Industrial policy and ecosystems

Kevin Williams has written a very good piece about the straight-up superiority of Chinese electric vehicles. When Americans try to understand China's success at industry, they used to think in terms of cheap labor. By now we've come to acknowledge agglomeration effects. China has developed rich "ecosystems", which render proficiencies supportive of their industries effortlessly abundant.

What Williams' piece highlights is product design. Chinese EVs are just better, cooler, more desirable products than anything Western manufacturers have on offer. That cuts deep. As industry after industry has migrated, many Americans continue to nurse a conceit, encapsulated in Apple's mantra "Designed in California. Assembled in China."

Okay, we like to tell ourselves, our comparative advantage is no longer in fabricating things, with belching smokestacks and fussy labor. Our comparative advantage is the high value part, the creativity. It's fine and sensible that we outsource all the rest.

Among many trenchant observations, Williams' piece notes

Xiaomi...a phone manufacturer...decided to design and manufacture its own car. Unlike Apple, Xiaomi actually pulled this off, and the end product is so advanced it’s made headlines all over the world.

Apple just can't do what Chinese firms can. As Dan Wang has emphasized, production excellence inheres mostly in tacit forms of knowledge that develop only via rich and continuous feedback across every aspect of product development. Apple in California is isolated from processes that should inform and inspire it. Even Einstein would not have been Einstein had there been no physics community into which he could enmesh himself.

The word "ecosystem" has become something of a commonplace. But as Maria Farrell has pointed out, what the hypemasters of tech call "ecosystems" are better described as plantations. An ecosystem is a chaotic, polycephalic beast. It is a site simultaneously, paradoxically, of competition and collaboration. It is owned or controlled or dominated by no single organism or species. It is an always changing but also self-stabilizing web of interdependence.

The idea of an "Apple ecosystem" is a contradiction in terms. Apple cannot be an ecosystem. Apple is flailing because it is starved of one.

The United States is finally trying to reverse its great decline into forms of specialization and trade that lobotomize us. I am very supportive of, and very grateful for, the CHIPS Act, the Inflation Reduction Act, and the Bipartisam Infrastructure Law. But, I fear that rather than developing ecosystems, our political system is more likely to support a few plantations.

Among the most destructive scandals in recent US history was the kerfuffle over Solyndra. Solyndra was a solar cell startup, to which the Obama Administration guaranteed $535M in loans in 2009. When, unexpectedly, Chinese producers knocked the floor from beneath solar cell prices, Solyndra's process became uneconomic. The firm went bankrupt in 2011, and the Federal government had to eat a loss.

The larger program that had funded Solyndra did fine, even turned a profit for the Federal government. Without that program, there would likely be no Tesla. Nevertheless, the embarassment and scandal surrounding Solyndra has discouraged politicians from lending to smaller, less certain ventures ever since.

We in the United States are counterproductively attached to very simple and immediate forms of state accountability. Every meeting should be open and transparent. Every dollar spent should have a responsible party to blame if, sometime later, we decide that it was spent foolishly or corruptly. An opposing political party and an adversarial press eagerly collude to characterize even the most justifiable choices as corrupt, if in the end they don't work out. It's hard to get people to take a lot of risks under these conditions.

Subsidy in China is helpfully more diffuse. In addition to overt subsidy (especially on the demand side), China finds ways to subsidize industries without accountable bureaucrats directly cutting checks. The central government simply communicates, widely and forcefully, that it wants effort devoted to an industry. Local governments and state-owned banks do the rest of the work. Local governments collaborate with entrepreneurs to put together ventures. Banks, which are not insulated from politics as Western dogma prescribes, become interested in funding such ventures.

From an account of China's solar industry by Jonas Nahm:

The inclusion of solar PV on the list of strategic emerging industries in 2010 and the goals set in the 12th Five-Year Plan (2011–2015) for the solar industry greenlighted subnational government plans to support their local solar firms. As a result, China’s solar firms had access to large sums of capital through bank loans, provided by state-owned banks and frequently guaranteed by local government entities or state-owned companies.

Credit lines to expand manufacturing capacity were brokered and backed by local governments and state-owned firms, even in the years after the global financial crisis when the collapse particularly of European markets led to overcapacity in global solar markets. Providing loans was a way to improve local GDP growth rates, employment rates, and other indicators of economic development used to determine cadre performance and promotions. Solar PV’s status, first as a designated high-technology sector, and, starting in 2010, as a strategic emerging industry in central government plans further encouraged local government officials and state-owned banks to continue lending to China’s solar PV sector.

There does remain some market discipline. Entrepreneurs still put up their own capital. Banks still try to discriminate between better and worse ventures in targeted industries. The state subsidy takes the form of a coordinated bias in otherwise decentralized decision-making. China's historical success at growing industries through "big pushes" renders applications for finance in a favored domain genuinely superior to similar applications outside of one. A widely shared understanding that this is what we are supposed to be doing limits the downside risk to banks.

