Thursday, June 11, 2009

Private Industry vs. Government led research

Obama has promised to return science to its rightful place in America, pledging to restore Government funding in Research back to 3% of GDP up from its current 0.6%. Whenever anyone suggests raising the amount of Government money spent on research, someone will always respond that Research and Development is better handled by private industry.

Private industry has shown that it responds to a huge technological challenge much better than the Government, just look at the two different approaches taken during the 70s energy crisis.

When Hubbert showed that American oil production had peaked and the world’s oil demand would outstrip world oil production between 2005 and 2010 countries took two different approaches.

Japan started a government lead consortium that did major research and development into making fuel-efficient cars. They shared this knowledge with the Japanese car companies who then competed to market cars that used this fuel-efficient technology.

In the US, the home to the largest three auto manufactures in the world, Jimmy Carter proposed a similar plan but the big three argued that private industry could handle a crisis better than the Government could and all three companies handled their own R & D.

As history shows, private industry handled the crisis. That’s why the big three American Car manufactures still dominate the world car market and hardly anyone has ever heard of Japanese cars like Toyota, Nissan, and Mazda.

Oh I got that wrong, Toyota and Nissan are the largest and third largest auto manufactures and two out of the big three American auto manufactures are bankrupt.

Private Industry alone cannot handle large technological challenges for a simple reason private industry has to focus on the short term. Virgin Galactic’s SpaceShip Two is a great example of this. It is a neat relatively low cost solution to send people into space.

It is built out of existing materials used in unique ways to achieve a modest goal. Unfortunately its performance is limited by how well carbon fiber can handle extreme heat. Manufactures of Carbon Fiber Resins will of course improve on their product’s ability to handle extreme heat but it is already near its physical limit.

In order for something like SpaceShip Two to go into orbit, the next big leap, it would need to be built out of something as light or lighter than Carbon Fiber. There is already a material like that: Buckypaper. Composed of nano-tubes (carbon molecules formed to circle around forming a tube that is one molecule and as tough as diamonds) in a polymer. Buckypaper is as strong as steel and you could cover a football field with it and it would weigh less than a gram, additionally its heat conductivity is higher than copper.

Unfortunately, Buckypaper is too expensive at the present time to be used in any applications and because of this, it isn’t mass-produced so its costs won’t go down so it won’t be mass-produced.

Industries that could use this product (just about any industry) know if they started using it they would only need to use it for a few years as loss leader (losing money) to drive the costs down. But no large company is going to step forward and be the first one.

The reason is simple, they don’t want to spend all that money to completely revolutionize an industry only to have their competitors start using the product that they spent the money to get on the market.

That’s where the Government comes in. If the US Government started ordering huge amounts of Buckypaper to use in the space program, military, and start making a limited edition Corvette out of it (The fed owns 60% of GM why not get some use out of it) The costs would go down.

As the costs go down SpaceShip Three could use it to go into orbit, Airplane Manufactures would start using it place of Aluminum and finally we could have cars that weighed 100’s of pounds instead of tons, saving billions of barrels of oil every year.

Once the Government put forth the initial money for research and developing a technology through its bleeding edge (the time when it is losing money) private industry could pick it up and run with it and do what it does best make incremental improvements to existing products and use them in unique ways.

As new products are brought to market based on the technology that was developed through Government funded research the Government would start getting its money back in the form of taxes.

There is no shortage of problems that the Government could use this approach to, The race to the Moon, Peak Oil, Climate Change, and the great thing about it is this method has been proved to boost economic activity.

During World War II a huge portion of GDP was poured into research to win the war. Afterwards that research was plowed into civilian consumer products that made their pre-war counterparts look a century old, not just a decade old.

During the Space Race whole new industries started up based off research done to get us to the Moon.

In a 100% peacetime application the example I used above of Japan Inc. from the 70s and 80s brought a defeated little island nation to be an economic powerhouse for decades.

When it comes to the question of the Government funding vs. Private Industry in research, history shows that hands down the Government funding research and then handing it over to Private Industry is the winning approach.

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