Bill Gates: "Private Sector [Research and Development] is in General Inept"

[Sunstone]

“Since World War II, U.S.-government R&D has defined the state of the art in almost every area,” Gates said. “The private sector is in general inept.”

...

When I first got into this I thought, How well does the Department of Energy spend its R&D budget? And I was worried: Gosh, if I’m going to be saying it should double its budget, if it turns out it’s not very well spent, how am I going to feel about that? But as I’ve really dug into it, the DARPA money is very well spent, and the basic-science money is very well spent. The government has these “Centers of Excellence.” They should have twice as many of those things, and those things should get about four times as much money as they do.

Yes, the government will be somewhat inept—but the private sector is in general inept. How many companies do venture capitalists invest in that go poorly? By far most of them. And it’s just that every once in a while a Google or a Microsoft comes out, and some medium-scale successes too, and so the overall return is there, and so people keep giving them money.

[Source: Excepted from an article on Gates, Climate Change, and Renewable Energy]

I find it interesting that Gates, after "looking into it", has concluded that government sponsored research and development is more fruitful than private sponsored research and development. Gee, could it actually be possible that Bill Gates is smarter than Ronald Reagan, who always maintained that government was more inept than the private sector?

Please discuss.

 

[Augustus]

[Source: Excepted from an article on Gates, Climate Change, and Renewable Energy]

I find it interesting that Gates, after "looking into it", has concluded that government sponsored research and development is more fruitful than private sponsored research and development. Gee, could it actually be possible that Bill Gates is smarter than Ronald Reagan, who always maintained that government was more inept than the private sector?

Please discuss.

Gates is using really horrible, specious logic.

"How many companies do venture capitalists invest in that go poorly? By far most of them. And it’s just that every once in a while a Google or a Microsoft comes out, and some medium-scale successes too, and so the overall return is there, and so people keep giving them money."

I'm going to use the same logic on a different example.

"How many drugs do pharma companies develop that never go on sale to the public? 90% of them. Once in a while a Viagra or a Risperdal comes along so the overall return is there so people keep giving the researchers money"

The idea behind venture capital is that most bets will lose, but it is not frequency of success that is important but scale of success. Government or bureaucratic organisations tend to focus on frequency of success as they have to justify spending. Such organisations are loss averse 'you can't waste money'. VC doesn't view this as loss though, just a cost of doing business. Just like pharma companies accept a 90% 'failure' rate to be a cost of doing business. [obviously, I'm simplifying things a bit but the overall idea is sound].

More radical solutions are more likely to appear out of the private sector because it is more open to risk taking. It is also wrong to look at the private sector in terms of individual success/failure. The system does not require any specific individual's success, it can survive and absorb countless incompetent, overambitious, insane, or whatever actors. The failures are not important, only the successes. Chuck enough darts at the board and you'll eventually hit the bullseye.

Government research might be better 'on average', as it has funding and expertise built into the system. However, due to its centralised and bureaucratic nature, it is conservative and reliant on specific individuals' success. In centralised systems, the decisions of named individuals are important/essential. In the private sector they are not, as it is about the living, not the bodies in the graveyard (the companies who failed).

To use a basic analogy, the government sector is like a professional darts player trying to hit the bullseye with 1 dart, and the private sector is like an average darts player with 100 darts.

That doesn't mean there is no role for government funded research, just that his argument is horrible and completely misses the point of why the private sector is more successful overall than the public sector (US v USSR was an example of this issue on a much bigger scale)

 

[beenherebeforeagain]

[Source: Excepted from an article on Gates, Climate Change, and Renewable Energy]

I find it interesting that Gates, after "looking into it", has concluded that government sponsored research and development is more fruitful than private sponsored research and development. Gee, could it actually be possible that Bill Gates is smarter than Ronald Reagan, who always maintained that government was more inept than the private sector?

Please discuss.

First, in general, government programs are much more targeted, especially when looking at developing technical solutions to specific problems (think military applications, but also, the Hubble telescope is a solution to a set of observational problems that plague ground-based observatories...each Mars probe carries specific instruments to collect specific data to answer specific questions.)

Second, there different kinds of research, with different kinds of inputs and results: study of the Zika virus and trying to find a cure is very different than trying to map the cosmic background radiation to understand the origin of the universe. Basic research is much different than applied...

Third, government can often push more money at desired kinds of research and development than can venture capital or corporate research programs can ever afford, and for longer. "Cost-plus" funding and hidden budget lines have ensured that many research programs get the funds needed to overcome technical problems that in the private sector would kill a project (because the technical problem itself makes the potential product unprofitable to the private sector, even when necessary to the public sector).

Finally, government research is often carried out not by government employees, but by private-sector contractors. Even the "National Laboratories" and many science agencies (eg, NASA) are mostly operated by contractors under supervision by federal agencies. But many federal research grants and contracts underwrite or supplement the research activities of private organizations (think aviation, which would be a much smaller industry if not for the needs of the military).