Banks everywhere face soft budget constraints. Whether nonperforming loans must be written off, rendering a bank nakedly undercapitalized, or can be rolled forward is a regulatory choice, not a fact of nature. For banks, accounting is destiny. By treating banks whose lending decisions generally align with state priorities gently, the state subsidizes those banks without ever cutting checks beyond routine lending of reserves to institutions that are deemed to be well capitalized.

Because local governments more than the central government take the lead in finding or putting together ventures, there are no national Solyndras. Local failures are more forgivable than central failures, from a public perspective. Of course it's the work of local governments to try to make sure our region takes part in the next big industry. Favoritism of central governments is divisive. The public imagines there were many enterprises to choose from, and the best connected got the gravy. But in a local context, the public understands there often simply would not be an enterprise absent tax breaks and loan guarantees. As every American locality that has shoveled out money for a stadium can attest, arguments for development can overmuscle concerns about corruption.

In this model, there is still eventual accountability. Among the politically well-aligned banks, those who stand out from the pack as bad performers might be made examples of. No matter how cheap the loans, entrepreneurs still stand to lose invested capital. Local governments struggle if tax breaks are never met with offsetting development. Where holes are deepest, officials risk defenestration.

The "artificial" enthusiasm created by this kind of loose, untitrated subsidy encourages too many entrants, from an orthodox financial perspective. It engenders "overcapacity", vicious price competition, and more eventual failures than would be typical in an "undistorted" business domain.

But when all is said and done, "inefficient" exuberance is a better problem to have than failing to develop the ecosystems that nuture high-value industries. In a firm-by-firm tally, a lot of money will seem to have been "wasted". But if a competitive, world-class industry emerges, its value to the nation will far outstrip the cost of all the defaulted loans.

Ricardo's difficult idea is at best badly incomplete. National prosperity does not derive from merely exploiting comparative advantage, but from ensuring the comparative advantage you exploit is in the highest value industries.

From national-security perspective, high-value industries reflect globally scarce capabilities. On-shoring them relieves risky dependencies on potentially adversarial powers, and develops a point of likely dependence among trading partners which, if necessary, can be weaponized.

The fiscal costs of China's indirect subsidies are shrouded, but they are very real. They are buried in arcana on the balance sheets of underperforming banks. They hide in flows from the central to local governments that ensure garbage still gets collected despite tax shortfalls. In drips and increments, most of the costs of failures end up on the central government's balance sheet. But there will have been no scandal, no Solyndra. And, if a globally competitive ecosystem has been seeded, the increment to public debt will be overwhelmed by the industry's contribution to GDP.

It is unlikely that the United States could adopt China's approach to subsidy directly. In the United States we are obsessively allergic to anything that looks like state corruption, even while we lionize the architects and beneficiaries of every form of private corruption. This set of values does not work to our advantage.

Nevertheless, we can try to structure our subsidies to render them more diffuse. We could offer them through states and municipalities, rather than as direct Federal programs. We could offer cheap finance to smaller, specialist banks to fund ventures in targeted industries. We could precommit to tallying and evaluating loan guarantee programs in aggregate, telegraph early the expectation of failures, point to the venture capital industry as a model of failure-tolerant success.

But unlike venture capital, we should expect and tolerate a moderate net loss across the whole portfolio. The goal is not to earn an investment profit, or to hide financial underperformance in positive-but-less-than-market returns we can pretend are still profit. The goal is to jumpstart decentralized, competitive ecosystems in high value, tradable sectors. Which is worth a fiscal cost.

draft by Steve Randy Waldman
[2024-05-11 @ 02:50 PM EDT]

The long fistbump

I think a lot of us have struggled to understand why. Why has Joe Biden been so indulgent with the government of Benjamin Netanyahu?

Unswerving military support for Israel’s bloody war in Gaza divides Biden’s political coalition, and threatens his narrow electoral path. Of course, Israel is popular in the United States. Biden couldn’t just abandon the ally. If he were optimizing for domestic political support, however, he’d assure Israel’s defense, but also impose much more conditionality, exert much more leverage than he has so far, over both the ends and means of Israel’s campaign. Instead, Biden has chosen to provide full and fully unconditional military support to Israel. He expresses misgivings about Israel’s conduct as though his administration were an uninvolved third party, able to advise but not to constrain. Obviously that’s bizarre. The United States is an essential partner in Israel’s enterprise, not a powerless spectator.

I have a conjecture to offer. What if Biden’s odd choices are not so much about Israel, but about US policy interests with respect to Saudi Arabia, Egypt, Bahrain, UAE? What if the domestic political costs of Biden’s position are the point, if Biden’s willingness to bear them is a costly signal to the Gulf autocracies that the United States’ commitment not to Israel but to them is “ironclad”?

