Unveiling the invisible hand of government in economic activity with the internet and education as examples

This post is actually the record of a private discussion that occurred between myself and an investment banker. He has agreed that the conversation be reproduced here verbatim.

The stimulus for the idea of a session on the role of government in society came from the zoom session where I presented my book. That session eventually devolved into a fierce debate about what are the proper limits of government’s role in society with you forcefully arguing that its role should not go beyond ensuring the peace and security of the state and though you didn’t say this, you would probably agree to the enforcement of contracts in addition to ensuring peace and security, with you specifically stating it had no place being an economic actor and even managing schools, citing our fintech sector and the internet in general, and education (I am guessing higher education) in America as examples of areas that thrive because of the lack of government involvement.

I personally feel your choices of internet fueled economic activity and higher education (in fact education in general but in terms of statistical data I shall only be concentrating on higher education) are somewhat misleading, and in the case of education, quite mistaken, but before I go into that I would like to make a general point. There is no country in the world today whose government has no role beyond providing security and the enforcement of contracts, in other words, a purely free-market system. The last time anybody probably had a free-market system was 1920s America. That is roughly a 100 years ago. That system ended with the onset of the Great Depression in the 1930s. From that point on till present, governments around the world, including the US and UK, the world’s most market-friendly nations, have thought it necessary to actively intervene in the workings of the economy despite the free-market gospel they constantly preach. Businessmen world over may bicker about this but there is little to suggest that the world has any plans to return to a purely free-system similar to what obtained in the 1920s, though there has been significant amounts of privatization/deregulation/liberalization since the 1980s.

Having got that out of the way, I would like to highlight the decades of investment made by the US government in building the underlying internet architecture without which, there would be no fintech sector anywhere let alone Nigeria and also how mistaken your notion of US government’s non-involvement in higher education is. To buttress the fact about the US government’s critical role in pioneering major technologies, I point out how Apple, arguably the most prominent symbol of corporate innovation was dependent on the US government and university labs for many of the breakthrough technologies embedded in its iconic product, the IPhone (and IPod).

The internet was a project started in the 1960s by a U.S government agency known as the Defense Advanced Research Projects Agency (DARPA) (The same DARPA originated many of the technologies that found its way into the Personal Computer but that is another story). The impetus for the project was to build a communications network that could withstand a nuclear attack. To achieve that it was decided that the network should have a distributed design. By distributed, I mean that there is no main processing node on the network functioning as the brain that sends information to the computers (as opposed to being distributed, this kind of network is known as the client-server model). With it being distributed, even if a nuclear attack were to take out part of the network, the rest of the network could continue to function. Now I should point out that while many of the scientists who worked on the project wouldn’t necessarily agree that the goal was to build a network that could withstand a nuclear attack, the bigwigs who funded the project and continued to fund the project for 2 decades, did so with the explicit aim of obtaining a network that could withstand a nuclear attack.

While one small but highly innovative company called Bolt Beranek Newman (BBN) won a competitive tender to build a crucial piece of equipment, a tender that IBM declined to take part in because it thought it was impossible to build to the specifications asked for (AT&T, the telecom giant was even worse because it was positively hostile to a key concept needed to make the internet work at scale because it thought the concept threatened its business) the vast majority of the intellectual work in conceptualizing the internet, in designing the underlying architecture and actually building the protocols required to actually transport data around the internet was done by government and university scientists. This would be the pattern for over 2 decades, during which funding required for continuous development was provided by government sources. It was only from 1992-1995 that companies would begin to get involved en masse with the internet and this was mainly because of the development of the World Wide Web.

