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Public Expense & Private Profit

By Noam Chomsky at Dec 27, 2004

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For computers, the period from development to commercially viable sales was about 30 years (depending on how you count). For the internet, it was also about 30 years within the state system before it was handed over, by a process that remains obscure, to private corporations. And it's not a matter of public companies going private. IBM was a private corporation when it was making use of the government-funded MIT and Harvard computers, in government-funded labs (or fully government labs), to learn how to move from punched cards to electronic computers, and by the time it was going off on its own in the 60s, most of its production was for government agencies. Public support takes many different forms: funding, grants, government labs, procurement, etc. There are plenty of details in print. I reviewed some of Alan Greenspan's fantasies on this in a chapter of "Rogue States," dealing with the interesting history of transistors, technically "private" but in fact developed at public expense -- the only illustration he gave of the "entrepreneurial initiative" and "consumer choice" that drives the economy; the others were textbook cases of R&D within the public sector. Typically, small companies were set up by faculty and researchers at labs, and if they were successful, bought up by private corporations, some later turning into huge conglomerates. Funding is a complex matter, and government procurement is also a major factor in keeping the companies viable. Also, there is just plain spin-off. Thus much of the avionics, advanced metallurgy, etc., that goes into a commercial airplane is taken over from Air Force development. And the links are so tight in other areas that it's hard to dissociate. Take contemporary trade by sea, based on containers, developed at public expense by the Navy. And on and on, wherever you look. I've cited many examples and sources if you want to research it further. It's mostly in history of technology work, and goes back a long time. Thus the US mass production industry, which amazed the world in the 19th century, was based largely on R&D within government armories. Same with roots of the automotive industry and much else. There have been some careful studies of this by excellent economists, particularly Dean Baker, of CEPR (Center for Economic Policy Research). His basic conclusion is that if public funding of R&D for pharmaceuticals rose to 100% (it's now probably about 40%, depending on how you count), and the companies were forced on the market instead of being given extraordinary monopoly pricing power by the grossly mislabelled "free trade agreements" and (in the US) other huge public gifts, then savings to consumers would be colossal. According to big pharma records, about 40% of R&D is in-house, but that is highly misleading, because so much of it is oriented towards the marketing side -- copy-cat drugs, etc. And all the figures are misleading because they don't count the basic biology, almost all at public expense, on which it all rests. That aside, there are much more severe distortions introduced by market systems, inherently, to the limited extent that they function in these areas. Why are thousands of children dying every day in southern Africa from easily treatable diseases-- Rwanda-level killing every day, which could easily be stopped, not by military intervention but by bribing drug companies to produce drugs for them, instead of life-style drugs for the rich? Why are bacteria mutating much faster than development of new antibiotics to deal with them, leading to crises down the road even for the rich? One can't blame CEOs for that. They are legally required to produce for profit, not use, so the savagery, barbarism, and disastrous consequences are built into the system.

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Re: Public Expense & Private Profit

By K, Mr at Jan 03, 2005 06:28 AM
hey it's the world of capitalism anything goes in the pursuit of profit jeesh i'm wondering if this is the planet 'vegas' in an intersteller galactic world of planets which exist. hey where's that world which everyone lives in harmony within ecological limits yadda yadda. whens that gonna happen here? when's the end of this system i'm ready for the upgrade.

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Re: Public Expense & Private Profit

By Phillipkim, Hairjello at Dec 31, 2004 05:40 AM
Your comments strengthen my belief that a few people have a lot of control over these corporations. Collectively, many people own a big chunk of all stock. But the power remains almost solely with the few who own even more stock because those teachers are giving up their control to these investment managers, who are probably part of huge investment houses like citigroup and JP Morgan. These banks have major individual shareholders. Don't you remember some of these recent corporate scandals? They were screwing the small investors. anyway, when you combine all the small shareholders (like the teachers) and even then they have very little control over the "system." then it means the few individuals who own most of the shares have even more power and more control than they should.

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Re: Public Expense & Private Profit

By Gammon101, Bwong at Dec 30, 2004 20:45 PM
And to further highlight my point.The teachers overall may have a higher level of social consciousness than the public at large, but the pension fund is managed by an investment firm. The fund manager follows the logic of busniss rather than social conscience. This is what his job requires. To be "professional" means seperating your personal views from the job, which is a kind of enforced tunnel vision.(This may not be a bad thing, for example, you certainly don't want politicians and government offficials to mix their pesonal religious beliefs with their jobs) In theory the teachers could demand the fund manager to go by some guidlines but that has not happened. Partly I think because the teachers do want a good return for their investments(greed?); partly because the teachers may not be too knowledgible about how the market works. If you don't have the expertise it is not very wise to intefer too much with how the pro makes his day to day decisions.