Beginning with the George W. Bush administration, but continuing through the Obama years, the United States went a bit mad. At the turn of the millennium and even after 9/11, the United States was the ultimate status quo power. It was, as a French foreign minister put it, the “hyperpower”.

Ordinarily, a status quo power seeks to impose stability. When you are at the top of the heap, you want to keep the world very much as it is. Provoking revolutions against the status quo is usually the work of “revisionist" powers, who are unhappy with their own place in the pecking order and want to throw over the table to some greater or lesser degree.

But hyperpower America was a bit drunk not just on its preeminence, but also on its ideals — freedom, democracy, human rights as we deigned to define them. We were the vanguard of the end of history, and we were going to hurry the rest of the world into looking much like us. We invaded Afghanistan and Iraq not simply to deter, or to protect our interests narrowly defined, but with a mission to transform those places into Western-style liberal democracies, which by their very natures would not export the kind of terrorism that had provoked us.

And so, bizarrely, the preeminent power chose to roll the dice on everything, to overturn a very favorable geopolitical status quo and see what might come next.

Even after its crusades failed, and a new President was elected — in large part because he’d demonstrated sound judgment by opposing the invasion of Iraq — the United States proved an unreliable anchor to the world order. Order, in a real world full of armies, is built upon agreements and alliances between existing, incumbent states. The United States was warmly allied with Hosni Mubarak’s Egypt. It had less warmly but quite actively partnered with Assad’s Syria during the “war on terror”. It had come to an agreement with Muammar Qaddafi, who dismantled Libya’s nuclear program in exchange for ending that country’s pariah status under what was still an American world order.

And then came the Arab Spring. How could you not be inspired by what was happening in Tahrir Square? God knows I was. I think we all were. When Secretary of State Hillary Clinton urged caution — Mubarak was a friend, she said — we the people were outraged. Mubarak was a brutal, illiberal, corrupt, nepotistic tyrant. He did not uphold the rights that our ideals declare must be universal. Surely we couldn’t take his side against nonviolent protestors seeking to build a more just and free society?

We didn’t. President Obama called for Mubarak to accede to the protesters and step aside immediately. Ten days later, Mubarak had resigned. A disorderly “transition to democracy” quickly elected Islamist Mohamed Morsi (echoing the outcome in Gaza years before). Morsi lasted just over a year before some mix of revolution and military coup brought into power Egypt's current leader, Abdel Fattah el-Sisi, a figure very much like Mubarak.

Egypt’s history is not the United States’ to make, but US action can constrain it. Would Mubarak have simply crushed the rebellion absent American constraint? We’ll never know. We do know that when Libya’s Qadaffi prepared to do just that in the country next door, NATO intervened to prevent the crushing. There too the revolution succeeded only to fail. Libya was left not with a Qadaffi clone, but a failed state, a continuing catastrophe by any measure. Qadaffi had made his peace, made a deal, with the West. He had surrendered his nation's nuclear program. But once Western passions about liberatory revolutions and human rights were inflamed, the Libyan government’s claim to sovereignty had to give way. Once again, the status quo power fanned the flames of unpredictable change.

Putin is reputed to have described the West as “agreement incapable”. I have not been able to source the quote, but the sentiment seems clear in much of Putin’s rhetoric. Qadaffi’s experience underlines the problem. It’s not that the West is cynically duplicitous. (However much Putin likes to claim that too.) It’s that a very impassioned, immediate-term idealism can overwhelm politics in the West, making it impossible for countries like the US to keep commitments when they are needed most, in times of crisis when stability of a partner state requires credible threat of coercive violence. By undermining the credibility of any threat, an international politics of human rights may embolden rebels, and then threat must actually graduate to bloody crushing of the rebellion. Or else fail to do so, often with less-than-liberatory results.

This risk is particularly acute for states whose order is kept by systems quite different from Western liberal democracy, and quite illegitimate from a Western liberal perspective. If Mohammed bin Salman, a leader most famous for his bone saw, faced a challenge like Qaddaffi faced, could any security commitment by the United States be credible? Americans might object that it should not be! We should not be complicit when a medieval homophobic tyranny crushes dissenters, along undoubtedly with their children and wives and endless other innocents. But should we be chastened at least a bit by the outcomes we’ve observed when we’ve restrained these states’ ability to maintain control?

Regardless of what should or should not be, the United States is no longer a “hyperpower”. China alone is a near peer power. Geopolitics is again contestable, and becoming terrifyingly contested. The American policy community has belatedly realized it captains a status quo power and must preserve as best it can stability.

Supporting Ukraine's territorial integrity is an easy lift for us morally, even if it is not militarily. Ukraine is at least aspirationally a Western-style democracy. Its borders were militarily overthrown by an autocratic external aggressor. We can launder our interest in stability through our Western ideals. We experience no ethical dissonance.

