Innovation; Business-Government Alliance

In Capitalism And Freedom, Milton Friedman argues that government should exist in the market primarily to enhance unrestricted economic freedom. Government interference in the marketplace that restricts or compels consumer choice is unjustifiable. Friedman's case for market fundamentalism seems to be at conflict with the historical fact of the United States government's involvement. From state police powers to Progressive Era reforms to the New Deal, political, social, and cultural change has always shaped the contours of capitalism, whether the government was state or federal. The consumer health and environmental protections era (1964-1977) and the rise of the concept of the developmental state differ from Friedman's perspective. Instead of a combination of public and private sectors, Friedman's philosophy has guided the notion of market fundamentalism within the false notions of the invisible hand driving innovation. This idea disregards the fact that the government is the only entity that can invest in certain sectors within the innovation economy. Government support for large, medium, and small firms competing for the best technology has replaced the notion that the government should not pick winners.

Friedman makes clear that only two conditions make government intervention rational. The first is large neighborhood impacts, which he defines as "circumstances in which the behavior of one person imposes big costs on other people for which it is not possible to make him reimburse them, or generates substantial gains that make voluntary trade impossible." According to this view, the government can only intervene in situations that benefit society as a whole by producing better citizens. Or in the case of someone else's choice, your freedom of choice is restricted. The only other potential justification for government intervention is paternalism toward children and other irresponsible people. This only applies to people Friedman deems incapable of becoming responsible citizens, as well as children, since their actions have repercussions on the surrounding community: "I profit if another man pays to the care of the mad." Milton Friedman says that it should be made plain where, when, and why the government should act.

However, shortly after Friedman published Capitalism and Freedom, government involvement between 1964 and 1977 increased its emphasis on consumer rights, workplace health, and environmental safeguards. The Consumer Product Safety Act, for instance, targeted flammable children's pajamas, phosphates, toxic home cleansers, and the presence of numerous chemicals and particles in the air and water of the United States. During the 1960s and 1970s, regulating the alternatives available to customers became a political issue that had a significant influence on the business as a whole. This resulted in the formation of several bureaucratic entities that regulate how and what items are manufactured. These newly constituted government agencies raised government expenditures from $539 million to $5,036 billion, which was followed by a large growth in social regulatory agency personnel. Through the implementation of new regulations affecting marketing, personnel administration, plant location, research and development, and manufacturing, bureaucracy was destined to become a fundamental component of business. According to one viewpoint, companies did not value the new interconnected bureaucracy that now affected all of their critical choices. But according to the concept of the developing state, industry and government remain partners regardless of whether social rules are tightening or easing. The government continues to advance industry through subsidies, financing, and research and development.

The developmental state is driven by economic innovation, which provides a different perspective than Friedman's market fundamentalism or regulatory government policy and illustrates the interaction between government and industry. Rather than the dichotomous arguments given between government regulation and market fundamentalism, the two require each other to drive an innovation-intensive economy, together with a crucial third factor: the university. These three factors, together known as the "triple helix of innovation," are or have been the driving force behind the research and development of government-issued projects, which are then transferred to industry and eventually commercialized. The government's influence on innovation may be traced back to the 19th century, when the United States began to design its infrastructure (railroads, highways, bridges, etc.). In 1901, the Bureau of Standards, which is now known as the National Bureau of Standards (NBS), was the first government laboratory with competence in the physical sciences with the objective of fostering further industrial progress, such as the development of telephone technology. Since then, the public has seen the expanding influence of the government behind enormous technical advances, whether or not this has been visible. According to Fred Block in Capitalism: The Future of an Illusion, the United States has established a sophisticated and complicated innovation system in which the government plays a major role during the previous three decades.

While government regulation and market fundamentalism have been adopted more or less at different times of the U.S. political agenda, depending on the social and cultural climate, one aspect has remained constant: the government has been a partner with business in driving economic innovation throughout the entire history of the United States. Even throughout the Reagan era's 1980s acceptance of leaving the private sector to its own duties, DARPA (Defense Advanced Research Agency), which was established in 1955 and still exists today, has continued to play a crucial role in modernizing university, corporate, and government connections. DARPA, in contrast to those who advocated for a centralized industrial strategy or the free market fundamentalist worldview of the Reagan period, was a method of enhancing the infrastructural capacity of the state by decentralizing into many organizations to support university-led research initiatives. This achieved the differentiation of industrial policy authority between agencies, as opposed to all policy decisions being made in a single autocratic arena. This helps link university researchers with companies in order to commercialize their innovations. These technologies generated via "the triple helix of invention" have been transformed into commercial products such as the computer, the internet, and the iphone, as a consequence of corporations collaborating with the government and the university to accelerate new breakthroughs.

In more recent years, similar developments have occurred as a result of the Obama administration passing the American Recovery and Reinvestment Act in 2009, allowing the Department of Energy to pursue "blue sky ideas" that will result in technological innovations that, like DARPA, may not be utilized for decades. Nonetheless, it is true that the state should and has always played a significant role in fostering innovation. This unbroken decentralized collaboration between the university, business, and government is essential to the functioning of political capitalism.

The developmental state goes far beyond market fundamentalism and regulatory state policies in its pursuit of innovation as the key to maintaining the United States' worldwide competitiveness. Modern Friedman supporters concur with Sen. Ron Paul's allegation that the Export-Import bank is "Corporate Welfare" since it subsidizes some of the United States' top corporations, such as Boeing. On the other hand, Boeing is the biggest exporter in the United States and its business would not be able to compete globally without government subsidies. Government is the only organization that can and is prepared to invest in unknowable prospects that lead to innovation or offer enough funds for industries that sell satellites, construct nuclear power plants, and small enterprises to compete. In a great number of international enterprises, an Export Credit Agency is required. According to a 2017 article published by Kristen Hopewell in the Review of International Political Economy, "Projects predominantly in developing markets, where bids will not be evaluated without ECA support" (Export Credit Agency). This is because no commercial bank is able or willing to invest in such high-risk, long-term projects. In order to remain competitive with the rest of the world, the United States must be able to compete in this market. However, market fundamentalism and regulatory policy do not address the large-scale drivers that will perpetually allow the United States to remain competitive with foreign industries during a period of declining U.S. power. Moreover, when the United States does not supply export agencies, corporations will rely only on the export banks of other nations for subsidies, which would not only prevent the United States from being competitive but also strengthen the footing of foreign rivals. Therefore, it is in the direct interest of the United States to continuously assist firms competing globally and give them with the tools they need to compete. According to Hopewell, even huge corporations like Boeing "Support a supply chain of nearly 14,000 additional U.S. companies employing 1.5 million people." Therefore, the notion that supporting these companies constitutes corporate assistance is incorrect.

While Milton Friedman's market fundamentalism philosophy has been used as a cover for discovering innovations by expanding economic freedom, and business and government have been at odds over regulatory policies, the deeper truth is that government and business have been partners through subsidies, funding, research and development, and bringing foundational innovations with the right design to the market. All of these factors are more important to the interaction between industry and government in maintaining the United States as a worldwide competitor than the superficial views of market fundamentalism and regulatory policy.