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Re: Public Expense & Private Profit

By Gammon101, Bwong at Dec 30, 2004 19:42 PM
hairjello, The "major shareholders" may not be individuals. Case in point, the Ontario teacher pension fund is one of the biggest investor here in Canada(I mean the biggest, literally).If you're a teacher you may be a small potato shareholder, but when putting all teachers' small investments together it is a different strory. This is an example of what I said before about the distinctions between the micro and macro levels.

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Re: Public Expense & Private Profit

By Phillipkim, Hairjello at Dec 30, 2004 11:05 AM
they key phrase I used was "major shareholders." it's true that more than half of all American households now own some stock, but for many it's a few thousand dollars worth at most. the vast majority of all stocks (and all wealth) is still owned by a tiny few. the richest 1% of Americans own about half of the country's wealth (more than the bottom 95% combined). and even within the top 1% there's a huge inequality. so what you have is a few people at the very top with large chunks of wealth who have a lot of control. remember, 1 tenth of one percent (that's .1%) of the country contributes over 80% of campaign contributions (as was the case in the 2002 federal elections). they have control over the corporations they own, and control over the government they own as well.

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Re: Public Expense & Private Profit

By Gammon101, Bwong at Dec 30, 2004 08:30 AM
hairjello, But who are the share holders? Probably you! If you have a union you may be contributing to a pension fund(say the teacher pension). Who is the evil guy who disciplines the rebellious CEO? Probably your fund manager who will withdraw the investment if the profit is low. Is the manager benefitting from this manuver? To the extent that he gets to keep his job. You may not even know who the fund manager is.

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Re: Public Expense & Private Profit

By Phillipkim, Hairjello at Dec 30, 2004 07:04 AM
Unfolding, who would remove a rebellious CEO? The board. The major shareholders. There would be specific people with control of the company who would be dissatisfied. not some uncontrollable, autonomous "system". The super wealthy consciously create the rules of the the system. We have to stop thinking of CEO's as the highest possible enemy. Who do the CEO's work for? They work for the people who don't work. They work for concentrated capital.

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Re: Public Expense & Private Profit

By Gammon101, Bwong at Dec 30, 2004 04:56 AM
For example, it is no use to preach conservation if we live in an economy which would collapse without grotesque consumptions. It is a good idea to cut down use of fossil fuel, but that would not sit well with auto-workers, say(not just the ceos). This is an oversimplification. In reality, the chain is much more convoluted but you get the picture. I thank uA for expressing these ideas a lot better than I can. I know I sound very vague. But I am not very knowledgible in the detail workings of the society and economics. Hopefully I will get some useful feedback and comments from knowledgible people here.

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Re: Public Expense & Private Profit

By Gammon101, Bwong at Dec 30, 2004 04:55 AM
Raising awareness is the first step. But the effect of this would be limited if we fail to address the underlying structual issues. The problem of the sock puppet theory is that it does not even acknolwedge a structure exists. The assumption seems to be that as soon as "the people" realize they are manipulated they will rise up and that's that. I somhow don't think "the people" are so passive in relation to the dominant system. In order to have long lasting impacts we must somehow alter the social landscape(institutions), one step at a time,in such a way that the new enviroment is more hospitable to "progressive" traits in indiviudals.

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Re: Public Expense & Private Profit

By Gammon101, Bwong at Dec 30, 2004 04:54 AM
I do not want to convey the impression if fatalism. That is not my intent. My point is simply that the socio economical landscape evolves in a very complex, non linear manner. Human agency alter this landscape, which, in turn, exerts "selection pressure" on individual behaviour, if I may borrow a term from biology. It is a very complex, entangled, feedback loop. It is naive to assume there are a few rich men sitting at the top and manipulate everyone like sock puppets. I think the paradigm of coevolution and natural selection in biology would help to illustrate the point. On the one hand, the ambient enviroment "selects" certain traits in organisms which are compatible with the enviroment. On the other hand, the intereaction of various species also alter the "fitness landscape" on which they thrive.

