Saturday, December 12, 2009

Rush is Right- No Rush to Innovate in this Climate

On my way to a late lunch yesterday I got a chance to catch a bit fromt he Rush Limbaugh show. He was talking about a story from CNN Money entitled "Recession's latest victim: U.S. innovation." The concern was that the recession was leading to a decrease in patents being filed which could lead to less innovation and fewer job and opportunities.

The article calls for patent reform to help speed up the process, but seems to miss a bigger point. Despite the costly process of applying for a patent, and the huge costs associated with defending them, there are also the costs involved in the R&D that went into developing whatever innovation you are filing for. All of this eats into profits, which lately have been thin and held under strict scrutiny. All the while businesses are blamed both for taking job creating risks and for excessive profits when they succeed. My ears perked up when I heard Rush say:

"when you are on the verge of passing legislation that will destroy the private sector, raise taxes, and punish achievement… and have a pay czar out there. If you succeed too much, the pay czar is going to be knocking on your door and telling you how much you can pay yourself and your other employees. It is not the recession killing innovation. In fact, innovation is largely key coming out of recessions"

Not only did this seem consistent with basic economics, but it reminded me of an old essay I read from a pamphlet I got from my high school history teacher. It was taken from John Chamberlain's book 'Enterprising Americans'.

One central theme behind Roosevelt's stimulus policies, like today, was that business was sitting on thier hands and the government had to tax and spend to get things going and regulate to keep them going and prevent the next downturn. Things never got going under the New Deal. It wasn't until after WWII that we began to see any change at all. But as Chamberlain pointed out:

"the magnitude of the response of U.S. business to the war is in itself refutation of the thesis that in the thirties businessmen simply sat on thier hands"

and had business simply reached a point of stagnation that only government spending could revitalize

"it simply would not have been able to produce the new type of goods when the war button was pressed"

While it was true that total investment was low, investment opportunities were proliferant. He points out the infinite number of industries ready to bust out with thier innovations, including such leaders as du Pont, Dow Chemical, American Cyanamid, and Monsanto that many in the ag industry would be familiar with. During this time GE was ready to go with flourescent lighting and Kodak with color photography and commercial air travel was in the making.

But these great ideas were suppressed and kept on the back burner under the massive interventions of Roosevelt's expanding government.

"Businessmen came to ask themseleves whether Roosevelt really understood a system where the hope of profit sparks expansion and investment. Or did he believe simply in centralizing decision and authority in boards and "planners" along the Patomac?"

With the pay czars, government takeovers, bailouts, and numerous other talked about interventions in the economy this certainly reads true for today. Just substitute the word "czars" for "planners."


The Enterprising Americans:
A Business History of
the United States

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