Government is a Lousy Investor

Jim DiPeso is right to draw attention to the Colony Shale disaster and the disastrous Synfuels government supported enterprise that helped make it happen. But there's a broader point to be made: the government is utterly clueless when it comes to developing consumer products.

Aside from developing products used only by governments alone--fighter jets and spacecraft--governments almost always fail when they try to develop things that individuals (or even business) want to buy.

This doesn't meant that government has no business doing research. Nearly all basic research oriented towards elucidating fundamental scientific principles requires government support.  Some of applied research done for public purposes has produced very useful spinoffs (the Internet most prominently.)

But, in every case, the final step of bringing products to market has required the private sector: although the TCP/IP protocol that serves as the basis for just about everything on the Internet was created by the Defense Advanced Project Research Agency, the HTTP protocol that underlies the web was put together at a physics lab while the first useful web browser was created as a side project at a supercomputing research center and commercialized by Netscape. Even when government creates something that people actually use--the 401(k) account for example--the creation is quite often a result of an accident.

Aside from a few curiosities--the "astronaut ice cream" that NASA created but actually sent into space only once--government simply doesn't know how to create useful consumer products and publicly supported firms that create them have, almost everywhere, failed dismally.

In many cases, its even worse: by misdirecting resources, government efforts set back the private sector. The Partnership for a New Generation of Vehicles (championed by Al Gore as Vice President) spent billions of taxpayer dollars but actually left the big three U.S. automakers behind Honda and Toyota in bringing practical hybrid cars to market largely because it aimed for unrealistic goals and insisted on using pollution heavy diesel fules.

France's Minitel videotext service used enormous subsidies to put very primitive computer terminals into many French households but, by sending nearly all of the country's relevant technical expertise into a dead-end technology, likely prevented France from developing any sort of successful Internet industry.

When it comes to developing consumer products, in short, government does best when it simply stays out of the way.