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Re: Public Expense & Private Profit

By Apocalypse, Unfolding at Dec 30, 2004 03:02 AM
My claim is that the institutions, due to their structures, their rules for selecting who occupies which positions, and their safeguards aimed at enforcing specific behaviors once you reach a position, all combine to marginalize anyone who wouldn't obey instutional norms. In other words, if a CEO tried to start getting super generous with the company profits - started trying build efficient and long lasting products for consumers, rather than planning for obsolence and future maintenance revenues - he'd be removed immediately. Its the rules that determine how these super wealthy must act in order to stay super wealthy and maintain power that have run away. I claim the rules themselves force the elites to act a certain way. And surely it is an extra benefit if they believe they are making these choices on their own.

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Re: Public Expense & Private Profit

By Apocalypse, Unfolding at Dec 30, 2004 03:01 AM
Hairjello, it is true that the richest and most powerful businessmen and politicians utilize and frequently modify "the system" for their own ends. But, do you believe they could smoothly switch our economies and governments into a socialist, truly democratic framework? I suspect they could not. I believe even the wealthiest players in this game are being taken along for a ride they cannot halt. And the reason is that power is much too diffusely spread and exercised. It's just that how that power operates that is so dangerous. For instance, we might say all the richest and most powerful control everything. But this neglects one fact: if all the workers and government employees stopped working tommorow and revolted, the power of the elites would immediately crumble. But there is absolutely no way this can or will happen.

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Re: Public Expense & Private Profit

By Phillipkim, Hairjello at Dec 29, 2004 12:47 PM
as to what are we doing to stop them? we have little choice but to educate, agitate, and organize. relatives, friends, neighbors, coworkers. and the most important tool we have is the unexpected house call.

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Re: Public Expense & Private Profit

By Phillipkim, Hairjello at Dec 29, 2004 12:44 PM
I strongly disagree with this idea of the "economy/government/institutions/corporations" evolving on their own independent of any human control. These institutions have been consciously created by the richest of the rich to make them richer. They are outside of the control of the vast majority of humans, yes, but they're not these autonomous creatures you make them out to be. They are instruments of the ultra wealthy who make strategic decisions about how they will stay wealthy and get wealthier. corporate boards of directors, the IMF, the World Bank, the White House and all the executive agencies, the Congress, the security agencies. They all consist of people who indeed have control over the policies of these institutions.

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Re: Public Expense & Private Profit

By Apocalypse, Unfolding at Dec 29, 2004 10:06 AM
Bwong, your theorizing about how our economy/government/institutions/corporations have evolved largely autonomously from individual human efforts to direct that evolution is an excellent explanatory paradigm. I totally agree. Indeed, I think it is accurate - today and in this society, anyways - to say the societal and organizational structures shape the citizens more than citizens shape the structures. I suspect many of us, even on the left, are hesitant to admit this. I think the conclusion is that the ideas of globalization, free-market, and privatization are largely out of human control. They've grown deeply entrenched and entered a self-sustaining cycle that's running away from us. That said, what are we doing to stop it? My suggestion is in the comments to JPodur's new blog entry.

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Re: Public Expense & Private Profit

By Phillipkim, Hairjello at Dec 28, 2004 11:19 AM
On a different topic, when neoliberal sympathizers tell me about how great deregulation is, I like to ask them about their cheap utilities. You see, American utilities are one of the great success stories of regulation. For many decades since the New Deal, we've had some of the cheapest and best quality utility services, unparalled in the world. We've done this by using mostly privately owned monopolies, but get this, with public boards (either elected or appointed) approving and guiding all major business decisions (including costs, labor decisions, etc.). How socialist is that!?! Greg Palast wrote a great book about this. http://democracyandregulation.com

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Re: Public Expense & Private Profit

By Phillipkim, Hairjello at Dec 28, 2004 11:17 AM
Much of the corporate corruption (Enron, Arthur Anderson, accounting funnybusiness, falsifying actual profits, etc.) that has gotten a lot of press these past few years is corruption that cuts into the dividends or capital gains of the shareholders. Therefore, it is in the interest of capital to fix it. That's why it has gotten so much coverage in the corporate media. But how did they let these scandals happen in the first place? Perhaps capital's fetish with blanket deregulation blinded them. Or perhaps we have one faction of the capitalist class battling another. Which one is bigger? I don't really care. It's just important to note that, as bwong senses, fixing these forms of corporate corruption doesn't solve the real problem. But I think everybody here already knows that.

