Failure...
The history of economic prosperity contains A LOT of failure
Background
Sometimes I start an article with an idea, create an outline, start writing, then realize the initial idea is “off” and the outline needs changing.
This is such an article. The person who suggested I start a Substack told me I never write about failure. Which is true.
I try to focus on how things work, regardless of belief, ideology, and "what should be”, and instead focus on what is, to the best of my understanding.
Economic prosperity REQUIRES failure
Her statement rattled around at the back of my mind until I realized that economic prosperity REQUIRES failure. Failure IS part of how things work.
However, we call it “trial and error” and as regards economic prosperity, “error” refers to failure. Not every idea works, not every venture succeeds. In fact, most don’t.
As I did more research and more writing, the structure of this article changed to:
Failure is a requirement of economic prosperity
But we filter them out
Here are some historically recent examples of private sector failures
Paradoxically, failure is expensive
Here are some historical examples of longshot government speculative R&D funding
Here are some current examples of governments doing this still
Yes, this is counter to neoliberal doctrine
But so what?
And… How should (I suppose the occasional should never hurt anyone) this influence public policy?
But… survivorship bias
Due to what is called survivorship bias1, we tend to mention failure only in the context of perseverance. I think everyone knows the story of how Thomas Edison tried 10,000 light bulb filaments before tungsten turned out to be the winner.
In this context, failure merely delayed success.
And in a larger context, the failure of businesses is part of the success of industries. In fact, this seems to be the rule rather than the exception.
Schumpeter’s theory of creative destruction2 describes how new industries kill old ones and how “competition from new products, technologies, and sources of supply is more important than competition between existing firms”.
But it seems new industries also have a creative destruction element inherent within them.
Examples from the fairly recent past
Cars
The first automobile manufacturing company in the USA was Duryea Motor Wagon Company, established in 18963.
By 1899 there were 30 such companies4. In total, about 1,900 automobile manufacturing companies have existed in the USA5.
By 1955, three companies were making 96 percent of all American cars6.
Some disappeared through acquisition. Most disappeared through failure.
Personal Computers
The first commercially successful personal computer was the Altair 8800 from Micro Instrumentation and Telemetry Systems (MITS). It was released in 19747.
In the 1980s there were about a half dozen good brands (IBM, Digital Equipment, Apple, Commodore, Tandy, Atari, Sinclair, etc.).
The website computerhope.com contains a list of around 150 computer companies that have gone out of business8. Not all made personal computers, but many did.
And most failed. Bear in mind their list excludes firms which were bought by other firms. Digital Equipment who was acquired by Compaq is not on the list, and neither is Compaq who were later acquired by HP.
Other industries
Similar shake outs occurred in other industries: semiconductors, pharmaceuticals, agricultural equipment, consumer electronics, aviation, chemicals, textiles, and more.
Early days vs mature industries
It seems that in the early days of a new industry, there are A LOT of competitors and over time, as the industries matures, a lot of small competitors become a few big ones.
While some of that consolidation is the results of acquisitions and mergers, much is the result of failure.
This consolidation of many companies down to a few companies occurs so often, that for major industries, it feels natural. And maybe it is.
The economic and fiscal dynamics of market based economies may be such that these consolidation are not just common, they’re inevitable.
But… failure is expensive
Especially for the owners and investors of businesses that fail.
Currency issuing governments and wealthy individuals and firms can clearly afford more failure than most of us. For obvious reasons, some can’t afford any.
The examples listed above were private sector failures. The losses were experienced by private investors.
But interestingly, and contrary to the neoliberal narrative that the private sector is always better, the history of technological innovation and economic prosperity includes a lot of government investments in basic R&D that was high speculative.
For at least 600 years now, governments have helped start entire industries though funding highly speculative projects, most of which failed.
Governments acting as the investor of last resort
I bring government R&D funding and failure into the discussion because of a difference of opinion of whether government SHOULD invest, at all.
I consider such discussion irrelevant because governments DO invest in basic R&D, have done so for about 600 years, and the justifications of “national security” and “strategic advantage” render any kind of ROI analysis irrelevant.
Finding government funded successes is fairly easy, because we celebrate our successes. Failures on the other hand are not so easy to find, as we tend to not talk about them.
So below is a few examples of when a government acted as the investor of last resort, spent big on some speculative venture, and it worked.
It added to the general level of prosperity for the nation that spent the money. Clearly not for every as you already know. But definitely for the nations who funded the projects.
1418 - Sailing from Portugal to India
Europeans obtained spices and other goods via an overland route to India called The Silk Road starting around 130 BC.
Around the year 1360, due to various factors (decline in the silver trade, inflation in Chinese paper money, gunpowder changing the nature of warfare, and the bubonic plague) the use of this trade route became more difficult and more expensive for Europeans.9
A Portuguese prince known as Henrique, Infante (Prince) de Portugal, Duque (Duke) de Viseu, Senhor (Lord) da Covilhã, or “Henry the Navigator10”, decided that basic research in ship design and navigation might allow Portuguese sailors to sail around Africa to India. He started spending some of his father’s (King João I) on this in 1418.
Now bear in mind at this time, no one in Europe knew how far it was around Africa and if such a voyage was even possible, as the following 15th century map indicates.
He pulled together a team who studies navigation and sailing techniques used by others. They designed a new type of ship called a Caravel and started using new navigation instruments11 (astrolabes, quadrants, and magnetic compasses).
To make a long story shorter, it worked. While it took 80 years for a Portuguese explorer to reach India by sea, it worked.
The trial and error initially funded by Prince Henry in 1418 started what is now known as the age of exploration.
