State intervention in economic affairs runs against the established wisdom that the market is best for promoting ideas. At the same time, throughout history, the governments of many developed nations have actively fostered groundbreaking companies, from Bell Labs in the U.S. to Airbus in Europe.BW: The Rise of Innovative State Capitalism
Brazil is perhaps the best current example of how a state-capitalist system can build innovative industries. Successive Brazilian governments have intervened—with incentives, loans, and subsidies—to promote industries that otherwise would have needed long-term private investment to make them competitive with U.S. and European rivals. At the same time, Brazil preserved strong, independent management of state-backed firms, ensuring they did not become political boondoggles.
Three decades ago, for example, the Brazilian government gave aircraft manufacturer Embraer lucrative contracts and various subsidies, recognizing that it could potentially find a niche in producing smaller, regional aircraft. Private investors were dubious of Embraer’s chances. Had it relied solely on private investment, the company probably would have failed; instead, it flourished, becoming the world’s biggest maker of regional jets. Similarly, by investing in deep-sea drilling technology, Petrobras, a state oil company with an independent management board, has made itself competitive with multinational giants such as Chevron, Shell, and BP.
A comprehensive 2009 paper by Harvard Business School looked at India’s more than 40 state-owned science and engineering research laboratories, which have used a similar type of public-private collaboration. It found that the Indian state labs had “more U.S. patents than all domestic [Indian] private firms combined.”
Thursday, July 05, 2012
The Rise of State Capitalism
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Bell Labs is not a success story in the sense you say but a failure. They set up an extensive mechanism to get grants from the government. That is all there was to Bell Labs. Every publication from Bell Labs was in effect a grant to someone.
Their lethargy prevented the cell phone industry from taking off in a big way in the US and it took a full hundred years after the invention of radio that this industry finally grew.
The event preceding the sudden growth of the industry? The industry was deregulated in the Telecommunications Act of 1996.
They had some successes driven by the market component portion of AT&T but even there they enjoyed a monopoly due to the government granting them such monopoly and slowed the process of innovation (I have already given an example of such slowdown).
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