Private Industry Needs NASA to Help It Fail

Even while government and the private sector were working together to build America’s greatest economic successes, the narrative increasingly turned against any public involvement in the economy. We celebrate the achievements of Elon Musk and Jeff Bezos while forgetting the public ore they are mining. “We no longer think governments should have missions,” Mazzucato told the Financial Times.

One reason for this belief is the history that government has of picking the wrong “winners.” Opponents of public venture capital point to the Solyndra bankruptcy. Washington guaranteed loans to this manufacturer of thin solar cells made of innovative materials, hoping the company could compete against the common silicon-based photovoltaic cells. However, prices of silicon dropped just as Solyndra was getting established. Private investors pulled out, and the company declared bankruptcy in 2011. Opponents of President Obama used the failure against him during the 2012 presidential campaign, arguing that Solyndra was proof that government shouldn’t attempt to pick winners.

Economist Mariana Mazzucato has a different interpretation. Investors, whether public or private, always have failures—and public investment failures are necessarily more common than private ones. While private venture capitalists look for commercial viability within a three-year or five-year span—a strategy that tends to kick in after the company gasps through the Valley of Death—public investment properly deals in new fields, where companies are just getting established and where technology is in its earliest, most iterative stage.

What’s more, public investment covers more than private startups. The Apollo mission directed 85% of its budget—more than $100 billion—to private companies, creating a robust space market. The risks were not just financial, of course; three astronauts lost their lives to Apollo. Yet the Moon landing was made possible by the earlier, public risks taken in low Earth orbit. The investments and losses of money and life, the successes and failures, smoothed the way for the private space industry we celebrate today.

The arguments against public venture capital come from the left as well as the right. Liberals as well as libertarians argue that tax dollars should not go to make life easier for wealthy capitalists. Mazzucato’s answer is interesting. She counters that government, not just private companies and shareholders, should benefit from the successes of public investments. Essentially, she argues that the knowledge ore should not be free. Just as the extraction industry must pay the government for mineral rights on public land, technology industries should pay for extraction of the knowledge ore. The problem we have today, she says, is that “risks are socialized and rewards are privatized.” In other words, we taxpayers bear the risks, and private companies reap the rewards. “SpaceX,” Mazzacato told a New York Times reporter, “is free-riding on NASA technology.” If the State were given a share in those rewards, that money could go toward more investments, while covering the inevitable losses of early investment in a nascent industry—much as a diverse portfolio covers its own losses with its own gains. The technology development funded by government should pay for itself.

How exactly it should pay has raised skepticism among Mazzucato’s critics. She hints at giving agencies an equity share in startups such as Tesla or Google that depend on government-created technology. The critics doubt the practicability of determining the value of that dependency. How much is the technology worth at various stages of the company’s growth?

On the other hand, suppose government patented its inventions. The critics respond that industries would grow more slowly as a result. They offer proof in the Human Genome Project, which made all of its gene sequences public at no cost. The project’s main private competitor, Celera Genomics, patented its discoveries. As a result, companies developed products from Celera’s genes at a much slower rate than from the public genes. Another danger: Once the government becomes accountable for making money from its own investments, what is to stop it from measuring success in the same way as a private investor? Would a government primed for profits become as risk-averse and impatient as any sensible venture capitalist?

More important than who pays for the big government risk is the lack of awareness that government is taking risks in the first place. Private industry used to swing for the technological fences. Giant corporations—most notably Bell Labs (the research arm of AT&T), Xerox PARC (innovators of the interface technologies behind the computer mouse), IBM’s Thomas Watson Lab, Alcoa Research Lab, and DuPont made a series of impressive discoveries throughout the first half of the twentieth century. These companies could transform their discoveries into products and then take them to market; this business model no longer exists. These days, the private sector funds just 18% of basic research in this country. The public sector funds 57%, with universities and foundations covering the rest. And Congress is cutting public funds by billions per year.

We’re not just talking about science but technology as well. Gregory Tassey, an economist with the National Institutes of Standards and Technology, warns of “long-term inadequacy” in research that enhances productivity in technology, physical, human, and organizational capital. Tassey points out that, while building housing creates jobs and produces a multiplier effect—spreading wealth throughout the community and beyond—technology creates much more leverage and spreads wealth throughout a variety of industries. Besides, he adds, technology jobs pay much better. Technological advances contribute unquestionable value, creating whole industries and advancing whole economies—particularly ours. Perhaps the tax money is worth it. As Mazzucato herself points out, when Eisenhower created NASA, the highest earners in America were paying a top marginal tax rate of more than 90%; it is now just over 39%. Capital gains taxes have been cut by more than half since the 1980s. It is a hard fact to swallow, but the economic successes that have come from NASA were paid for with taxes—our own as well as those paid by the industries themselves. The question is whether the money is worth it, not just in advancing humanity but in actual economic benefits.

Space itself offers an immediate answer. It provides a fundamentally new economic field. Just as most citizens and leaders in 1900 could not possibly envision the size and importance of today’s air transportation market, most of us have trouble imagining the scope of the future space transportation market. Yet that market is already being built to provide lower-cost launch services, tourism, manufacturing, and rapid intercontinental transportation. Private investors are beginning to inch into the market created by government investment of our tax dollars. Will this new industry succeed? There will be failures, just as there was during NACA’s long, patient investment in aeronautics. But there will be brilliant successes as well—provided NASA’s most active constituencies start working together to change the narrative. The future cannot rely exclusively on narrow efforts aimed at near horizons of three to five years.