You should note that the internet and the web are not strictly the same thing, though the two terms are used interchangeably mainly because since the development of the web in 1991, the two have grown together. Strictly speaking the internet is a text-based network such that in order to navigate it, you will need to have a firm grasp of sophisticated UNIX commands (UNIX is a mostly text based operating system favoured by engineers and scientists over graphical operating systems like Windows). The web was built by Tim Berners Lee, an employee of the European intergovernmental experimental physics research lab known as CERN (So again, the foundational work in building the web, didn’t take place in a company). He designed the markup language for designing web pages, Hyper Text Markup Language (HTML), the protocol for locating web pages on the web, Hyper Text Transport Protocol (HTTP) and the world’s first browser. Now the browser built by Tim Berners Lee wasn’t particularly user-friendly. Lee had envisioned the web as an academic research tool so it didn’t support images and only read one line of text at a time. Quite a number of people/groups would try and improve on his browser. One of them was a computer science student doing research at a research center called the National Center for Supercomputing Applications (NCSA) at the University of Illinois, Urbana-Champaign (Yet another example of foundational work being done outside company walls). His name was Marc Andreesen. He and a fellow researcher would build a browser called Mosaic that did support images. He did this as a result of feedback he was getting by spending a lot of time in internet chatrooms so he was highly attuned to what users wanted. Andreesen had an entrepreneurial itch, so he would eventually join hands with legendary tech entrepreneur Jim Clark to build the world’s first massively adopted commercial browser called Netscape Navigator. It was from this point companies started piling onto the internet in droves and the internet started to resemble what we have today.
I had said earlier that I was going to discuss how the IPhone (and IPod) was crucially dependent on a number of technologies developed in government and university labs. What Apple mostly did was integrate these technologies into one slick package (an admirable feat in itself). Some of the technologies on which the IPhone is dependent, that were built in government or university labs include the internet just discussed, Global Positioning Systems (GPS), touch-screen displays, giant magnetoresistance (GMR. I don’t want to go into the details of this, it is needlessly technical. Just note it was crucial to enabling the IPod store so much digital content. This breakthrough was also important to other hard disk makers like IBM and Seagate), Liquid Crystal Displays (LCD), lithium-ion battery technology, SIRI the ‘virtual office assistant’, cellular communication technology etc. While the microchips that make the IPhone smart were built by private companies, most of them went from shaky start-ups to stable corporate giants by feasting on contracts from government agencies like the US Airforce and the National Aeronautics and Space Agency (NASA). This was a form of government industrial policy to help build the semiconductor/microchip industry. Finally, even more government industrial policies have helped ensure companies like Apple have survived through good and bad times. Much of what I said in relation to the internet, the US has done or is doing in other industries like aerospace, clean energy, nanotechnology etc. You might argue that much of this does not apply to Nigeria since we don’t carry out such research intensive economic activities. Well, we should. That is where the wealth we are all clamoring for will come from and not doing so is what keeps us mired in poverty. Besides, such government activity will be required for the more mundane but no less important manufacturing sectors that need rejuvenation like textiles, paper production, leather products etc.

Now that we are done with the issue of the internet, let us face public schooling. Most nations understand how critical education is for effective citizenship, America is no different, in fact it has to be considered a leader in that regard, with much of the rest of the world emulating it, including ourselves.

America’s founding fathers, back in the 18th century, understood that preserving their fragile democracy would require an educated population that could understand political and social issues and would participate in civic life, vote wisely, protect their rights and freedoms, and resist tyrants and demagogues. To that end, they knew that instituting a formal system of public schooling was necessary and they went ahead to do just that. I will spare you the details of the evolution of their public school system but I will share with you some facts about American tertiary education (I am leaving out the lower levels. That would be too unwieldy) as it stands today.

America has at least 682 public universities affiliated with the various states. It also has about 1,462 community colleges (sometimes referred to as junior colleges, as they offer two year programs instead of four) of which 1,047 are public and 415 are private. It also has 29 public liberal arts colleges. Liberal arts colleges tend to be small and private (They also tend to focus on critical thinking and a general understanding of how the world works as opposed to achieving competency in a single discipline, which is the focus of a typical large research university). The private ones number more than 650. There are about 1,687 private, non-profit schools (The likes of Harvard, Stanford are included here). The private liberal arts colleges are also included in this number. There are about 685 for-profit universities. In all, the US has over 1,700 public institutions of higher learning.

One interesting but not very important fact, I share it just for enlightenment and amusement. In terms of reputation and prestige, the private, non-profit schools are generally the most prestigious. Like I said this is where you have Harvard, Princeton, Yale, Stanford, Cornell and others. Next in terms of prestige are the state public universities. Some of them are as well regarded as the likes of Harvard. Examples would be University of California at Berkeley and University of Michigan (Barack Obama’s younger daughter chose to attend University of Michigan unlike her elder sister who chose Harvard). The private, for profit universities are generally not esteemed. It is widely believed that anybody who chooses to attend these schools is academically deficient and does not have what it takes to survive at a private, non-profit school or at a public university (Most public universities are state universities. Very few public federal universities exist in the US). They are disparagingly referred to as “diploma mills”. George Weah attended one of these diploma mills before he became president (Disclaimer: I am a fan of George Weah. Just noting that he went to one of these schools). Not sure where the community colleges rank but definitely, they will be after the private non-profits and the public state universities.

The conversation will continue in my next post.

BEFORE YOU GO Please check out my book Why Africa is not rich like America and Europe

Bibliography
1. Hafner, Katie and Lyon, Martin 1996 Where Wizards Stay Up Late: The Origins of the Internet New York: Simon and Schuster
2. Mazzucato, Mariana 2013 The Entrepreneurial State: Debunking Public vs Private Sector MythsLondon: Anthem Press
3. Wikipedia article on Higher Education in the United States https://en.m.wikipedia.org/wiki/Highe...