time about athletes. “Why should someone get paid 10 million dollars to hit a ball”. The reason is someone is willing to watch the game. Frankly, if I am not paying the persons salary, than it’s none of my business what they make.

I don’t think there are many things the private sector will refuse to provide. Unfortunately, it is not practically possible to have private courts of law to enforce private contracts. So there will always be essential services. The issues sometimes is what one person deems to be essential, another may not.

I don’t care who it was that initially thought up Solyndra. That’s exactly the type of stuff that gov’t should not be getting involved in. The employment aspect is a false argument. When gov’t spends money without regard for productivity, it is detrimental to the system. Otherwise we would create infrastructure projects and not use heavy machinery. We could employ people and give them spoons to dig with instead of bobcats. Then they could work at infinitum and produce nothing. Obviously that would not be particularly productive to economic development.

I don’t think you can correlate the amount of regulation to a specific number. It’s a combination of the degree of complexity and the intent behind the rules. Yet, it is actually excessive regulations that gave us the recent recession. This notion that the financial field was somehow deregulated is somewhat comical to those of use that lived and worked in the field through the whole process. The entire banking system was and to a large extent is still socially engineered. We had and still have laws that dictate that banks loan money to people that they would have never loaned money to on their own. Credit was extended by gov’t mandate to those that didn’t otherwise deserve it. The entire supply of the MBS market was manipulated by gov’t regulation. The entire housing bubble is a classic example of what happens when a market is socially engineered through regulation and coupled with easy money. None of what took place was organic supply and demand from the marketplace. Now the market is engineered so far in the other direction, that banks can’t loan money to people that should get credit thanks to Dodd Frank.

Regulators don’t get necessary funding ??? Really ??? The SEC and FINRA have massive budgets. They frankly are just not very bright. Look at the entire Bernie Madoff incident. I can name at least 3 trust companies I know of that refused to utilize his hedge fund for years because they felt it was totally unreliable data that could not be verified and appeared to be fraud. It was well known to many in the financial community that he was not someone who was trustworthy. The entire incident was not a surprise to those of us in the business. Yet the regulators who routinely audited him couldn’t figure this out. They couldn’t figure out what he was doing because they were simply too lazy to do their jobs. They were simply just too lazy to actually check with DTC to see if the securities were actually on deposit. The last thing regulators are is underfunded or not permitted to do their jobs. If they weren’t focused on actively trying to extort revenue from legitimate businesses they might have more time to actually pay attention to those who are up to no good. I would love to video tape an actual audit. Accept they’d shut me down in a minute if I did anything that publicized the idiocy of what actually happens.

The point about the EPA is a classic example. You have no idea whether or not these accusations about Fracking are remotely true. Fracking has been around for 60 years. It’s not new, just more advanced. I have been to North Dakota recently. What they are doing up there is amazing, and is likely to lead to true energy independence in the future, which has huge benefits to the economy in various ways. These statements are so greatly exaggerated. Meanwhile these EPA restrictions have all kinds of unintended consequences. I am not saying there is no role for agencies like the EPA. I am simply pointing out that if not for their restrictive policies though the dept of interior, perhaps we wouldn’t need to drill in more hard to reach places like 1 mile down in the ocean which comes with much greater consequence when accidents happen. Thanks to many of these agencies that go so far over the deep end, they have created enormous waste. As one ridiculous example, my cousin is an environmental engineer and occupational safety director for a large pharma company based in Long Island NY. Thanks to OSHA, he has to literally draw up a manual and provide training on how to properly lift up a box. Engineers have a saying. They try to design things that are “idiot proof”. Because if something is not completely obvious to even an idiot, you open yourself up to a huge liability. Yet today, we need to train people on how to lift a box thanks to OSHA, which happened to get about a 30% bump in their budget back in 2009. And they have made sure they are extracting as much flesh as possible with every ounce of that increase. They have regulated away huge portions of productive capacity. As I said earlier, regulation in principal is not a bad thing. But regulators should be looking at their jobs as helping business to understand the rules and work within them to further economic growth within the industry they regulate. Yet, that is virtually never what actually happens. People are appointed with specific political agendas to attack one industry while giving a pass to another.

This notion that industry in aggregate wants to destroy everything in their path makes no sense from a business perspective. Look at the timber industry. We for years have heard about the need to preserve natural land. But the timber industry is responsible for a massive percentage of the actual reforestation. Nearly 1 out of every 2 trees planted in the country is done by private industry. Not because they’re trying to save the earth. But because to them it is their crop. If they deplete it all, they’re out of business. They use fire breakers to prevent forest fires. They carefully harvest and reforest because it’s in their best economic interest.

I don't know of too many people asking to eliminate regulations all together. I think you are misunderstanding the position. Most of those looking to reduce the regulatory burden are interested in making regulations simple and easy to understand. Not 20k page documents that require teams of legal analyst to interpret them. And more importantly, the role of a regulatory body should be to maintain a fair and orderly marketplace which fosters competition. Not to dictate economic outcomes. Unfortunately, my experience is almost always the latter of those scenarios.

Which is why it's better to pursue those of poor character and actions as a form of recourse to demonstrate public consequences for bad behavior, rather than punish us all.

You make thngis so clear. Thanks for taking the time!