Wednesday, July 18, 2012

“If You Got a Business, You Didn’t Build That”

Those are Obama’s very telling words and why he is a dangerous leader. This is exactly how a socialist or even communist would think – that government intervention is the solution to everything including innovation and all the products developed in our country. This is why Obama and the left want to redistribute wealth and make sure every American citizen is dependent on the government to survive – they actually believe this leads to economic success. They believe spending is investment and therefore, a dollar spent on welfare creates more than a dollar of wealth in GDP.

The below study will show exactly why government intervention hinders innovation and product development because it constrains the private sector with rules, regulation, mandates, and other anti-business legislation.

According to a Patent Board study (study done by the U.S. Government) from 2003 to 2007, the U.S. government accounted for 1% of all patents developed internally, and 2% of all patents developed in cooperation with private industry through federal funding. The U.S. government is most active in patents owned and shared in fields of Biotechnology (13%), Defense and Aerospace (8%), and Semiconductors (2%). In these fields, government developed patents are rarely cited, but sponsored patents with private industry do have some significant credence because they are widely cited. The bottom line is that federal government has shown little innovation with exception of the fields in Biotechnology, Defense, and Semiconductors where their private sector funding patents have shown some broad success. However, other than that, the government has shown little overall innovation in other high tech, healthcare, energy, education, or financial fields.

This past year government discretionary spending accounted for about 9% of GDP (total federal spending accounted for about 25% of GDP). Yet, the government only account for 2% of the innovation (patents). This not only illustrates how abysmal the federal government is when it comes to innovation and research and development, but shows the waste in government spending. If this is not bad enough, government innovation numbers are much worse when we consider local and state government discretionary spending versus GDP. Locality and state governments offer a very few patents – about 0.1% of the total. Therefore, total government discretionary spending (Local, State, and Federal) accounts for better than one eighth of our national GDP, but only a little more than 2% of the total patents or innovation. What’s worse, total government spending (Local, State, and Federal) accounts for over 40% of total GDP in the country. Hence, the private sector accounts for less than 60% of the GDP, but 98% of the innovation (99%, if we include the 1% of the innovation that is done jointly between the private and government sectors). And the private sector accomplishes this despite government rules, regulations, mandates and other anti-business policies that work to restrict innovation.

According to the above analysis, Obama was right when he said NASA generated a lot of innovation (8% of the patents with even a greater percentage of significant patents that were widely cited). This is good considering government spending is only 6% of GDP on Defense and Aerospace related fields. But remember Defense and Aerospace are the fields that Obama, and progressives alike, want to significantly cut funding. Obama has already killed our space program. Hence, it makes little sense he would even point out the innovations made in the aerospace and defense sector since he is obviously not a proponent for their existence.

Obama also pointed to the public educational system as helping many American citizens. Sure, many of us may point to a teacher that played a prominent role in our success. But the dropout rate across the country is 25% - so our public schools are failing many young people. And the unemployment rate of over 70% for recent college grads is not encouraging news for the public school system either.

To summarize, private sector's products are all around us -- food, shelter, clothing, automobiles, home appliances, entertainment, for example. The public sector's products include defense, the justice system, roads and highways, public schools, income redistribution (welfare), laws, and regulations.

Many of the government sector's outputs are more like anti-products than products. Regulations stifle innovation, decrease productivity, increase costs, and generally drive people crazy. Rather than wealth creation, regulations result in wealth prevention.

“Government innovation across multiple Administrations has generally focused on learning from private sector processes that can apply to support functions like technology, financial management, and HR.” said one government study on innovation. In other words, the government follows in the private sector’s footsteps when it comes to innovation.


  1. >>”This is exactly how a socialist or even communist would think...”

    That’s exactly right. Good post and good comparison of gov’t vs. private sector innovation.

  2. I do not like calling anyone a communist without good reason. I am starting to get a bit bitter that this guy is most likely to win in November. I will keep the hope that the polls change in the next 15 weeks.

  3. Yes, we'd better hope so.

    I have a new post, btw. I'm having trouble getting inspired lately. It gives me renewed respect for your ability to post as often as you do.