Choice, Value, and the Internet: The Sandefur Debate Continues.

In his opening remarks for the latest entry in our ongoing debate about public financing for science, Timothy Sandefur suggests that after this post, we move on to concluding remarks. That strikes me as a reasonably good idea (and not just because he's generously offered me the last word). We may not have yet reached a point where we're talking past each other, but we're definitely getting dangerously close to that point.

After reading through Tim's latest post, I'm going to respond to his points out of order. I'm going to start out by looking at the more concrete examples that we've been looking at: the internet, and environmental research. Sandefur writes:

What's more, Dunford tried to use the Internet as an example of the necessity of government to fund innovation because private industry wouldn't do it. He writes "No one company expended--or had to expend--the tremendous research and development funding required to develop the basic foundation of the internet." But in fact private industry often develops basic, foundational technologies; it routinely performs research to develop new technological and scientific platforms for innovation and development. Sadly, given the nature of our mixed economy, there are no examples of this being done without some government intervention. But everything from the telephone to radio to television to the automobile to the airplane--these things have been developed overwhelmingly by private enterprise, doing research and development in fundamental ways without significant government intervention. Private industry invented MS-DOS and the GUI interface, both foundational technologies. The development of the airplane was done not only without government help, but in direct competition with the government, and that technology required significant scientific advances that were done by private industry. Look at what has been done with it today! The steam engine was developed almost independently of government intervention. Look what happened to it. The Xerox machine...well, this list could go on.

In the case of the internet, I think we do have at least some evidence that suggests that private industry was not able - or at least as able - to get the ball rolling on something along the lines of the internet. Through most of the 1980s and early 1990s, there were multiple companies that were running online information services (America Online and CompuServe were the two biggies there). The services did OK for a while, but they were ultimately crippled by one of the free-market side-effects: they weren't very inter-compatible.

Each of the companies that was providing online services had its own software and its own standards. These companies could have teamed up to come up with a common standard that would allow their users to access each others content. In fact, they had well over a decade of independent operation, and could have moved toward interconnectivity at any time. They chose not to.

Had they made a different choice, there's a chance that this might be a very different argument. But I don't think it's a very big chance. The companies did not move toward interconnectivity because they didn't see a financial motivation to do so. The users weren't demanding interconnectivity (yet), and it would really have taken supernatural powers to predict how the internet would change everything.

Later on, when the users were demanding interconnectivity, AOL, CompuServe, and the other service providers elected to connect to the internet instead of trying to come up with their own alternative. The government did not force them to integrate their services with the internet. They chose to do so.

And it's not a surprise that they did. The internet, at that point, was still largely the result of various government initiatives. By the time the commercial online companies were looking to tie into it, the internet had huge advantages over any attempt to come up with a commercial alternative. By the early 1990s, the protocols were in place, they were available for anyone's use, and no one company or organization had a proprietary interest in the foundational structure. The freedom that's provided by this unique infrastructure is what enabled the massive expansion of the internet over the last 15 or so years.

Environmental Research:

Tim takes exception to my unwillingness to place my life in the hands of the market:

I pointed out that private industry spends massive amounts of time and money researching the environmental effects of their activities. To this he responds, "this is a request that I bet my life - and those of my family - on the free market," something he's unwilling to do. That's unfortunate (and untrue) since in fact weach of us "bet our lives on the free market" every day, and come out ahead because of it. We bet our lives on privately run airlines and privately-built automobiles and privately built elevators and privately built stoves and refrigerators all the time. We bet our lives on privately-run hospitals sometimes. In all these cases, we're more confident with them than we are with government-run institutions. Would you rather be in a VA hospital? Would you prefer to drive a car built by the government?

In reality, we bet our lives on the free market in exactly none of those cases. In each and every one of those cases, we take a "trust, but verify" approach to the market's ability to protect us. We have set safety standards, and we require products to meet those standards.

As an aside, I should mention that I'm not any less confident in government's ability to run a health care organization than I am in the private sector. There are government hospitals (many in the VA system) that are awful. There are also civilian hospitals that are hideous. At the same time, there are some exceptionally good government hospitals - for example, when I was living out in Honolulu, Tripler Army Medical Center routinely achieved excellent grades on its accreditation inspections. And when it comes to customer satisfaction, convenience, and quality of care, I'm much happier receiving treatment within the government-run military treatment facility system than I was last year, when we were covered by a civilianized HMO-type plan.


Sandefur points out the government's checkered history of involvement with the tobacco industry:

Finally, Dunford thinks he can respond to my statement that private industry takes great steps to ensure the safety of its products by point to "a single word: tobacco." But tobacco was until very recently heavily subsidized by government! Why? Was that just a "mistake"? No. It was our old friend, rent-seeking, that destroys the pretense that government is capable of making decisions about what are and are not "clear benefits" for us.

