Burke Burnett wrote an amazing comment in my book review about Peter Thiel’s from Zero to One book, enough so that it merits a new post to respond.
Burke, thanks for a thoroughly cogent comment! Keyword in your comment….
..a properly functioning state….
I would argue, that for the most part, at this time, we do not have a properly functioning state. Thiel indirectly states this (lack of progress since 1971) in his book. There is an incredible book that you simply must read. Walter MacDougal’s “The Heavens and the Earth”, it won the Pulitzer prize, exhaustively researched, and goes to the heart of our problems today by illustrating how government technocrats used the success of Apollo to transform how government works. The catch phrase was “Well if we can put a man on the Moon certainly we can do X, Y, or Z”. Those using that catch phrase cared not that what they were referring to could not be accomplished using the Apollo management model and several trillion dollars later we see the results.
I can pinpoint the year when it started (the decline of the properly functioning state), which was FY-1967. This was the first year of NASA’s budget cuts and the beginning of the end of the Apollo program. Did you know that by 1969 all production had ended on the Saturn V, never to restart. All of the Apollo missions were done with that first production run. I have a copy of Boeing’s fiscal year 1966 company report. Spread throughout the glossy tome was pictures of the SST under construction, the Saturn V production line, the 747 beginnings, and a plethora of other advanced programs. Today Boeing talks about maximizing production efficiencies on 40-50 year old jet designs, such as upping the production of the 737 from 42 to 57 units a year….
The U.S. aerospace industrial complex is a shattered shell of what it used to be because the investment in new technology has simply dried up. The reason given for ending the Saturn V production was that we had a deficit and could not afford it anymore. However, I have dug into the FY-67 budget document and found that there was a shift in priorities in the government, not any decrease in spending. I did an exercise where I downloaded our federal budget history since the founding of NASA and the rest of government spending. I used NASA’s high-water year of FY 1966 and normalized that to 1. I did the comparison against 14 federal agencies. In FY 1966 there was only one agency, the DoD that took a greater fraction of government funding. Today 13 out of 14 of these agencies have a larger budget than the agency. This is shown in table 1 here: (Note: 1983-2011 hidden)
Additionally, Boeing, Lockheed Martin, Northrup and the other large aerospace corporations (having absorbed dozens of companies in the 1990’s) are little more than federal design bureaus, doing very little development on their own dime. A simple illustration of this is the recent award of the Commercial Crew contracts. 60 days before the award Boeing handed out 60 day pink slips to all the people working on the CST-100. If Boeing had failed, they would have laid off all the people and that would have been it. Sierra Nevada Corporation, after failing to get an award has simply shifted gears and is continuing on in the development of the Dream Chaser, aptly named.
I could do this across any of the federal government’s research efforts. The simple fact is that due to the problems in the inner cities and Vietnam in the 1960’s that the democrats and republicans thought might lead to a general insurrection, federal spending priorities shifted. In the job training segment alone, that had an increase that was as much as the decrease in NASA’s budget between FY-1966 and FY 1967. We have been on this trajectory ever since.
I do think, as you do, that the federal government properly is the macro investor for the nation. Abraham Lincoln called this “internal improvements”. In the late 1700’s it was the states that led the funding of the development of the canal system across New York state and other states. The New York legislature gave Robert Fulton a 10 year monopoly for steamship travel from New York to Albany. This allowed him to obtain the venture funding (to use the modern term) to build his first ship, which was promptly burned by the luddites. It was his second ship that changed the world. The cost of a trip from New York to Albany had been 10 dollars and it took 36 hours on the stagecoach road. The steamship cut that to 10 hours for $7 dollars. Disruptive I think is the term… As an aside when Fulton went to James Watt for steam boilers, his company’s response was that stationary applications were the only place for steam power.
This extended to the railroads and it was the states that started the railroad rush in the 1830’s-60’s. States bought stock in railroad companies that built railroads across their state. This is why Virginia, New York and other big states rapidly expanded their rail networks. Abraham Lincoln, who had defended the railroad when a steamship (what Thiel talks about when he talks about those who block progress) deliberately ran into one of the supports for a railroad span across the Mississippi (or the Ohio, I forget). This triggered a major lawsuit, which caused the railroad lots of problems, and Lincoln successfully defended them. As president he personally put his political capital at work and pushed through the Pacific Railway Act of 1862, which led to the spanning of the continent. Many others followed. Go to Roosevelt and the Panama Canal. Coolidge pushed the passage of the National Highway Act of 1926, that built the first national highway system. The Airmail Act, Hoover Dam, WWII industrial expansion, Airport and air traffic development, The Interstate and Defense Highway Act of 1956. All of these things were the province of government for investment, working sometimes alone and sometimes hand in hand with private enterprise to do something that private capital would not undertake.
This has always worked best when they were public/private partnerships, using the power and finance of the state, coupled with the efficiency of free enterprise. This is what Musk has done with SpaceX and Tesla. But, for every Tesla, there are ten Solyndras. These days Musk would have never been able to make this work, but with some level of private finance behind him, which he then has used to leveraged federal dollars, all of us have benefitted. However, this is the exception today rather than the rule.
The politicians are only interested in the next election (both parties) and there is not an ounce of vision between any of the snarling dogs of politics. They would much rather blow trillions a year buying votes, than invest in our future. I would maintain that in just one example, a hundred billion a year, if invested in the development of fusion and or thorium fission, would create more wealth, more jobs, and a much greater GDP increase than current spending patterns. This would improve our physical and intellectual capital and would allow the people to buy their own healthcare. We have abandoned the founding principles of the republic, which universally supported advanced technology (Franklin, Jefferson, Madison). There is far more text in the Constitution about patents than about general welfare.
If we had kept investing in nuclear power technology, space technology, and robotics, 90% of the problems that vex us today would not even be on the radar screen. There are reasons for this slowdown that is coupled to the environmental movement as well, which at its core is dominated by luddites who simply don’t believe in the power of technology. They are allied with the politicians, who think that they can use the coercive power of the state to create their version of a green utopia, which is neither.
I agree with you on the other paw that the vast majority of Venture Capital funds have the limitations and foci that you enumerate. This is what I was talking about when it is only a very few of the mega funds, that generates enough free cash flow to allow general partners such as Thiel, Andreeson, Jurvetson, and or Draper to risk some of their net worth in zero to one enterprises like SpaceX.
The challenge to Thiel and the others is that when we are in an era of dysfunction in the government, a portion of their wealth, if applied to the right projects (always hard to evaluate), could make the breakthroughs that the government used to, and then indeed could provide the intellectual and moral foundation to bring popular opinion over to the idea that we should go back to the government funding the future. It is a dream, but at least Thiel, and Jurvetson (I know Steve) and Thiel by reputation, at least understands it, now lets see if they are willing to risk some zeros on their bank accounts.
The above with governments is not just confined to the U.S. but is symptomatic of a general malaise of ideas across governments worldwide.
I described in the last article that Thiel, and many of us would be considered technological optimists. Absolutely! The political class only looks at solving problems within the context of their own familiar way of doing things. One of Thiel’s key insights is that our biggest problems right now are technological in nature and that only technology can solve them. I happen to strongly agree with that premise, and his contrarian view is the correct one.
We recently had an interesting event at DFJ that bears on this subject, which will be the subject of at least a couple of follow on posts.