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Two-fifths of the way through No Apology, the book turns to economic policy, and … wait a minute … look who just arrived … it’s Mitt Romney! Chapter 5 deals with productivity, trade, and labor standards. For the first time in the book, I can hear Mitt Romney’s voice as the pages turn.
And they are good pages, too, smart and well-informed. I didn’t know this, for example:
[R]isk capital tends to be invested quite locally. California’s venture capital firms invest almost 60 percent of their funds in California businesses … Firms in Massachusetts, the number-two venture state after California, invest nearly 40 percent of their capital in Massachusetts; they spend more than six times as much at home as in New York, a nearby state with a much larger economy. (135)
In Chapter 5, Romney speaks out forcefully for free trade, skills-based immigration, pro-growth tax policies, and light regulation. Again and again, Romney brushes aside populist economics of left and right. He speaks out in favor of TARP, for government investment in basic research, and against those who’d penalize corporations that “send jobs overseas.”
Sales made by subsidiaries of U.S. corporations are often supported by high-paying jobs in finance, accounting, research and management here at home. And if a company’s tax burden under such [anti-offshoring] legislation grew too high, it could simply move overseas to avoid it – resulting in a net loss of tax revenue for the United States, not a net gain. (134)
Romney takes time to dismiss the “fair tax” advocated by Mike Huckabee as regressive and illiterate. He scoffs at claims that the fair tax would eliminate the IRS. “[A] government agency of some kind woud have to ensure that people weren’t bartering or finding other means to avoid paying such a substantial tax on the goods and services they purchased.” (130) He does admire the economic efficiency of the VAT, but prefers to get to a consumption tax by eliminating taxes on savings for middle-income families.
Romney disdains the rhetorical libertarianism that has overtaken the GOP since 2008. “I believe some people in my party are overly fond of bashing regulation …. [R]egulations that are clear, fair, and relevant to contemporary circumstances provide that predicatibility and stability that is [sic] needed for investment and risk-taking.” (136)
He backs this generalization with a story.
Back when I was at Bain Capital, one of our first venture capital investments was in a technology that allowed machining companies to reuse their cutting oil – the cooling lubricants that are used in drilling, routing, and cutting metals. New government regulations had just been established to prevent companies from simply throwing used oils down the drain. The regulations ultimately led to better machining industry practices, but because they weren’t enforced for almost a decade, we lost our investment. Michael Porter is convinced that, far from being a drag on the economy, ‘National advantage is enhanced by stringent standards that are rapidly, efficiently, and consistently applied.’ I wish more Republicans and Democrats alike understood that important truth.” (136)
NB Citations of Harvard management guru Michael Porter in No Apology: 4. Citations of Bible: 1.
Also NB: Shout outs to CEOs in Chapter 5: 3, including one to the CEO of Novartis.
Final NB Correction for paperback edition, p. 108. Hero, the inventor of the ancient steam engine, lived in Alexandria, not Rome.
joemarier // Mar 12, 2010 at 6:46 am
For those of you outside of DC, Novartis is one of the heaviest advertisers on local political talk radio. Not for their products, mind you; for their continued existence and value to society as a company.
WillyP // Mar 12, 2010 at 9:54 am
Says Frum:
“Again and again, Romney brushes aside populist economics of left and right. He speaks out in favor of TARP, for government investment in basic research, and against those who’d penalize corporations that “send jobs overseas.””
TARP is indefensible for a whole variety of reasons that I won’t rehash.
Investment in “basic” research is highly suspect. Government involvement in biotech, for example, leads to tremendous inefficiencies and almost no efforts to cut costs. There are so many regulations and stipulations that come with grants and earmarks that just putting in place IT systems that can create economies of scale are legally challenging.
The NIH, which funds most large grants, doesn’t even have an inventory of scientific instrumentation purchased through those grants. This leads to tremendous resource redundancy, such that two very expensive instruments could be located within 1 mile of each other, to the ignorance of the researchers. In effect, government involvement acts as a subsidy to private, commercial manufacturers of instruments. To a student of economic history, it should come as no surprise that this subsidy has the seemingly paradoxical effect of stunting competition of the same industry. Why? Because the barriers to entry are very high to anyone who isn’t used to dealing with customers who are dependent on the government for funding.
Institutions that are funded on the basis of the name recognition of their researchers are not exactly so willing to cooperate. Any gains from cooperation must be weighed against the prestige lost from sharing the notoriety. This is the nature of political decision making, which is what you get from politically directed research.
The truth is, the development of new medicine does not need government “investment.” It’s very highly demanded (duh), there’s plenty of money from the private sector, and there would be even more if the regulations were lifted.
Space exploration, on the other hand, which is decades off from commercialization, could use some more money.
sinz54 // Mar 12, 2010 at 10:53 am
WillyP: The truth is, the development of new medicine does not need government “investment.”
Every advanced Western nation would disagree with you.
The reason is the very long time frame of modern research. It can take 20 or 30 years for a research breakthrough to lead to an actual medicine that can be given to patients. That is enough time for three or four full business cycles–more than enough time for some CEO to scrap projects that haven’t yet turned a profit.
I remember when a scientist (forgot his name) first had the idea that many peptic ulcers might be caused by an infection. That was in the late 1970s. He couldn’t get research grants from any pharma company, because they were heavily invested in highly profitable anti-acid drugs like Zantac and weren’t interested in any bacteriological approaches. But he persisted. And proved his theory. It was officially announced in 1991–over 2o years of research–and now treatment of ulcers with antibiotics is routine.
Even in the 19th century, Germany’s medical and chemical research (which was the world’s best at the time) was supported by the German government through the Prussian Institute for Infectious Diseases (which was the German equivalent of our NIH). This includes Robert Koch’s pioneering research on tuberculosis and Paul Ehrlich’s pioneering research on syphilis.
Albert Sabin got funding for his research on an oral polio vaccine from the USSR government.
And what about Jonas Salk, who beat him to the punch with an injected vaccine? He didn’t get funding from any private company. He got his funding from charity–the March of Dimes.
Pure research is never profitable; it’s the spinoffs from pure research that might be profitable. And in the case of medical research, those spinoffs might be a generation away.
WillyP // Mar 12, 2010 at 11:47 am
Sinz,
Tell that to big pharma. Their entire business model is based on outpacing their competitors at R&D.
Why should medicine be so different than the microchip industry? Or automobile manufacturing? Or telecom? If people are willing to pay for advancement, it will get funded.
Whether you find this thought comforting or not, we are actually severely HINDERED by politically directed medicine. Plenty of great ideas are not funded because the political connections aren’t there. Or, even more of a problem, private investors refuse to invest because government has taken the profit incentive out of R&D. Government chases away innovators and investors with red tape. I see it daily.
And I should point out that the type of research that gov’t funds (at least in this area) is fundamental research (e.g., genetics). Slowing down development in the beginning stages is arguably the most effective way to halt progress for consumers.
Market Dose » Blog Archive » What a War // Mar 12, 2010 at 4:35 pm
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