There's a valid point there, if we're talking about government actions in general, rather than research in particular. When it comes to research into the health effects of tobacco, the tobacco companies - for decades - did their best to misrepresent, distort, and conceal what they knew about the effects of tobacco. That's one of the reasons that the tobacco settlement one of his links points to came about in the first place - the tobacco companies weren't engaging in anything remotely resembling good science. Instead, they were doing things like suppressing evidence that nicotine is addictive. (Given that they were still denying that nicotine was addictive as recently as 1994, it's entirely possible that the CEOs of the major tobacco companies were the last people on the planet to come to grips with the idea that nicotine is actually addictive.) Similarly, the tobacco companies spent decades doing everything in their power to cast doubt on the overwhelming body of evidence out there that suggests that smoking is linked to various diseases (the US v. Philip Morris trial covered a lot of this evidence).

Regardless of the government's role in subsidizing or promoting tobacco use, there's plenty of evidence that the tobacco companies simply could not be trusted to conduct or encourage honest research into the effects of their products. In the case of tobacco, not only did private industry utterly fail to make their product safe, they took advantage of the pharmacological effects of their product to keep people smoking, even in the face of an enormous body of evidence suggesting that their product is not safe even when used exactly as intended.

Private industry, too, faces incentives. Its incentives are, to make money in the market. It does that in most cases by selling us things we want at prices we are willing to pay. If we are unhappy with what we get, we can shop elsewhere. It can try to get money by fraud, but in the long run, fraud doesn't pay--because other companies are in the business of selling people the truth. That's what's great about competition.

The problem is that in the short run, fraud often pays very, very well. And if there's one thing that people are really good at, it's ignoring possible long term consequences when there are big short term gains available. And other companies only sell the truth if they see a market advantage. In the case of tobacco, none of the companies did - with good reason, because there wasn't an advantage in it for them. If someone actually had a safer cigarette, they might have had an incentive to blow the whistle on the competition. But none of them had a safer product. All of them were in the same boat, and none would benefit from rocking it.

Choice and Value:

Sandefur thinks that the fundamental difference between the two of us is that I don't understand how a lack of choice is sufficient to say that someone does not benefit from something. That is a difference between us, but I don't think it's the most fundamental one. On a fundamental level, I think our biggest disagreement involves how we perceive the government, and our relationship to the government. But that's not a topic I'm going to get into right now. Instead, I'll save that for my own concluding arguments - this post is going to run long enough on its own, without throwing that into the mix.

So let's look at how we see choice and value.

The point is, value--both moral value and economic value--is inherently personal; inherently agent-centered. It is not intrinsic. It must be chosen, and choice-worthy, to be a value. To force education on a man who needs all his time to work, or to force riches on a man who has chosen a life of poverty, or to force life on a man who would prefer to escape his pain through death--and to force a person to spend his earnings on Y instead of X is not doing that person a favor, and cannot be justified as humanitarian.

I can see the argument for moral value. I find the argument to be much less compelling when it comes to economic value. But it might just be that the word "value" is too value-laden to use, so I'll try to put it another way. I think that it is possible to assess whether or not a particular action has tangible economic effects.

I'd also note that Sandefur dose not address the example that I actually chose to use - childhood education. Instead, he makes some noises about potential non-beneficial effects of education in general, but ignores all the points I raised about the benefits of requiring the education of children.

He also largely ignores the points that I raised about the peer-reviewed literature as a public good. He also glosses over the broad nature of research topics that have been and are being funded by government.

The final point Sandefur raises also misrepresents - and I'm not sure that was an accident - something I asked for. In my last post, I responded to the points that Sandefur raised regarding rent-seeking and interference with scientists:

He wants me to show that government is better than industry at addressing these issues; I want him to show that it's necessarily worse. Yes, for example, the government can interfere with scientists, but so can industry (again, Tobacco). The government can engage in rent-seeking behavior, but so can industry. In both cases, the potential problems strike me as being more the product of humans being humans than government-specific issues.

Instead of addressing those specific issues, Sandefur tries a different approach:

Dunford says that he wants me to show that government funding of science is "necessarily worse" than private funding of research. I already done that.

As you can see, that's not actually what I asked for. I asked him to show that private industry is better at avoiding rent-seeking behavior and/or interference in science - two of the largest practical objections he raised to government funding of science. He addressed neither.

I did not ask that particular question at random, so I hope he takes this chance to answer it. I asked it because it seems to go to the heart of something that I think is an important part of our discussion. To me, it seems like the economic philosophies that he's advocating depend simultaneously assuming the worst of the government and the best about private enterprise. Personally, I prefer to hope for the best from each, but take what steps I can when they fail to meet that standard.


More like this

He has it, at least in part, wrong about the developments in aviation. Yes, the Wrights developed the first really practical airplane privately. But many of their first sales, a large percentage, were sold to government. And the sales of these early models provided the finance for further developments. That were in turn purchased in even higher numbers by the government. Largely for the military.

The jet engine was developed by research largely paid for by the military in both Germany and England with the end result going to the military.

The development of airlines as an industry was only made possible because the US government was willing to pay for delivery of the mail. Once regular airmail flights got their foot in the door it was easy for the contractors to use a slightly larger airplane and to take on passengers. In effect the US government subsidized the formation of the airlines. Later the airlines got into unprofitable price wars and it was government regulation of the industry that got the airlines back to profitability.

