I heard this morning that the British government plans to subsidise the purchase of electric cars, which cost far more than the petrol driven kind. This is simply the latest example of the state’s role in economic and technological development, a role denied by those who call for minimal government interference in the economy. Though this action may be anathema to believers in free-market capitalism, history shows us that it has been the norm in all the major economies. In truth, market forces only play a part, and often a bit part, in technological development. However, market forces play a major part in the West in losing the technological capacity once developed. American companies in particular have been guilty of outsourcing their core competencies on cost grounds, to the extent that the American military is now dependent on foreign producers for important systems.
Allow me to provide a simple case study of the process.
A government decides that it requires the development of X high-tech system. The contract to develop X is given to company A.
Company A approaches research establishment B, which is publicly funded, in part at least. The company and research establishment jointly come up with the answers, and company A produces the required system.
Company A then gains government agreement to the commercial application of the technology, and develops a product based on the technology. That technological capacity has now become a core competency, or part of one, for company A, and a range of products may emerge from it.
Some way down the road, company A decides that domestic production is expensive, and production is outsourced abroad.
A little further down the road, company A decided that continuing research and development associated with these products is better done alongside their production, and that R&D becomes outsourced.
The end of the road approaches.
This has happened in America. It is a process that post-war Japan rejected and became the world’s second biggest economy as a result. Pursue Thatcherite economics if you must, but don’t whinge about the outcome.


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