But the Middle East is different. The allies upon whom we rely to superintend a fragile stability are not liberal democracies. Nevertheless, the US has been, and proposes to remain, their security guarantor. It would be a threat to our interests if they allied with our rivals. There may yet be another “spring” when these “tyrannies”, “autocracies” face the same kind of choices Qaddaffi faced in 2011. Can the US and the West be trusted to put alliances and security interests before the passions of their publics? When rebels are cast as Luke Skywalker and our allies as Darth Vader on all the social media, are we as polities even capable, not only of allowing the rebellion to be crushed, but even participating to some degree?

If we are not, why shouldn’t these rulers prefer countries like China and Russia as security guarantors? China and Russia are demonstrably less precious about these things.

When Joe Biden began his Presidency, he promised to make Saudi Arabia a pariah state. That was an easy promise. It appealed to Americans' lingering animosities over 9/11 and our aspirations to support human rights. But when Biden had to govern, he realized that the United States needs its problematic allies, and that they have alternatives. Biden’s infamous fistbump was the beginning of a long concession of easy idealism to geopolitical reality. But it was only a beginning. No matter how sincere the Biden administration might be when it makes its deals and promises, when the blood hits the fan, would an American President even be capable of following through?

And then October 7 happened. A US military ally faced an internal security challenge, and its government was inclined to bloody suppression rather than high-minded diplomacy. As images of dead children rolled in over the weeks and months that followed, US public opinion, particularly within the President’s own political coalition, soon came to favor some kind of ceasefire. Our ally disagreed, and wanted to continue its campaign. Would the outrage of the American public, or the risk of losing Michigan, force the administration to constrain rather than support its ally? If that outrage bleeds into civil unrest would the administration blink?

My conjecture is that America’s Israel / Palestine policy since October 7 has, at least in part, been a long fistbump to America’s less democratic partners. Can the United States, under a Democratic administration, be trusted when its security commitments demand support of highly visible, politically difficult brutality?

Yes we can.

Note: As I edit this piece on the morning of May 8, my characterization of the Biden administration's peculiarly unconditional military support may finally have become outdated. I hope so.

draft by Steve Randy Waldman
[2024-05-08 @ 11:35 AM EDT]

Out of the spotlight

When they come to murder me, when they come to murder my child, we will not care in whose name it is done. We will not be martyrs. We will just be dead.

Today no one murders my family, but in Gaza families await their murder.

I will not chant #FreePalestine.

The Palestinian national project is rancid. The Israeli national project is rancid. Each is Yin to the other's Yang. Israel's foundation as an aspirational ethnostate, Palestinian adoption of the same national liberation self-determination bullshit, first time in tragedy, second time as deadly farce. Imitation can be the most brutal form of flattery.

I am for the British Mandate.

Alas, I fear the inward-looking Brits will probably shirk the obligations centuries of empire might still impose.

I am for the caliphate — Abbasid, not ISIS — which governed with sufficient liberality that even Jews could thrive.

But we've waited a millennium for its return, and may wait a millennium more.

Nevertheless, for Israel and Palestine — two political communities, each sprung from the deadly stupid seed of national self-determination, each deformed ever more deeply by escalating rounds of murder and revenge, each correctly certain the other would annihilate it before granting what it takes to be its rights — the stupidest prescription is autonomy. "Freedom."

Don't #FreePalestine.

#ShackleIsrael.

What these two political communities require is restraint. Coercion. Subjection, until they reform themselves mutually into a political community that would enforce the rights of all residents of the territory they must share, and find ways to undo the damage they have done to themselves and one another and the world.

While the caliphate is not and the Brits comfort their troubled king, the only empire on hand is a very compromised alliance of the United States and its autocratic Arab allies.

We Americans like to comfort ourselves in world affairs that we are on the side of freedom and democracy, against some axis — it is always an axis — of autocrats and totalitarians.

That's a dumb framing. We might squint and get away with it in Europe, but throughout the "global South" our allies have never been human-rights liberals. They certainly are not now.

What we can be is for stability. And against murder.

On the first, no accusation of hypocrisy can stick. We really don't want borders revised by force. We are done fomenting revolutions. In the Middle East, we might hope liberal democracy will emerge from autocratic stability, as it did in Taiwan and South Korea. But it's clear we prioritize the stability. Whatever else you might say about the Biden administration's handling of Israel-Palestine, it has worked assiduously to maintain alignment within its coalition, despite profound opposition among our allies' publics. The administration strives and has succeeded remarkably to contain the regionwide catastrophe a broad war against Iran and its proxies would bring. The United States is for stability.

We have not stood so assiduously against murder, however. The character of Israel's actions in Gaza cannot escape that ugly word. However many roofs are knocked or pamphlets dropped, when it has become routine to blow up families when daddy's home because daddy might have some junior-level connection to Hamas, you have gone past war to murder. Once you are, to put it generously, failing to protect aid workers in territories you control, when you know that absent assistance thousands will die of famine, you become guilty of their starvation.

