Getting a return on investment is capitalism, not socialism!

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The media handwringing and teeth gnashing about the possibility that Democrats will be tagged as “socialists” misses the many points that have been made about wealth inequality, fairness of the corporate/individual tax code, and the impact of technology on jobs. I would add that taxpayers demanding a return on investment (ROI) for funding the basic research and development (R&D) commercial enterprise has been either unwilling, or unable to fund, is not socialism. 

What critics of the progressive agenda do not recognize is that the taxpaying public has enabled the titans of cloud- and crowd-based businesses to exist and thrive. By “cloud- and crowd-based,” I am referring to those companies that rely on compiling, storing, and analyzing staggering amounts of data. Such business models could not exist at the required scale without semiconductor technologies that make high-performance computing and cloud networking both possible and economical. Indeed, the explosive growth in users of social apps, online shopping, mobile banking, and other similar app services occurred because of the growing affordability, portability/mobility, and functionality of smartphones. 

You cannot have smartphones without semiconductor technologies. You can write billions of lines of code — but that code has to run on hardware, like logic and memory chips in a computing platform. You also have to be able to collect, store, and manage the associated data that comes from using these services and that, again, means semiconductor-enabling technologies. Certainly, the semiconductor industry has invested in R&D. However, much of the basic R&D that led to the most important foundations of our modern economy were funded by governments. The reason this is so is because most companies will not underwrite such long-term investments if there is no certitude that they can be commercialized, or profitable.

 

Government investment is key to tech success

Many of today’s most valued companies on the market did not invent – nor appreciably develop – many of the technologies that made their businesses successful and their business models possible. 

Consider the companies collectively referred to as FAANG for their stock market symbols: Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG). None of these companies invented the transistor, semiconductor devices (e.g., logic chips, memory chips), the Internet, GPS, Bluetooth, or WiFi. Nor did they invent the myriad process technologies that go into designing and manufacturing logic and memory chips.

These process technologies evolved during the 20th century to their current states based on investments not only by semiconductor equipment manufacturers and materials suppliers, but also by the U.S. government, which funnels money into projects at DARPA, DOE and its National Science Labs, National Institutes of Science and Technology (NIST), university research labs, public/private partnerships and consortia. Foreign governments and consortia have also developed and/or contributed to many of these technologies. 

Even the all-important development of artificial intelligence (AI), which relies on access to extremely large data sets to be successful,was based on research that occurred long before most of the current technology players were even in existence. According to the article by Anyoha, attendees of the 1956 Dartmouth Summer Research Project on Artificial Intelligence (DSRPAI) were instrumental in convincing “government agencies such as the Defense Advanced Research Projects Agency (DARPA) to fund AI research at several institutions.” Anyoha further described the years from 1957-1974 as ones in which AI flourished. 

To be fair, it was noted by today’s AI expert, Kai-Fu Lee (AI Super-Powers, China, Silicon Valley and the New World Order,” pp. 92-93) that with respect to R&D spending: 

“…Google dwarfs even its own government: U.S. federal funding for math and computer science research amounts to less than half of Google’s own R&D budget.”  

Lee further observed that this amount of investment has allowed Google’s parent company, Alphabet, to snag around half of the world’s top AI talent. “The other half are distributed among the remaining Seven Giants, academia, and a handful of smaller startups,” said Lee in his book. I would respond to these observations that you can’t run AI on air – you still need high-performance computers and that means advanced semiconductor technologies. I would also add that perhaps the U.S. as a nation is setting itself up for failure if it does not soon match the enthusiasm of China, which is investing heavily in AI research.

Balance government largesse with benefits to society

Compared to most of the previous century’s industries, the cloud- and crowd-based companies have a low number of employees relative to their market valuation. This situation should give pause when government officials want to offer tax breaks, tax incentives, deregulation, etc. In the past, this kind of largesse generally assumed that companies receiving such benefits will generate a substantial number of good-paying jobs. By good paying, I mean those that support the middle class and offer a hand-up to those of lower economic means. Judging by public and political commentary about fallout from the recent Amazon/New York deal, I believe there is sufficient doubt to whether or not that is still the case.

Adding insult to injury, many of the current stock market “high-flyers” in technology, financial services, and other leaders have business models based on the collection, storage, aggregation and analysis of staggering amounts of data. Said data come primarily from the public, or at the very least, from public usage of company services. 

Furthermore, with the growing importance of artificial intelligence to future economic growth, the cloud- and crowd-based businesses won’t be able to compete on the world stage without personal data elicited from citizens. The public has a right to more than just a few discounts on merchandise or the convenience of using an application when the fall-out of such usage damages the common weal. Damage to society can be seen in everything from data breaches, misuse of personal information, ID theft, and replacement of higher paying jobs with lower paying ones with no promise of anything approaching full-time status.       

Every time a corporation that is able to exist, survive, and thrive primarily because of technology it did not invent, or relies on infrastructure it did not build (roadways, interstate highways, and rail systems to name a few) to be able to deliver its products or services to customers, it is not socialism for the public to insist on good corporate citizenship. It is also not too much to ask corporations, whose future economic growth depends on the collection, aggregation, and analysis of personal data, to allow the public to have a say in how that data can be used. The public should also be able to demand that societal benefits accrue to the extent that they are more than a few table scraps. 

Corporate “personhood” and citizenship

Society expects certain behaviors of its citizens (e.g., obeying civil and criminal law statutes). At the very least, the marks of a good corporate citizen should include:

  1. Paying taxes in an amount sufficient to be fair to taxpayers. While corporate tax laws take into account the amount spent on R&D and new equipment, lawmakers need to offset such deductions with how much a company depends on the technologies it did not develop to exist and thrive.

  2. Contributing to the surrounding communities with respect to infrastructure.

  3. Contributing to the educational system (pre-K to university level) to ensure an adequate infusion of properly prepared new talent going forward.

  4. Providing jobs with just and equitable compensation and conforming to society’s expectations of fairness with respect to hiring practices.

While it would be ideal if all businesses met these civic responsibilities, it would be more realistic to apply them primarily to the largest businesses and corporations that have benefited from publicly-funded R&D and on the basis of the extent to which they enhance the common good v. taking from the public good.

When corporations live up to their civic duties, government funds can be more focused on investing in basic R&D that is necessary and essential to ensuring the U.S. will have continued leadership in innovation and the technologies of the future. With a renewed emphasis on creating and supporting the proper environment for education, training, and fairness in hiring and advancement, we might find that the social safety net has less need of public funding. Additionally, when more corporations live up to their social responsibilities, a greater share of taxpayer funds might be available for one of the most fundamental purposes of government: to keep its citizens safe from outright war, as well as cyber threats that can cripple or destroy our infrastructure and manipulate our elections.

Now, more than ever, it is vital that as the most highly valued corporations rely on the cloud- and crowd-based business models, they recognize their debt to society at large for having created the foundation that enabled their companies to exist and “scale” in the first place. With only about half of U.S. citizens in the stock market, and many of the rest certainly not falling into the millionaire range, it is time that all citizens get a fair ROI in lieu of cuts to the social safety net and continued wage inequality and job insecurity. The public deserves a fair ROI on its past (and current) investments in the technologies of the future.

That’s how capitalism works!