Down To Business: Google's Schmidt: An Economic Solution Is Within Our Grasp

Now that bailout is the new black in tony economic circles, is there any limit to the government's role in propping up companies and markets? Google CEO Eric Schmidt calls for a "balance" between the simplistic Washington caricatures of capitalism ("anything goes" free markets) and interventionism ("socialist five-year plans"). Which way do you lean amid the economic confusion?

Speaking at the New America Foundation in Washington on Nov. 18, Schmidt called for bold government-supported R&D and infrastructure programs, starting with energy and extending to communications and other tech sectors. Schmidt, an economic adviser to Barack Obama and a candidate to serve as the nation's first Cabinet-level CTO, said the president-elect's plan to double funding for basic scientific research is "long, long overdue." Because businesses, by law, must serve their shareholders, they're not going to emphasize pure research, he argued. "It takes government policy."

As for big infrastructure build-outs, Schmidt acknowledged he's "a big fan" of those as well, especially when it comes to alternative energy. He talked about the need for regulators to cut the red tape now required to build solar, wind, and other energy grids. Fair enough--the government shouldn't be a bureaucratic impediment to the provision of new, economically viable alternatives.

But he also called for massive, multiyear government investments in job and incentive programs to institutionalize energy efficiency. One recommendation: Pay bonuses to auto companies that beat CAFE fuel-efficiency standards. Even if those financial incentives skew the Big Three's production even more to the least-profitable vehicles? Struggling automakers should build the cars consumers demand, not the ones the government and environmentalists think they need.

The free market/interventionist "balance" urged by Schmidt and others is often difficult to rationalize. In one breath, they advocate letting the market decide; in the next, they want the state to dictate how the market decides. Not that all economic decisions are all-or-nothing propositions, but some consistency is in order.

In the area of Internet connectivity, Schmidt takes a different tack. He laments that many Americans still don't have access to true broadband networks. And those who do can buy from only one or two providers when, he argues, four or five are needed to ensure competitive pricing. Here, Schmidt resists calling for government funding for those alternatives, instead praising the FCC for opening up spectrum for that purpose (a move that serves Google's commercial interests). Continuing on that theme, he says the principle of "openness" that underlies the Internet, the ability "for anyone to play, drives the modern economy." No arguing with that philosophy: If there's a market for four or five broadband providers in a given area, the government should clear the way.

More broadly, Schmidt is adamant that "startups with funny names" be funded, as they're the source of wealth creation and innovation. While noting that the Internet was built through Darpa and that Schmidt was one of the recipients of that grant, he (thankfully) isn't calling for a government committee of the good and great to pick the most worthy startups to bankroll.

He does urge lawmakers to make it easier for foreign nationals attending U.S. universities to stay in this country after graduation to contribute to scientific and other research and start new businesses. "Why wouldn't we want the best and the brightest in America to solve these problems?" Schmidt says. "Wouldn't you rather have them here?" The policy of sending them home is "bizarre. It's disgusting," he says.

What's at least unsettling is the current rage of throwing hundreds of billions of taxpayer dollars at companies and industries that are failing because of management's ineptitude and the government's heavy hand. Schmidt is right in thinking that money could be spent more productively elsewhere.

Rob Preston,
VP and Editor in Chief
[email protected]

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