A few weeks ago, there were glimmers of hope that the United States would impose restraint. President Biden was to provide Bibi Netanyahu a "come-to-Jesus moment" over humanitarian concerns in Gaza. (Perhaps that was an unfortunate turn of phrase.) The US was going to construct a pier in Gaza for aid deliveries, the very presence of which might serve as a kind of tripwire. ("Mistakes" that kill aid workers who come straight out of US military facilities would be intolerable.) The campaign for "uncommitted" in Democratic primaries brilliantly demonstrated the political risks Biden faced if he did not impose greater restraint upon Israel. When World Central Kitchen aid workers were killed in the sort of mistake that reflects such tremendous incaution it blurs with intention, Biden finally did have a "tough" phone call with Netanyahu, who quickly promised new pathways for aid to Northern Gaza. An invasion of Rafah, the last refuge for Gaza's civilian population, was to be a "red line".

It wasn't much, but it was a start.

Then Israel bombed an Iranian diplomatic facility in Syria, and Iran sent a barage of missiles and drones into Israel, and the plight of Gazans was forgotten. Political incentives which had been building to restrain Israel were overwhelmed by incentives to stand by Israel against a chronic common foe.

Astonishingly — I think to the great credit of the Biden administration — the near conflict with Iran was deescalated. Pressure on behalf of the people of Gaza would, I thought, resume.

It has not. On the contrary.

In what would be a brilliant stroke of hasbara, had Israel's brutal government not simply gotten lucky, American headlines became dominated by protests "in solidarity with Gaza" at US universities. As usual, press coverage of protests focuses on what is extreme, rather than what is representative. Then, incredibly dumb crackdowns by careerist university administrators transformed the protests into battlegrounds of the United States' culture wars, rather than anything to do with people who might be bombed in Rafah or starved in Gaza City.

For a variety of reasons — some fair, some not — the incentives these protests created for most politicians is to distance themselves from the protestors' cause. The people demonstrating in solidarity with Gaza have unwittingly rendered it toxic for US politicians to take risks on behalf of the people of Gaza.

There are times when disruptive, oppositional forms of protest serve a cause. But there are times when the same acts undermine it. The protestors are in the right, with respect to the American controversy over free speech. Protestors have every right to express themselves, and universities should be extraordinarily tolerant of student expression, even when it notionally violates rules. Though there are undoubtedly extremists and idiots, claims that protests against Israel or for Palestinians are antisemitic or render campuses "unsafe" for Jews are mostly bullshit. Universities should err on the side of tolerating speech rather than psychological "safety".

(Tu quoques on the political right are correct when they point out this ethos was often not respected on university campuses when psychological "safety" claims were asserted on behalf of groups other than Jews. They are right. That was wrong. They are still quoques.)

The protestors have every right to protest in this way. But they should not. They are harming the cause they ostensibly support, if that cause is saving lives in Gaza. If the cause they support is a kind of accelerationism, under which Palestinian "martyrdom" is worth the price if it undermines Israel's legitimacy in favor of a Palestinian national project, then they should keep doing exactly what they are doing.

I have a higher opinion of the protestors than that. I think they are protesting in order to end Israel's atrocities — in Gaza, and in the West Bank and in Jerusalem — not because they are devoted fellow travelers of a Palestinian national project. I think many protestors have not taken the time to think through the distinction. I beg them to do it now.

The Biden administration faces no urgency to build that humanitarian pier, which was already supposed to have been built. It is under little pressure to threaten to withold weaponry, when Israel has already begun to bomb Rafah, perhaps in preparation for a misadventure.

Six weeks ago, the administration was under a great deal of pressure. First Iran, and now student protests, have changed the equation.

My dear protestors, what the administrations — of Columbia University, of the United States of America — want now is just to distance themselves from you.

Often, as protestors, the goal is to get into the spotlight. If what you do is not spectacular, disruptive, then even if many thousands protest, media mostly ignore you. Politicians ignore you. So what is the point?

But sometimes you need to get out of the spotlight.

Sometimes your work is to do everything you can to put the spotlight where it belongs, on people who are starving, on the families who may soon be murdered if whatever happens in Rafah occurs with the same respect for civilian life that was shown in Khan Younis and Gaza City.

While we are arguing over Columbia and NYU and NYPD, while we are talking about 1968 and another Democratic convention in Chicago, we are, to use the lingo, erasing the people whose lives are at risk. The people who might literally be erased.

draft by Steve Randy Waldman
[2024-04-27 @ 05:40 PM EDT]

The quality of what is coordinated

We argue a lot over how to manage social coordination. Market or state? Integrated within a large firm, or outsourced and bid?

I think we pay too much attention to how we coordinate, and too little attention to the quality of what is coordinated.

