Do we want other countries to dominate the future?

When you swipe your credit card at the supermarket checkout, a computer in a data center somewhere is contacted. But sometimes you have to wait a minute or two because the computer may be overheating and getting sluggish due to too much activity at the same time. A News Journal article reported, “At IBM Corp.’s plant the engineers and technicians are wrapping up a two-year project that the company did for the U.S. Department of Energy to invent new ways to cool down computers. As often happens with government-backed research, the fruits then roll out to the general business world.”

The article reminded me of the line we heard so often in the last Presidential election – “the government shouldn’t pick winners and losers.” The supporting evidence for that mantra was that the Department of Energy had done a lousy job awarding grants to companies involved in alternative energy. The government was wasting taxpayer money.

At one point in the campaign, Gov. Romney claimed that “about half” of the clean-energy companies that received loans from the Department of Energy had “gone out of business.” FactCheck.org looked into that claim and found that “26 companies received loan guarantees under a loan program cited by Romney, and three have filed for bankruptcy. Those three firms accounted for only about six percent of the loan guarantees.”

Yes, the government has backed failures. But so do private investors.

Take Bain Capital. No one disputes that Mitt Romney built it from scratch and made it one of the world’s most successful private equity firms. An article in The Wall Street Journal tracked the success rate for Bain Capital while Romney was actively leading it, from 1984 to 1999.

Among its findings:

“22 percent of the 77 companies Bain invested in either filed for bankruptcy reorganization or closed their doors by the end of the eighth year after Bain first invested, sometimes with substantial job losses. An additional 8 percent ran into so much trouble that all of the money Bain invested was lost.”

“Bain produced stellar returns for its investors – yet the bulk of these came from just a small number of its investments. Ten deals produced more than 70 percent of the dollar gains. Some of those companies, too, later ran into trouble. Of the 10 businesses on which Bain investors scored their biggest gains, four later landed in bankruptcy court.”

The fact is, picking only winners is impossible for anyone. Batting .333 puts you on the road to Baseball’s Hall of Fame, and business isn’t that different. Many of our most successful corporations have had one great and profitable idea but follow that with a string of lackluster or failed mergers and acquisitions.

Even the best research facilities don’t guarantee success for the companies that fund them. Xerox is a great example. Back in the 1970s, its Palo Alto Research Center was a major force in developing computer technology. PARC is generally credited with developing the computer mouse and many of the ideas used by Steve Jobs in the early days of Apple. But Xerox never managed to capitalize on its own research. By the 1980s, it had abandoned the computer industry and gone back to its primary businesses of copying and printing.

In order to achieve success, especially in innovative or emerging technologies, we must continue to risk failing. Should the government be in the business of helping certain industries to build the economy and create jobs? Our state and local governments do it every day, usually with loans and tax credits. Last year, China’s Ministry of Finance announced almost $1 billion in subsidies for wind-power generation and more than $100 million for solar power generation. Do we really want to allow those industries of the future to be dominated by other countries?

We must recognize two realities. First, there is a place for government involvement in important areas of research that private enterprise cannot or will not undertake. Second, failure is inevitable in that process.

Had those two realities not been accepted, we would not have invested in government research that led to the development of the Internet, GPS technology, and many of the life-saving drugs we take for granted today.

In our private-enterprise system, neither the government nor corporations ultimately pick winners or losers. The market always does that. But it is essential that we continue to support both public and private-sector efforts to develop the new technologies that will ensure future economic growth.

Originally published 23 February 2013 on delawareonline.com