Reinventing Libertarianism

Recent years have seen growing recognition of the critical role the US government has played in creating world-changing technologies. In several State of the Union addresses, President Barack Obama made mention of the role of government in creating the information-communications revolutions. And various scholars including Richard Nelson, Vernon Ruttan, Fred Block, Rob Atkinson, Michael Lind, William Janeway, and Mariana Mazzucato have described how the federal government financed the invention of manufacturing through interchangeable parts (for rifles), canals and railroads, dams and highways, jets and microchips, pharmaceutical drugs, and much more.

These histories have challenged the economic orthodoxy that governments should only fund basic science and not “pick technology winners,” since they invariably get it wrong. In truth, the development and commercialization of many world-changing technologies have frequently required government involvement that goes far beyond basic science to include funding demonstration projects (solar modules, nuclear power plants), infrastructure (railroads, the Internet), and military procurement (jet turbines, microchips). Basic science is just one part of what governments must do to aid the technological progress behind our high levels of prosperity.

The new innovation scholarship has also undermined the linear notion, central to standard economic accounts of technological innovation, that basic scientific discovery leads to new technologies. The steam engine, an oft-quoted phrase among innovation scholars goes, did more for science than science did for the steam engine. Entrepreneurs and new technologies require, demand, and create new science as often if not more often than new scientific discoveries result in new technologies.

These challenges to neoclassical economic theory have mostly come from the center-left, until now. Earlier this month, Jim Manzi, an influential libertarian conservative thinker, offered a sweeping and exciting new center-right framework for technology innovation policy. Manzi’s article, “The New American System,” is in the Spring 2014 issue of National Affairs, the successor to Irving Kristol’s neoconservative journal, The Public Interest. The essay suggests that libertarianism and statism need not be incompatible.

In his article, Manzi reflects on his own experience as one of the inventors of cloud computing to make a conservative case for a government role in technology creation. Economic growth is overwhelmingly the result of innovation, Manzi notes. And while conservatives are right that innovation requires free markets and strong property rights, Manzi stresses, it also requires “decisive government investments in infrastructure, human capital, and new technologies.”

It is noteworthy that Manzi makes a strong case for energy innovation with little reference to climate change. One of the articles Manzi is most famous for is a 2008 story for The New Atlantis where he argued that conservatives should stop denying the existence of climate change and instead embrace adaptation. In National Affairs, Manzi rests his case for innovation on economic nationalism, not the global environment. But, importantly, Manzi argues that critical to that imperative is that government lead on visionary projects – cleaner energy, the next generation of information and communication technologies, biotechnology, and space exploration – that hold promise for making a difference not only for America, but also for the global environment.

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Rather than downplaying the significance of past government investments in America’s prosperity, as some conservatives scholars have done, Manzi goes in the opposite direction, unearthing new details and insights. Today’s Centers for Disease Control and Prevention’s biomedical work in fighting epidemics dates back to the 1790s, he notes. In 1843, Congress funded “a revolutionary telegraph line from Washington, DC. to Baltimore.” Writes Manzi, “The political energy behind this program remained nationalistic, but became increasingly focused on upward mobility, social striving, and maintaining the long-term legitimacy of the economic regime with the promise of opportunity for all.”

Manzi has special credibility as one of the pioneers of what is today called cloud computing. A 1985 MIT graduate, Manzi went to work for Bell Labs, but left less than a year later after discovering it was no longer a place of rapid innovation. The locus of innovation had shifted from Department of Defense contractors like Bell Labs to smaller, more nimble and more creative firms. By 1981, the best modems were being made not by Bell Labs but an independent entrepreneur named Dennis Hayes. A decade later, Manzi and others in the industry developed cloud computing as a way to cut the cost of delivering and servicing software to their clients.

From Manzi’s real-world experience comes a unifying view of innovation. The government is important to making the high-risk and often high-cost investments in new infrastructure, science, and technology, while private sector entrepreneurs and investors deploy these technologies in the market place. “It took huge, integrated organizations to do things like build out the national telephony network,” Manzi notes, “but small groups could exploit those achievements to facilitate other technologies, like the computer modem.” Manzi’s account, including the Bildungsroman sub-plot, is very similar to the 2012 book by politically progressive venture capitalist, William Janeway, Doing Capitalism in the Innovation Economy.

Manzi argues that the “sweet spot for most government research funding will likely be visionary technology projects,” he writes, “rather than true basic research on one extreme, or commercialization and scale-up on the other.” DOE, NASA, NIH are as unfocused and adrift, Manzi argues, as Bell Labs was in 1985. They need “bold, audacious goals” that are “singular, finite, and inspiring,” like an international manned mission to Mars. The challenge has to do with American competitiveness. Manzi warns of the US falling behind in both broadband and mobile Internet connectivity and argues, “We should err on the side of overinvestment and seek leadership in both.”