We do pay attention to quality at the most micro level. When the objects of coordination are individuals, we go on about "education" constantly. I don't think education is our problem. We are more and better educated than we ever have been.

But the units that we actually coordinate, when we argue about state and market and the boundaries of firms, are not for the most part individuals. They are meso-level entities — firms or divisions of firms, government offices or non-profit organizations, churches or "social movements" (networked groups of people acting in common purpose).

All of these institutions are eventually composed of individuals, of course. All rabbits are eventually composed of atoms. In theory perhaps you could deduce a rabbit's behavior from a complete understanding of its constitutive atoms. But in practice, to do anything meaningful with rabbits you will have to concede them their rabbithood, and make sense of them at that level. That they are almost entirely oxygen, hydrogen, carbon, and nitrogen will not get you very far. Similarly, you will not make useful sense of social affairs if you restrict your analysis to the characteristics of individual humans.

Our firms and business units, our government offices and nonprofit organizations, our churches and social movements are performing poorly. I don't think the problem is so much that the market isn't working or the state isn't working, or that our mix of coordinating mechanisms is out of kilter. It's that the quality of what we are coordinating is bad.

I hesistate to point this out, for fear I may encourage a new wave of grifters and management consultants to sell fixes. God save us. There is no "treatment" we can subject to random trials that will remedy this, one firm or organization at a time. The problem is systemic. Deployment of ideas so universal and straightforward they can be sold as "rational", "scientific", and "evidenced-based" is what did us in in the first place. We model firms as profit maximizing, so let's rejigger them to really become monomaniacal profit and shareholder-value machines, and mark all other aspirations contesting within these complex organisms as "agency costs" to be eliminated. Corruption is bad, and when we allow human discretion based on anything other than reviewable hard information — "evidence" — it becomes difficult to distinguish wisdom from corruption. So we ban wisdom, and demand every decision be justifiable on the most simplistic and legible grounds.

We desperately require — and we do desperately require! — a society more just across racial, gender, and other identity fault lines. A bit oddly, identity categories are so universally recognized that identity demographics constitutes hard information. So whatever else an organization is up to, concerns about demographic balance crosscut and constrain whatever scope remains for internal discretion. To admit this isn't to say that racial discrimination is okay, any more than it is to say corruption is okay. It is to say that the approach we've taken to addressing these problems — having outside institutions police internal decisionmaking — imposes costs in organization quality. Perhaps there are other approaches that would be more effective with fewer downsides.

As internal quality declines, organizations turn to scale and market power to ensure survival despite their deficiencies. Their dysfunction becomes everybody's problem more than their own.

Our impulse when something is malfunctioning is to subject it to more intensive supervision and control. Often that is a mistake. It renders the thing we are correcting more constrained and more brittle than it otherwise might have been. If in fact the supposed malfunction was adaptive given the circumstances of the thing, and those circumstances remain unchanged, then imposing greater constraint will leave it seeking to malfunction in the same way, just able to do so less effectively. The thing is left crippled, rather than functional.

A better solution is to change the circumstances under which the malfunction was adaptive. High tax rates on corporate payouts and earnings render firms less obsessively profit maximizing. Ecosystems made up of smaller organizations in competition with one another render corrupt decisionmaking less costly to outsiders (by narrowing the scope of its effect), and more costly to the organization itself (as corruption yields competitive disadvantage). Rewarding integration rather than policing and punishing discrimination relieves decision-making within organizations of constraint while incentivizing organizations to deliver a social good that we urgently require.

I have views on grand questions like the balance between market and state. Those arguments turn stale and stereotyped very quickly. Across ideological fault lines, however, perhaps we might find a bit of consensus that we face problems not just in how we coordinate, but in the quality of what is coordinated.

Update: See also The limits of Death Star thinking by Jennifer Pahlka. (Thank you Steve Roth!)

draft by Steve Randy Waldman
[2024-04-26 @ 01:00 PM EDT]

Of dentistry and democracy

In what passes for the contemporary blogosphere, there's been a bit of a kerfuffle about tooth decay.

Richard Hanania expresses his admiration of, and his epistemological deference toward, Scott Alexander by confessing he has "let some genetically engineered bacteria colonize [his] mouth" on Alexander's apparent say so.

If you'd like to do the same, Hanania offers an affiliate link you can use.

The bacteria have been genetically engineered not to convert sugar to lactic acid, the corrosive agent that eats cavities into our teeth. These brave new microbes are designed to supplant our native population of tooth-decay germs, once and for all time, leaving nothing that can harm us.

In a best-case scenario, this would be a near cure for tooth decay. Which would be a big fucking deal.

But reality does not always dole out best-case scenarios. Only most of the time.

Scott Alexander, whose vocation is careful, exhaustive reasoning, pulls a "Woah, Nelly!". In response to Hanania's flirtations, he confesses that he thinks there's only a 50% chance these bacteria will help at all, and just a 5% chance the bacteria prove as powerful against tooth decay as the application of fluoride.