The same regulatory function that allowed industry to profit was seen in the oil industry and railroads after they got into price, production and territory wars.

All down the line government has had a role in researching, directly financing, indirectly financing (largely through tax breaks and tariffs), keeping industries profitable by regulation; protecting industry by keeping it from drowning in its own filth (think EPA, USDA and FDA), disentangling unprofitable competitive conflicts, and providing a market for radically new products.

Interesting. When it comes to private research, Bell Labs comes to mind. For many years Bell had a government approved monopoly. During that time much pure research was done at the Labs, paid for by the steady cash flow.

Even so it is hard to separate out government involvement. Claude Shannon worked on fire control on a military contract during WWII, refining his information theory as he went.

William Shockley co-invented the transistor there. Military applications accelerated refinements to the devices.

I have seen how government employees in a bureaucratic culture behave, with less than admirable efficiency or competence. It is very disheartening to see.

For business, the problem is so often the worship of short term gain, all to make the monthly reports look good to upper management who want to keep the directors happy who must satisfy investors who have their eyes on today's share performance. Thus the pressure is not to be the best, most responsible company. The metric is the share price.

The lack of almost any metric is the problem for government. Cash flow is not dependent on performance. Inaction is much preferred to making mistakes. Gung ho employees who quickly complete tasks make their supervisors nervous. Knowing that the people who contributed to the task description probably missed something important means that the longer it takes to complete, the more likely the flaw will be uncovered. 'Thou shalt not embarrass the Minister' is how it is phrased in the lore of the members of the Canadian Union of Public Employees I knew.

Good luck on picking an all around winner.

By JohnnieCanuck (not verified) on 21 Feb 2009 #permalink

There's a couple of points that are worth making:

First, science has important positive externalities (we benefit today from Isaac Newton's research - a benefit that Newton cannot possibly compel us to pay for, on account of Newton having been dead for a number of centuries), and by its very nature involves imperfect and asymmetric information (since it concerns itself with what is not known already, perfect information would render science moot). That this is the case is all the evidence needed to prove the necessity of government action to promote science. Case open and shut.

(Whenever you have externalities or imperfections of information (particularly when these imperfections are asymmetric) - that is to say always - there is a role for government in mitigating negative externalities and encouraging positive ones.)

Second, Sandefur is playing a semantics shell game when he argues that completely free markets provide incentives to do research on the negative externalities of your own products, because he includes various kinds of government activities (such as anti-monopoly laws, tort laws, etc.) in his definition of "free market." I suppose that he could make the argument that law enforcement can be handled by the private sector, but that argument is rank (Rand?) nonsense: Government, by definition, is the entity that has the capacity to enforce laws in a certain territory. Any entity that can actually enforce anti-trust laws would be a government.

Or, more bluntly: There is no such thing as a "free" market. It is a pipe dream that only works in a world of perfect information and without externalities.

Finally, the US government is not a very good representative of government of, by and for the people. France, Germany and Scandinavia has markedly less corruption, to take a very obvious example. So while it may be entirely reasonable to distrust the American government, it does not follow that one cannot trust government in general.

- Jake

Actually, the free market almost killed the development of aviation. Multiple patents across numerous owners meant that nothing got done. In time for US entry into WWI, the government lumped the patents into a common pool. Only then did development take off.

The free market then made its second big attempt to strangle aviation over the issue of overflight rights. Traditionally, the law had always recognized land rights extending ad coelum, "to the heavens". In the Causby case, SCOTUS ruled the doctrine obsolete. In essence, they approved a multitrillion dollar seizure.

As flights were getting longer, a practical difficulty showed up in the 30s: where are we? Pilots flew by dead reckoning, more or less, and getting lost was a growing risk. A partial solution, financed by the New Deal, was painting town names on rooftops in giant letters. Apparently the free market couldn't bother.

By william e emba (not verified) on 22 Feb 2009 #permalink

Actually, the free market almost killed the development of aviation. Multiple patents across numerous owners meant that nothing got done. In time for US entry into WWI, the government lumped the patents into a common pool. Only then did development take off.

The free market then made its second big attempt to strangle aviation over the issue of overflight rights. Traditionally, the law had always recognized land rights extending ad coelum, "to the heavens". In the Causby case, SCOTUS ruled the doctrine obsolete. In essence, they approved a multitrillion dollar seizure.

I don't think you understand what a "free market" is supposed to be, if you are suggesting government interventions in the market are a flaw of the "free market." A truly free market, whether it is a bad or a good thing, does not allow for patents. Patents are not an inherent feature of capitalism or the free market as they are recognized and enforced by governments. Many libertarians I've talked to hate the patents system and think it should be done away with. The land-air rights issue is tangential--that involves less the market itself, and more over how to consider property rights and how they are recognized--new technologies and scientific (and sometimes, philosophical) advances sometimes must spur new ways of thinking and conceiving things.

By Ken Kaczor (not verified) on 06 Mar 2009 #permalink