 

[esmith]

Yeah, isn't Gates one of those "you didn't make that" guru's

 

[Mr Spinkles]

I think Gates' point is that government is an important part of the solution [to R&D, and to climate change]. The founder of Microsoft is not saying there is no role for private R&D.

The point is that the private sector is going to focus on exploiting hydrocarbons until green energy becomes more economical by comparison. But the planet can't wait that long.

It's also a self-fulfilling prophesy: the private sector won't invest in green energy until the returns vs. the risks are sufficiently attractive compared to investing in the exploitation of more hydrocarbons. But that won't happen until more is invested in green energy. Govt. can kick-start the process of making green energy an attractive investment and then let the private sector run with it.

Governments have the ability to make the kind of investments that the private sector generally can't, namely the kind which payoff in intangible ways, not strictly profit. Think of the graduate student who learns skills which are otherwise difficult to come by, while pursuing a science degree doing fundamental research funded by the National Science Foundation, for example, then goes off and applies those skills in the private sector. Think of the government lab which sells time to anyone who want to use some large, complicated, expensive instrument. Can a startup company afford to buy an electron microscope? No, but maybe they can afford to rent time on one at a govt. lab which charges at cost.

Think of the mapping of the human genome. Think of all the undergraduate students who benefit from learning from so many scientists whose research is funded by NASA, the NSH, NSF, DOD, DOE .... On and on.

I don't know how government R&D worked in the USSR, but I suspect there are two key differences. (1) The US capitalist economy generates more tax revenue which allows more government funding for R&D. (2) The US system of funding R&D is based on competition and peer review, and actually the way the National Science Foundation and other agencies determine who/how much $ to grant, is somewhat similar to venture capital. Scientists competing for these grants are not like the 9 to 5 worker at the DMV just taking a paycheck from the government and counting down the days until retirement, it's very vibrant and dynamic and rewards the best scientific entrepreneurs.

The third thing I would add is that unlike a Communist country, in the U.S. once the basic research is done the private sector is left to run with it, make it commercially viable and produce and distribute products on a wider scale. Gates isn't saying we should be a Communist country, he's saying we should be a Capitalist country with a strong government R&D program.

The main difference between the NSF and venture capital, of course, is that while both take into account the costs and the risks, the govt. doesn't measure returns in dollars but by the intangible (yet well-defined) metrics of how the research will further the NSF's stated goals. Of course, those intangible benefits do turn into dollars for society ultimately. But that occurs by innumerable and circuitous ways, and the benefits don't accrue to the investor directly (I.e. To the govt.) but to many people indirectly (the students who spend a summer in the lab, the private company that uses the research to commercialize a technology, etc.)

 

[Sunstone]

Yeah, isn't Gates one of those "you didn't make that" guru's

So you're saying he states the obvious?

 

[Monk Of Reason]

[Source: Excepted from an article on Gates, Climate Change, and Renewable Energy]

I find it interesting that Gates, after "looking into it", has concluded that government sponsored research and development is more fruitful than private sponsored research and development. Gee, could it actually be possible that Bill Gates is smarter than Ronald Reagan, who always maintained that government was more inept than the private sector?

Please discuss.

The primary problem with private sector is competition. Keep secrets so another company won't know rather than publish and share to build on one another. Secondly there is the problem of immediate short term profitable endeavors that make the ling game suffer

 

[Revoltingest]

The primary problem with private sector is competition. Keep secrets so another company won't know rather than publish and share to build on one another. Secondly there is the problem of immediate short term profitable endeavors that make the ling game suffer

Companies are constrained by the necessity of income exceeding expenses, unless venture capital covers the loss.
Research ends if they can't make a profit. I've seen promising projects die because of this.

 

[Revoltingest]

I think Gates' point is that government is an important part of the solution [to R&D, and to climate change]. The founder of Microsoft is not saying there is no role for private R&D.

The point is that the private sector is going to focus on exploiting hydrocarbons until green energy becomes more economical by comparison. But the planet can't wait that long.

It's also a self-fulfilling prophesy: the private sector won't invest in green energy until the returns vs. the risks are sufficiently attractive compared to investing in the exploitation of more hydrocarbons. But that won't happen until more is invested in green energy. Govt. can kick-start the process of making green energy an attractive investment and then let the private sector run with it.

Government could address this in a free market fashion.
One big problem with green energy is asymmetric taxation, ie, there are the tax disincentives.
If one invests in a project, & it's successful, one pays income tax.
If one invests in a project, & it fails, the losses are sometimes not deductable expenses.
(This aspect is complicated, but I've been there & done that.)
If one could take risks, & write off losses as expenses, this would help.
Also, if energy conservation measures were expensable (as opposed to non-deductible capital expenditures), this would encourage conservation.

Much can be done to foster research, green energy, & conservation, but government seems more interested in conferring advantages to a large & connected privileged few (eg, Tesla, Solyndra).

 

[tytlyf]

Sounds like the private sector is more concerned with costs and maximizing profits. The government should not be run like a business, the government should not be run for a profit.