Fluoridation, while genuinely a big fucking deal, did not cure tooth decay. I, like Hanania, had inferred a more optimistic take from Alexander's prior writing.

Nevertheless Alexander seems enthusiastic about a project to bring these bacteria to market. A company called Lumina Probiotic is just going to produce and sell the stuff. Apparently they have been selling the treatment for some time in Próspera, Honduras, which Alexander describes as

a libertarian charter city... Prospera allows the sale of any biotech product under an informed consent rule: as long as the company is open about risks and the patient signs a waiver saying they were informed, people can do what they want.

Soon Lumina will sell it here too.

You can preorder from their website, which patiently explains on a page called "science" how their microbe displaces native bacteria, reducing lactic acid which "erodes enamel over time, causing issues". Then, at the bottom of the page, "These claims have not been evaluated by the FDA. This product is not intended to diagnose, treat, cure, or prevent any disease."

Of course not.

I'm not worried about all this. It's fine as far as it goes. With any novel bacteria, or any widespread deployment of anything once very niche, there are potential tail risks. Those risks seem ordinary, however, similar to lots of other things we do all the time.

But is just jumping into the marketplace really a good way forward for a promising new treatment?

Inventor Jeffrey Hillman and Oragenics, a firm he cofounded, did begin putting these bacteria through a regimen of FDA trials. Alexander writes

The FDA demanded a study of 100 subjects, all of whom had to be “age 18-30, with removable dentures, living alone and far from school zones”. Hillman wasn’t sure there even were 100 young people with dentures, but the FDA wouldn’t budge from requiring this impossible trial. Hillman gave up and switched to other projects (including an intranasal COVID vaccine!)

[Lumina founder] Aaron [Silverbook] heard this story and figured that brash, move-fast-and-break-things Silicon Valley biotech might be able to find an alternative route to commercialization. The strain was off-patent, so he first tried to synthesize it himself from the clues in Hillman’s published papers. When that didn’t work, he made a deal with Oragenics for 10% of profits in exchange for samples and the full recipe...

The FDA has already set unreachable standards for any drug approval study, so Aaron wants to try a different route.

The FDA has lower standards for probiotics than for drugs.

Kevin Drum disputes this characterization, and I think Alexander basically concedes the point. One, very small, human trial did occur — on denture wearers, because it was a safety trial, and dentures would be easier to clear than teeth if the treatment proved unsafe. That trial succeeded, and a second trial on real teeth was planned. (Via Drum, see articles in Popular Science and the New York Times.)

If it was FDA's fault the treatment didn't go forward, it was not because of "unreachable standards". The cost the agency exacted was time. FDA was cautious about transgenic therapy, for reasons that should be obvious after the last few years' "lab leak" debate. FDA made demands, which were understandable but far from trivial. Oragenics met them, but the process took a long time. Then Oragenics just stopped. Drum (remarkably) dug up a transcript in which Oragenics' CEO John Bonfiglio says "because of some regulatory concerns and patent issues, we decided to, at least for the time being, put it on the shelf and not develop it."

Patent issues.

The patent status of the bacteria is ambiguous. Drum notes that Oragenics scored a patent in 2016 for "Replacement Therapy for Dental Caries". In the press release announcing a collaboration between Oragenics and "Lantern Bioworks" (now apparently Lumina), Oragenics emphasizes, "Crucially, this agreement does not entail the transfer of intellectual property ownership from Oragenics to Lantern Bioworks."

Yet a precursor of the Hillman's replacement therapy enjoyed its first patent filing in 1978. Alexander dates the current strain to a survey of grad-student mouth fauna by Hillman in 1985. Since 1978, Hillman has filed a steady stream of patents many of which, at least to naive eyes, look like variations on the same theme. The most recent grant was filed in 2020 and approved in 2022. An application for yet another was filed that same year.

US patent protection lasts no longer than 20 years, and is not renewable. Just because a patent is granted doesn't mean it can be enforced. Protection has definitely lapsed on the version of the bacteria upon which Hillman first sought to conduct human trials in 2004. Whatever the basis for Oragenics' 2016 patent, or Hillman's in 2022, a rival might successfully contest whether, in light of all the prior work, they are sufficiently novel, useful, and nonobvious to be enforceable.

Indeed, while Oragenics crows about its "intellectual property ownership", Lumina investor Yishan Wong characterizes the product as "in the public domain", flatly stating that "[i]n 2023, the patent on the treatment held by Oragenics expired."

So the issue seems not to be, as Alexander originally claimed, that "[t]he FDA...set unreachable standards". The issue is that clinical trials, while perfectly doable, are expensive. Since the treatment likely lacks enforceable patent protection, it's not worth it to any commercial entity to bear the cost.

Under the circumstances, adopting a "move-fast-and-break-things Silicon Valley" ethos and characterizing the treatment as a supplement might indeed be an "alternative route to commercialization". But is it a good route?