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Re: Public Expense & Private Profit

By Gammon101, Bwong at Dec 28, 2004 09:27 AM
The pressure for business to maximize short term profits at the expense of long term survival can be at least partially explained in terms of the dynamics of the system independent of who the CEO's are(but then of course in addition you do have "evil" people such as Bush and Cheney) One can perhaps put a brake on this by enacting tough laws on labour and enviromental standard to create disincentives for irresponsible behaviours. I think we have to address these structual issues if for no other reason that the current system is clearly unsustainable. Preaching is not enough.

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Re: Public Expense & Private Profit

By Gammon101, Bwong at Dec 28, 2004 09:24 AM
If everyone wear the same cloths until they are worn out; if no one spend on frivoulous items for vanity; if no one buy new cars; no one get in debt to pay for grotesque consumptions, you will have a horrible recesion. Unemployment will hit the roof. The people who are hurt most will be the guys who work from paycheque to paycheque, not the greedy CEO's. Contrary to Eco101 dogma, the "economy" does not exist to satisfy our desires/greed. "Greed" and "desires" have to be artificially created even of they are not there, just to feed this beast simply called the "economy". Just witness fiscal and monetary tools governments use to "stimulate the economy" when "consummer confidence" is low.

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Re: Public Expense & Private Profit

By Gammon101, Bwong at Dec 28, 2004 09:23 AM
The "Capitalist system"(for lack of a better description) we witness today is the result of several centries of evolution. Like the eco system, social and economical institutions are linked to each other through a myrid of complex feed back loops and they co evolve through our collective agencies. The "economy" as a macro phenomenon has a life of its own(it is an "emergent" phenomenon,to borrow a term from physics) The most important feature of our economy is that it has only two modes: expand or die. It's therefore by definition that capitalist system can never satisfy all our alledged "desires" because the moment it does, it will cease to grow(there is no need to) and since it cannot survive without expanding the system will collapse if we stop being "greedy".

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By Gammon101, Bwong at Dec 28, 2004 09:20 AM
"Greed" is a human attribute. To describe corporations as "greedy" makes about as much sense as calling a tank "murderous". I don't know how to fromulate my ideas precisely, so perhaps someone more knowlegible can help me out. But let me try. I think you guys are barking up the wrong trees by moralizing about "greed" and other mortal sins. At the macro level the "system", or the "economy" of you like, exhibits very stable and predictable behaviour quite independent of the players' individual morality.

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Re: Public Expense & Private Profit

By Gammon101, Bwong at Dec 28, 2004 08:42 AM
I think we are making too much of Eron and other cases of obvious "corporate corruption". Too much scandle mongering, though gratifying to the ego, presents the wrong impression that the system is intrinsically moral and than all you need to do its to get rid of the crooks who don't play by the rules. Even Bush would agree with that if you ask him in public. But I think the issue is more of a structural one. To understand how the system works and proposing workable alternatives would require a lot of research and hard work(I have neither the time nor the expertise to undertake, BTW)

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Re: Public Expense & Private Profit

By Phillipkim, Hairjello at Dec 28, 2004 04:34 AM
"One can't blame CEOs for that" yeah, i don't like how the blame is often misdirected onto CEOs and not capital, the major shareholders who actually own the companies. though, in service to capital, these CEOs get pretty rich and become major shareholders themselves. it's a amazing how these ultra rich people have perpetuated this myth of the "free market" while so many of their major industries rely almost solely on government funding. e.g. the "defense" industry. that right there is public investment that creates many jobs; only there are these huge inefficiencies we call private profit. and there's still this public fear of using the government to create jobs and full employment, even though that's what all this public spending does. crazy. though everybody who reads this already knows that.

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Re: Public Expense & Private Profit

By Rbussell, Roley at Dec 27, 2004 21:44 PM
One area of frustration to me is the ineffectiveness of enforcement of large publically listed companies. The SEC investigated the Enron case and found that the executives were guilty of crimes such as: monopoly pricing and accounting fraud etc Some of which resulted in the failure of the power system in California. However, the SEC stated publicly that they were not going to pursue the case to the full extent of the law, but were happy with charging fines. But they didnt change the system. Similar with drug companies: the government must change the system in the public interest to require companies to make lifesaving drugs available at fair prices. Roley

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