Sorry Milton Friedman, but innovation needs government support and intervention.

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State-Funded Innovation Exists

When we think of innovation,we often create an artificial line between the public sector and the private sector. The private sector is where innovation happens (i.e. Silicon Valley) and the public sector is where innovation is stifled (through law and policy). But Mariana argues that is simply untrue.

Profound Research Breakthroughs Have Originated From State Organizations

Another example that Mariana offers is the creation of Apple. She argues that while the sleek design of Apple’s products were attributed to Steve Jobs’ genius, the actual technology found within Apple’s products were based on research achievements that were funded by the military and government.

Maintaining Innovation Through Antitrust Laws

In the forthcoming book The Curse of Bigness: Antitrust in the New Guilded Age, Tim Wu argues that antitrust laws were developed to break up the kinds of market concentrations that we see today. The title of the book is a quote from Louis Brandeis, who advised President Woodrow Wilson before being appointed to the Supreme Court, who claimed that the “curse of bigness” — that he associated with concentrated financial and state power — was a threat to liberty and democracy.

“We live in America, which has a strong and proud tradition of breaking up companies that are too big for inefficient reasons. We need to reverse this idea that it’s not an American tradition. We’ve broken up dozens of companies.”

Tim’s right. It doesn’t take much digging to see that the federal government has broken up companies from Standard Oil to the original AT&T. But that began to slow to halt as courts in the last few decades have taken a tough stance against disrupting private mergers, perpetuating a concept called the “consumer welfare standard,” which became the threshold for government interference. At the core of this concept, the government was required to show that prices would increase as a result of a private merger, effectively causing harm to the consumer.

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Louis Brandeis credit: Brandeis University

Conclusion

Radical “free market” supporters will not admit to such a conclusion, but progress fundamentally relies on state support and intervention. We needn’t look further than our history textbooks to see that the state has not only taken risks and invested in private actors, but have also developed groundbreaking research that companies have capitalized on. As Mariana argues, this is not necessarily a bad thing, but it does warrant a fair outcome: Equitable division of profits between state and private actors. With cash returning to the state, there can be greater reinvestment in the public infrastructure — the exact environment that fostered innovation in the first place.

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Productivity, craftsmanship, and the pursuit of excellence at work. Writing now at jennifertchan.substack.com.

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