When it comes to energy, Manzi calls a clearer focus on making clean energy cheaper than coal. “We might set for one lab the goal of driving the true unit-cost of energy produced by a solar cell below that of coal,” he writes, “and a second lab the same task for nuclear power.” In the wake of Solyndra, Manzi calls not for closer congressional oversight but rather “a more independent contractor-led model” with “greater operational flexibility.” Real innovation requires more not less risk-taking. “Rather than abandon these efforts in the face of policy missteps,” Manzi writes, we should “identify both the strengths and limits of government’s ability to accelerate innovation.”

Manzi turns to the shale gas revolution as a case study, relying upon Breakthrough Institute research on the US government’s role in supporting the shale gas revolution. Where some conservative commentators have attempted to minimize that role, Manzi embraces it. “Breakthrough Institute has produced excellent evidence that government subsidies for speculative technologies and research over at least 35 years have played a role in the development of the energy boom’s key technology enablers,” he writes.

Manzi makes a strong case that underground property rights, America’s entrepreneurial culture, independent financing, pipeline infrastructure, and a strong oil and gas industry played equally important roles. The United States is unique among major energy nations in giving property owners the rights to underground oil and gas deposits. Europe, for example, also has shale gas, but will be at least a decade and perhaps more behind the US in tapping it. How much this is due to lack of underground property rights and how much to other factors, such as the lack of a highly capitalized oil and gas industry, or popular opposition, remains unclear.

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Strong as Manzi’s case is, it is not always clear how Manzi’s recommendations fit together. On the one hand, Manzi argues for nationalist motivations for energy innovation, and calls for focusing basic science on those efforts that will remain in the United States. This seems to contradict calls he makes elsewhere for the US to invest in international science projects, like CERN, as well as applied technological projects, like space travel. Manzi would likely agree that IT and other technologies have benefited both the US and the world through rising globalization, wealth, and military security.

Energy innovation is an area that has some and would benefit from more not less international cooperation. China is currently building at least three different kinds of advanced nuclear reactors, partly with help from the US DOE and universities. The US should both invest far more in our own advanced nuclear demonstration projects, and re-double our collaboration with the Chinese, too, even if this results in a short-term advantage to the Chinese. US-Chinese collaboration on technology could hasten the creation of safer, cheaper reactors – some based on designs from Oak Ridge in the ‘50s and ‘60s – that might one day be imported into the US perhaps as a joint venture with the Chinese.

We would also question the emphasis on intellectual property protections, which can both encourage and detract from knowledge spillover and innovation. Manzi argues that university and research lab rules and patent laws should create stronger incentives for entrepreneurs to exploit the knowledge created by publicly funded institutions. But such incentives can stifle innovation. Innovation scholars have found the Bayh Dole Act, which enabled universities to acquire their own patents, slowed the “knowledge spillover” required for rapid innovation. By contrast, one of the reasons that the suite of technologies that resulted in the shale gas revolution — fracking, directional drilling, and underground mapping — could spread so quickly was because of the lack of patents restricting their use.

And when Manzi gives more credit to markets than governments, it’s clear that platform technologies like railroads, telegraphs, radio, radar, microchips, and the Internet all sprang first from government. “The DoD created the platform we all danced on,” noted venture capitalist Janeway. A similar story can be told of energy. Nuclear energy came out of the Manhattan Project. No private company could ever have taken a weapon and made it an energy source. Solar was procured by NASA and has been heavily subsidized by taxpayers and ratepayers for decades. And it was the DOE in the late 1970s, not private companies, that financed the exploration of shale for oil and gas.

These criticisms aside, Manzi’s article represents an important contribution to the new innovation scholarship. Liberal and conservative variants on that scholarship won’t agree on everything. Conservatives like Manzi will likely prefer investments in earlier stages of innovation, such as R&D and demonstration to outright subsidies for technologies like solar panels and wind turbines, and enabling infrastructure for new technologies rather than investing in the deployment of any specific technologies. They likely will favor things like natural gas and nuclear power over renewables. And they are likely to remain skeptical that climate change might provide an overarching framework for energy innovation.

But in combining a Hayekian appreciation for the wisdom of free markets with a Hamiltonian view of the necessity of government investment in infrastructure and technology, Manzi has renovated the conservative vision of technological innovation. Manzi is someone to be agreed with or disagreed with but he is to be taken seriously. With the “The New American System,” Manzi secures his place as king of the Silicon libertarians. We hope that the path he has helped clear for a new conservative view of innovation will both attract followers and inspire competitors.