Investing in Companies is NOT Innovation

Obama and liberals claim his 100 billion dollar “green” energy project that was embedded in the Recovery Act (Stimulus) is investment in innovation. This is far from the truth. I have written several blogs about how the government is providing very little innovation compared to the private sector. Here are some reasons and statistics as to why this is true.

First, 98% of all patents in 2010 were filed by the private sector, 1% were filed by the government, and 1% were filed jointly between the government and private sector. Hence, we can conclude the government is involved in about 1.5% of all U.S. patents. Government discretionary spending for the fiscal year 2013 is expected to be about 8% of our GDP. Hence, the government should produce over 5 times as many patents as they created. This statistic shows the government’s inefficiency in spending compared to the private sector. And I am giving the government the benefit of the doubt here because about 12% to 13% of GDP this year will be for welfare and entitlement spending, which we can conclude has nothing to do with investment in innovation (although Democrats would disagree). Hence, the private sector generated 98.5% of the innovation despite being less than 80% of the nation’s GDP.

Secondly, more than half the government patents come from the Department of Defense including NASA. However, Obama has made massive cuts to NASA and progressives alike would like nothing more than to cut military spending by 4 or 5 times. Hence, we can expect government patents and innovation to decline in the future based on cuts to innovative science organizations such as NASA.

Thirdly, money from Obama’s 100 billion dollar “green” stimulus is not funding research and development to create innovative ways to improve costs and performance of renewable energies, instead the money is going to companies whose technologies are already established. In other words, these companies are not generating any new technology which essentially means they are making products that have no advantages over global competition. Since companies in China have huge advantages over U.S. companies in manufacturing costs, most U.S. companies without any technological edge are destined to fail despite being subsidized by the government.

Fourthly, anyone can invest in a company, there is nothing innovative about buying a stock or handing out a loan. However, very few people have the capability of being innovative or investing in innovative start up companies.

What’s worse, government investment in corporations is hypocritical and bad for many reasons. First, as pointed out above, this is not investment in innovation. Secondly, it provides the government the opportunity to pick winners and losers in any given industry. And the winners are generally those with financial ties to the administration (campaign contributions). This creates a vicious cycle of tainted money based on quid pro quo deals and legislation filled with carve outs and earmarks. The only people this type of investment benefits besides the CEOs and politicians are the lobbyists. If you believe in separation of Church and State than you should believe the government has no business investing in companies because this cannot be done fairly without the involvement of bias. Secondly, if you think investment firms like Bain Capital are vulture capitalists than you should not expect the government to conduct similar business ventures. However, there are stark differences between Bain and Government investment. People have a choice to invest in Bain Capital. Taxpayers do not have a choice in how the government spends their hard earned money. Bain Capital has to be transparent by informing investors of their future business plans and goals whereas the government does not have to be transparent with their investments. And if Bain Capital fails the company goes belly up whereas if government investments fail they attempt to collect more revenues to squander. So who are the real “vulture capitalists”? The federal government! And who are the real innovators? The private sector! So it makes sense to keep the money in the hands of the private sector and out of the hands of the bureaucratic government.