1492 - Sailing west to India to avoid the Portuguese
Pretty much everyone knows the outline of this story. Queen Isabella pawned or sold some jewels to finance a three ship speculative venture to get to India by sailing west.
The objective in doing so was to avoid the Portuguese.
Commercial trading was much more violent back then and included capturing cargo and ships flying the flags of an enemy nations. So Portuguese ships had no legal or moral issues with capturing Spanish ships and taking them and their cargo.
What’s most interesting about this venture, is that in terms of reaching India, Columbus failed.
1519 - First circumnavigation
The five ship fleet led by Ferdinand Magellan was mostly funded by the Spanish crown, and partly by the Habsburg Empire and German bankers12.
The goal was to sail west to the Spice Islands (today the Maluku Islands in Indonesia) and bring back spices. The circumnavigation was not part of the original plan13.
In fact, by the time that decision was made, Magellan had been killed in the Philippines.
After his death, Juan Sebastián Elcano took over leadership of the expedition, and he made the decision that it would be safer to continue sailing west14.
To illustrate the commercial success of the spice trade, four ships were lost and the one that returned carried a cargo of cloves. One ship with it’s cargo of cloves generated a large profit for the investors and the explorers who survived were set for life.
To illustrate how dangerous the spice trade was, about 270 men in total sailed out, and 18 returned.
1803 - Lewis and Clark and the Voyage of Discovery
Meriwether Lewis is the only person ever given the authority to hand out US government IOUs without limit.
While not often described this way, it was a military expedition, directly funded by the US government.
The purpose was to “plant the flag” on the newly acquired Louisiana Territory in order to prevent any other nations from establishing settlements and claiming any form of squatters rights, and it worked.
1958 to today - ARPA, then DARPA
The US Defense Advanced Research Projects Agenda is the R&D arm of the US Department of Defense. They are known for their high-risk high-reward approach.
While DARPA does not provide lists of their failed projects, it is reported and believed that their success rate is in the range of 5% to 10%15, indicate that a lot of “error” occurring within their trial and error.
Four core technologies that make our smart phones smart were initially funded as speculative DoD projects.
The Internet
In it’s early stages it was called ARPAnet. It was basic research on creating a command and control network with no single points of failure, such that a well placed nuclear strike on the US could not disable our ability to launch a counter strike.
Wi-Fi
Again, modern Wi-Fi technologies started as basic research on wireless communications protocols.
Geopositioning
GPS also started as speculative DoD R&D funding, and today the GPS satellite network is operated by the US Space Force.
Computer voice interaction
What today is known as Siri, Alexi, and others also started as speculative R&D at DARPA on how to operate a computer hands free.
Touchscreens, bit not DARPA
DARPA was conducting basic research on human-computer interactions, including touchscreens, but the modern touchscreen technology in wide use today came from a 1965 research project of the Royal Radar Establishment in Malvern, England16. From a DARPA perspective, their research project on this technology failed.
When government investments do NOT pay off
Specific lists are not published, at least I found none, but we all know of some recent ones that were mentioned by media outlets. For example: Solyndra.
Government support for startups
Paradoxically, Silicon Valley
Paradoxically and unintentionally, Silicon Valley was born of the intersection of two US government projects, both part of our defense establishment.
The GI bill sent millions of veterans to college after WW2. To accommodate the influx of students, the local universities of Stanford17 and UC Berkeley18 expanded.
In 1956, Lockheed moved their new Missile Systems Division from Southern California to Sunnyvale, California19.
This combination started the intellectual and innovation ecosystem of Silicon Valley.
And elsewhere
A number of governments, are funding innovation hubs in an effort to create mini Silicon Valleys. Specifically Switzerland, the USA, Sweden, the United Kingdom, the Netherlands, South Korea, Singapore, Germany, Finland, and Denmark, as well as some direct funding from the government of the EU20.
But isn’t the private sector always better?
For the past 600 years, economic prosperity has blossomed where the government spent for speculative R&D which created basic technologies. Much of that R&D was carried out by “institutions of higher learning” which today is mostly Universities. And those basic technologies were incorporated into commercial products and services by private companies.
The private sector is better at what the private sector does best. But the private sector is not best at speculative R&D to create basic technologies. Historically, that role has been filled by deep pocketed governments and their militaries.
And the US DoD hasn’t stopped funding innovation
Here are a few examples, that we know of (as DARPA doesn’t necessarily publicize what they’re doing) of some US DoD spec projects that seem to have enormous future commercial potential.
Mobile nuclear reactors
From what I’ve read, a mobile nuclear reactor21 fits inside a standard shipping container.
Materials science
These ones are so speculative or perhaps so early that what descriptions I’ve found are very broad and vague.
The Multi-objective Engineering and Testing of Alloy Structures22 is about creating new metallic alloys that are better, faster, stronger, etc.
The Switchable Reactive and Energetics program23 is about creating materials that can be turned on and off. Think explosives and propellants.
The Next Generation Microelectronics Manufacturing24252627 is about creating the materials with which we will build better computers in the future.
Is there a public policy lesson here?
I think there is, although I have not thought this through enough to be detailed here.
The basic idea is that since government spending on speculative basic R&D and what we might call “ecosystem development” has started enormous economic prosperity over the past 600 years, and since such speculative investments require deep pockets, and since running more “experiments” increases the odds of success, governments around the world should fund more of that.
While the payoff takes years, the ones that work have a massive positive impact on our level of material wealth.
But since going in we never know which speculative projects will and won’t succeed, the ones that don’t work, the failures, need to be seen as just the ones that didn’t work.
https://www.everythingrf.com/community/what-are-3d-heterogeneous-microsystems