In praise of public-private partnership

Today's splashdown of the SpaceX Dragon capsule off the coast of California completes the first successful visit of a private spacecraft to the International Space Station.


This news isn't really China-related, but it illustrates an important aspect of state vs private sector investment. To over-generalize a bit, (American) conservatives would prefer that the private sector do everything, and (American) liberals would prefer that the state do everything.

Here we have illustrated the importance of public-private partnership. Without the initial leadership of the state, the US would not have reached the moon in 1969. It took far more investment than any private sector investor would have been willing to risk for what was basically a huge experiment with no monetary payoff.

Based on a few decades of learning, a private company has now managed to come up with a solution far less expensive, and at least as effective, as anything the state could have come up with to send supplies to the space station. And this was apparently just the beginning; the Dragon capsule will someday ferry people too.

Bringing this lesson closer to my area of interest, perhaps it also makes sense that governments subsidize the development of alternative methods of fueling personal transportation. Right now, the economics of electric vehicles simply don't make sense. This is why it is important that governments step in to subsidize the experimental phase.

As with the original moon shot, alternative fuels and methods of propulsion are experimental (and arguably far more important), but no private sector investor would be willing to take such a risk to build a product that doesn't yet provide a positive return on investment.

This isn't to say that governments will always be right, but that's the nature of experimentation. Thomas Edison conducted over 3,000 experiments with different materials for filaments until he finally made a lightbulb that worked. For small experiments such as Edison's, no government help was needed, but without government regulation and assistance, we would never have moved beyond the traditional gas guzzlers we were driving back in the 1970s.

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When I began to research business-government relations in China's auto industry several years ago, I started with a question of why China seemed to be achieving such great success under the heavy hand of the state. What I have since learned is that, while, yes, the state can drive outstanding growth in an agrarian society with low living standards, the ability of the government to make good decisions declines as technology becomes more complex.

China has now reached a point where its government needs to be smart enough to step back and allow the private sector to compete freely (and not just talk about it). All the government assistance in the world will not make state-owned businesses competitive. They simply lack the proper incentives.

At the same time, the American people also need to realize that the US will never grow as fast as China has grown over the past three decades (and neither will China again). We also need to realize that there is a place for government to invest in experimentation that will result in much-needed future technology. Sometimes the government will make mistakes, but fear of making mistakes will deprive us of potential successes.

Being counted among the most advanced countries on earth is not easy, as the Chinese are about to discover, but the notion that either the government OR the private sector is best suited to drive future innovation is a false choice. We need both. We need the competitive zeal of the private sector, and, sometimes, we also need the deep pockets of the government to take on problems too big for the private sector.

The Chinese system of dominant state owndrship is nearing the end of its usefulness, and if the Chinese don't figure that out, they are doomed to stagnation and chaos. US arguments over "socialism" vs "free-markets" are also pointless. Somewhere, in the middle, there is an ideal system in which ownership still lies primarily with the private sector, but the government takes the big risks that can potentially save the planet for our children and grandchildren.
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