In Foreign Affairs, James Bessen writes:
U.S. procurement programs worked so well in part because the Pentagon gave its business to a diverse group of private firms, including start-ups and university spinoffs such as Bolt, Beranek and Newman (now BBN Technologies), one of the companies that helped develop the Internet. It also required contractors to share their technologies with universities and other private firms, encouraging further innovation outside the government. By contrast, France and the United Kingdom often used government contracts to promote national telephone and computer companies, and the United Kingdom and the Soviet Union limited the interaction between government researchers and their civilian counterparts, cutting off the private sector from high-tech advancements. The Pentagon also encouraged contractors to adopt open technical standards—such as the set of protocols, established in 1982, that specified how data should be packaged and transmitted on the Internet—which allowed knowledge to spread quickly and easily.
In the past few decades, however, procurement has strayed from this successful formula. Instead of awarding contracts to start-ups and spinoffs, the Pentagon has favored traditional defense contractors. The Defense Department tasks these contractors with meeting the military’s narrow needs and too often prohibits them from sharing their work with universities or other companies. An example from the past reveals how problematic such policies can be. In 1977, when the Pentagon sought to create high-speed semiconductor chips, Congress prohibited the contractors hired from sharing their research. University researchers were effectively excluded from the program, and chipmakers were forced to separate their defense work from their commercial operations. Unlike the government procurement programs in the 1950s and 1960s, which spawned many start-ups, this billion-dollar program did little to commercialize new technology.
The article offers other points of interest, mostly about how special interests have undermined entrepreneurship. I have recently pre-ordered Bessen’s forthcoming book on this theme.
For the pointer I thank Spencer England.