Open Letter to a Technology Entrepreneur: No More Handouts

7 October 2006 at 8:32 am 2 comments

| Peter Klein |

Vinod Khosla is a co-founder of Sun Microsystems, general partner at Kleiner, Perkins, Caufield, and Byers, and one of the world’s top venture capitalists. He is also a strong advocate for ethanol and co-chair of the campaign for California’s Proposition 87, a ballot initiative to tax oil companies to subsidize research on alternative fuels. Shikha Dalmia castigates Khosla for relying on government, rather than the market, to pick winners in technology markets.

Inviting the government to meddle in the affairs of private business is never a good idea, and if anyone should understand this, it is you. You reportedly left your country because of its hostile business environment and thrived spectacularly in this land of (semi) free enterprise, co-founding Sun Microsystems — one of the most successful computer companies on the planet. . . . But, with all due respect, even a man of your stellar track record can’t simply will markets to do his bidding; an economy is not a machine that can be manipulated according to its maker’s grand designs. If it were, India’s central planners would have made rivers of energy flow into every Indian home. . . .

Some commentators have suggested that your support for Prop 87 is a rent-seeking move, meant to boost your recent investments in ethanol by debilitating competitors. I don’t buy that. Yet, the issue is, if ethanol has all the advantages you says it does — if it is renewable, cleaner, less volatile, more reliable, easily transportable etc. — surely you of all people could convince enough investors to cough up the $4 billion that Prop 87 would raise. Are you not turning to taxpayers because you don’t want to assume that kind of risk — and can’t convince fellow investors to either?

HT: Lynne Kiesling

Entry filed under: - Klein -, Classical Liberalism, Entrepreneurship.

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2 Comments Add your own

  • 1. JC  |  8 October 2006 at 5:20 pm

    How weird. How ideological.

    So markets don’t fail? So markets do not stand on systems and laws and procedures (routines perhaps) created and managed by governments? So perfect markets exist independent of the socio-political context/s in which they exist? So de Soto, H. (2000). The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. New York: Basic Books is empty liberal piffle? What planet are we discussing here?

    As one who worked for ATP and explored the inner workings of Federal support for technology, and thereby understood something of the actual political maneuvering that allows companies in the private sector to raid the public’s purse, it seems to me that Shikha Dalmia needs to ponder further on the way economic history actually works. What is the explanation for Silicon Valley itself then, absent an understanding ot the US government’s investment in California industry during the Korean War?

    And as far as ethanol, is the tariff on sugar ethanol from Brazil an instance of free market operations or is it politics and backhanding DC business as usual.

    It is quite one thing to theorize about how economies and firms operate, I like to do that too, but it is quite another to forget all about the infrastructure that constitutes our society and economy, and get caught up in one’s own ideological hype about how the real world should be run. And by whom, anyway?

  • 2. Peter Klein  |  10 October 2006 at 10:59 am

    JC, you’ve raised a host of issues that are not easily addressed in a short comment. But I think the relationship between government policy and technology entrepreneurship is more nuanced than your remarks would suggest. Silicon Valley is great, but such ex post analysis is rife with selection bias. Both theory and evidence suggest that government, on the whole, is not particularly good at winner-picking.

    On the relationship between government and the institutional environment more generally, well, there is a large literature on the private provision of public goods, the evolution of norms and legal rules, and so on, much of it discussed here in previous posts.

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