What Drives Innovation? The State

Magazines like The Economist mock industrial policy while piling praise on the private sector. The more one knows about the intertwining of state and market in health care, defense, telecommunications, energy, and banking, the less realistic any strict divide between “public” and “private” appears. Moreover, even the internet sector, that last bastion of venture capital and risk-taking, is more a creature of state intervention than market forces. As Mariana Mazzucato argues:

Whether an innovation will be a success is uncertain, and it can take longer than traditional banks or venture capitalists are willing to wait. In countries such as the United States, China, Singapore, and Denmark, the state has provided the kind of patient and long-term finance new technologies need to get off the ground.

Apple is a perfect example. In its early stages, the company received government cash support via a $500,000 small-business investment company grant. And every technology that makes the iPhone a smartphone owes its vision and funding to the state: the Internet, GPS, touch-screen displays, and even the voice-activated smartphone assistant Siri all received state cash. The U.S. Defense Advanced Research Projects Agency bankrolled the Internet, and the CIA and the military funded GPS. So, although the United States is sold to us as the model example of progress through private enterprise, innovation there has benefited from a very interventionist state.

VC’s and other financiers exaggerated their role in promoting innovation in order to get capital gains tax breaks. And while they retreat ever further from taking risks on game-changing advances in productivity, the tax breaks endure, starving the state of the revenues it needs to continue its history of subsidizing innovation. The California Ideology gradually undoes its own material foundations, but its adherents are unfazed. They are content to reap the benefits of past decades of government investment. From Silicon Valley to Wall Street, seed corn is the tax-cutters’ favorite meal.

Score One for the Commons (or maybe not)

I was just listening to Dave Levine’s interview of Mike Madison, which touched on his work with Strandburg and Frischmann on cultural commons. Here’s one more possible case study for the group, suggested by Michael Lewis via Felix Salmon:

[T]here are smart [high frequency trading] HFT shops, and then there’s Goldman Sachs. The smart shops execute their strategies using lightweight, open-source, flexible code. Goldman, by contrast, considers its enormous, clunky, proprietary codebase to be a source of competitive advantage — it has to, in order to justify the bonuses it gives to the people in charge of that codebase. Goldman knew that Aleynikov was its best programmer, but it never really grokked why he was good: he was an expert at replacing clunky Goldman code with much simpler and more elegant open-source solutions.

So while Aleynikov thought he was streamlining Goldman’s technology, Aleynikov’s bosses got million-dollar bonuses by claiming that he was adding to a proprietary codebase in which they placed enormous value. And when Aleynikov thought that he was simply emailing his own notes to himself, Goldman decided that he was stealing proprietary information of enormous value — and that, since it was enormously valuable, of course Aleynikov intended to use that code against Goldman in his new job.

Three cheers for open-source! Or maybe 2…or 1. Because the ultimate endeavor here–HFT–is not exactly a boon to the economy. As Wallace Turbeville has demonstrated, “HFT siphons value from the pipeline of capital intermediation, impeding the long-term investments the economy needs for sustained job growth.” I make the case against HFT here; let’s just say that it’s hard to make the case that a queueing rule keyed to thousandths or millionths of a second is any better than one that simply allocates trades that happen to come in at the same hundredth, tenth, or (horrors!) half of a second at random, or in (roughly) equal lots.

When it comes to HFT, Goldman’s hapless effort to propertize a codebase was a great example of the “upside of IP’s downside.” The enterprise itself is socially useless at best, pernicious and destabilizing at worst. Here’s to a decline in the commons in HFT code, and to the megabank bonus games that doomed it at Goldman.

Rob Horning on the Internet and Selfhood

Why are so many people throwing themselves into social media? I like the way Rob Horning frames the question, and a possible answer:

Why are we increasingly willing to let archives and algorithms sort out who we really are for us? Is it because . . . it feels like a concrete answer anyone can understand? . . . .

The techniques of the self permit, as Foucault remarked in his 1980 Berkeley lectures, “individuals to effect a certain number of operations on their own bodies, on their souls, on their own thoughts, on their own conduct, and this in a manner so as to transform themselves, modify themselves, or to act in a certain state of perfection, of happiness, of purity, of supernatural power, and so on.”

The question is whether social media supply these new technologies of the self, whether the widespread adoption of social media is related to a hunger for these sorts of techniques, such that the exploitive ramifications of data collection and blanket surveillance are overlooked. It is not hard to experience a kind of supernatural power, certainly, in sharing in social media, collapsing space and time to forge unprecedented forms of connection. And the continual posting is a means for perpetual transformation and self-modification. In social media, the represented self is fluid as it has never been before.

The next question, of course, is who is doing the representing.