 

[Shadow Wolf]

Sounds like the private sector is more concerned with costs and maximizing profits. The government should not be run like a business, the government should not be run for a profit.

You'd think that would be obvious and apparent, given the state is not a business, nor does it have the functions or purposes of a business, but this seems lost on many.

 

[esmith]

Sounds like the private sector is more concerned with costs and maximizing profits. The government should not be run like a business, the government should not be run for a profit.

It's not being run like a business. Business's go bankrupt when they make huge mistakes, the government just borrows more money and continues to make mistakes.

 

[Shadow Wolf]

It's not being run like a business. Business's go bankrupt when they make huge mistakes, the government just borrows more money and continues to make mistakes.

Go bankrupt and ask the tax payers for vacation and bonus money. And he was referring to those Conservatives who do state the government should be ran like a business, and do bring that approach with them as they govern. Indiana is very much one of those states, and it's generally poor with most good paying jobs revolving around manufacturing, most college grads move out of state because there are very few opportunities for college grads that aren't medical field related, and it, along with Kentucky, is the saddest and most depressed state in the Union. That "business model" thing isn't working out that great here. Especially since the types that want to run the state like it is a business are also the same types who have a tendency for criminalizing things their religion disapproves of.

 

[Jake1001]

[Source: Excepted from an article on Gates, Climate Change, and Renewable Energy]

I find it interesting that Gates, after "looking into it", has concluded that government sponsored research and development is more fruitful than private sponsored research and development. Gee, could it actually be possible that Bill Gates is smarter than Ronald Reagan, who always maintained that government was more inept than the private sector?

Please discuss.

Gates is correct. As other posters have stated, industry does not have the long term horizon to do research. In the "old days" companies like IBM made so much money that they could, but no more. In the US, Apple is closest. Internationally, Toyota is best.

Gates knows this problem well...Microsoft has done poorly in research and new product introduction...The Surface.....an embarrassment.

Unfortunately, the Feds haven't done great with research either.

I hope we can get back to R&D soon. We need it for our economy to recover. And manufacturing too.

 

[tytlyf]

It's not being run like a business. Business's go bankrupt when they make huge mistakes, the government just borrows more money and continues to make mistakes.

Not from what I hear from conservatives. All they talk about is Trump being a successful business person and that would benefit America. The government isn't a business. The government doesn't run for a profit. Conservatives can't claim to want to reduce the debt, yet support republicans. The biggest contributor to the debt is defense spending, and republicans want to increase it. Mostly because they are in the pockets of the corporations involved getting government welfare.

 

[esmith]

Not from what I hear from conservatives. All they talk about is Trump being a successful business person and that would benefit America. The government isn't a business. The government doesn't run for a profit. Conservatives can't claim to want to reduce the debt, yet support republicans. The biggest contributor to the debt is defense spending, and republicans want to increase it. Mostly because they are in the pockets of the corporations involved getting government welfare.

As usual making a statement that is not supported by the facts.
Of course we know you don't care about facts, only your agenda.
FACTS

 

[tytlyf]

As usual making a statement that is not supported by the facts.
Of course we know you don't care about facts, only your agenda.
FACTS

Ah, but you're missing the point. Most people will look at their paychecks and see SS and medicare taxes coming out automatically. I've yet to see a 'defense spending' tax on a paycheck. False equivalence.

As I stated, you can't whine about the debt yet be in support of more defense spending. Republicans will lie all day long about how the defense is broken, old, outdated, needing money, not ready, weak, etc. All lies. Republicans need to convince people to give more government welfare to the MIC. Same thing with oil corporations.

 

[esmith]

Ah, but you're missing the point. Most people will look at their paychecks and see SS and medicare taxes coming out automatically. I've yet to see a 'defense spending' tax on a paycheck. False equivalence.

As I stated, you can't whine about the debt yet be in support of more defense spending. Republicans will lie all day long about how the defense is broken, old, outdated, needing money, not ready, weak, etc. All lies. Republicans need to convince people to give more government welfare to the MIC. Same thing with oil corporations.

Oh bull****. you make a statement that, and I quote,

The biggest contributor to the debt is defense spending

then shown the facts you run off in a different direction.....Oh look a squirrel.
Obviously your an expert in military equipment. What experience do you have in this regard?

 

[tytlyf]

Oh bull****. you make a statement that, and I quote, then shown the facts you run off in a different direction.....Oh look a squirrel.
Obviously your an expert in military equipment. What experience do you have in this regard?

The biggest contributor to the debt is discretionary spending on the military and defense. Know why the debt is so high? That's your answer. The economy is always better under democratic control, republicans are known for excessive spending. (but they'll tell you they hate it).

 

[esmith]

The biggest contributor to the debt is discretionary spending on the military and defense. Know why the debt is so high? That's your answer. The economy is always better under democratic control, republicans are known for excessive spending. (but they'll tell you they hate it).

Your statement is in direct opposition to the facts shown in post #16, Either show data and source to justify your claim or admit you are mistaken.