Alexander has previously examined whether expanding the relatively laissez-faire regulation supplements enjoy would be a good circumvention of FDA bottlenecks. His conclusion is appropriately mixed:

[Supplements are] shockingly safe — 50 - 70% of Americans take supplements regularly, and there are only a tiny handful of negative outcomes nationwide...

On the other hand, there’s little agreement on which supplements work, or whether any of them work at all. Most doctors ignore the whole field rather than try to sort through the competing claims, and studies are few, dubious, and often contradictory...

[A] company might release a great new drug as a supplement instead of seeking FDA approval, and then doctors might stay lazy and never think about it or prescribe it. In a perfect world, the company could use the revenue it makes from supplement sales to sponsor the FDA approval process. But in practice, if it switches from a supplement to a drug, that makes life worse for patients (they’ll need a prescription and lots of money for something they used to get cheaply and conveniently) and those patients would probably resist. So supplement status might end up as a ghetto that drugs stay in forever.

If our happy germs are indeed 95%+ effective against any reoccurrence of dental caries with basically no side effects, then releasing as a supplement might be great. Cavities develop slowly, so it'd take a bit of time. But early adopters like Hanania (and Mrs. Alexander!) would try the supplement. They would almost universally report never needing a filling again. Eventually we'd all catch on. That "eventually" might not be much longer than it would have taken to get formal clinical trial outcomes. In the meantime, early adopters would have been spared significant pain and disability, and an important liberty interest would have been served.

But fluoridation would not have yielded such clear, word-of-mouth success. Alexander now claims that a fluoridation-level improvement is his 5% probable "best case", and that even if the treatment does work to some degree, he thinks its benefits are likely to be more modest.

Absent clinical trials, how will we ever know the treatment works at all, then? How will we tell whether whatever we hear is genuine good news, rather than enthusiasm of TikTok influencers incentivized by Lumina or its less ethical future competitors? How will medical and dental authorities become comfortable to recommend the treatment?

My own kid has suffered terribly from tooth decay, and addressing it has cost a small fortune. But as long as this treatment has the status of a supplement Joe Rogan might hawk, we'd be unlikely to risk it for him. Suppose the treatment actually does work. Does the welfare benefit of releasing it as a supplement exceed the welfare cost paid by people who might have benefited but won't because it will be insufficiently vetted?

I think settling for this trade-off is just stupid.

Another aspect of "move-fast-and-break-things Silicon Valley", and the adjacent rationalist community, is a prejudice against the possibility of a functional state. Alexander succumbed to this prejudice in his initial characterization of why clinical trials languished.

Alexander comes by his views honestly, but "Silicon Valley" writ large does not. "Silicon Valley" telegraphs that the state does not work and cannot work, because the titans of Silicon Valley — the VCs and founders, sycophancy towards whom defines the culture — do not want the state to work.

A working state has legitimacy, which means legitimacy to regulate, legitimacy to tax, legitimacy to enforce competition law and to break empires into pieces. No, no. The state is a dinosaur. Hayek proved it just can't work. Government is hopeless, broken. It had fucking better be.

Of course government can work. Despite very real pathologies, even today it works much better than we give it credit for. It has worked better still in the past, and, if we are not idiots, it will work much better in the future.

If Dr. Hillman's microbe is effective, in order to realize its potential benefit to human health, we will need formal, clinical trials. Not to overcome regulatory speedbumps or to jump through bureaucratic hoops, but to persuade ourselves, at an institutional level, that it works.

And not just any clinical trials. There are no two words more common and less credible in the supplements industry than "studies say". We'll need trials supervised and certified by some kind of authority — an administration even — to whose judgement various professional associations routinely defer, out of genuine respect for the rigor of its processes, or, more cynically, by virtue of a rational astrology.

But high quality clinical trials really are expensive! If the treatment is out-of-patent, who would possibly perform those trials?

We have a state.

A core function of our state is to pool resources and purchase public goods, like knowledge about the effectiveness of medical treatments. It is not a problem if an effective treatment is out-of-patent. It is a blessing. It means the treatment can be made available inexpensively. If it would have been worthwhile for the holder of a freshly minted patent to conduct trials, that means the social value of the treatment is much greater than the expenses FDA demands. We don't need to rip our hair out that there is no patent-holder to make this investment. We have a state.

We even have a democratic state.

Our democracy is deeply flawed. There is no more urgent task before us than to improve it.

Nevertheless, our state remains more open and democratic than nearly any formal institution of comparable scale in human history.

I have written to my representative in the US House and to both Florida senators, encouraging them to fund public trials of the genetically engineered bacteria Richard Hanania stuffed in his mouth on Scott Alexander's say-so. If it works, I'd like it to be stuffed in my kid's mouth as well, on the well-informed recommendation of his dentist.

I encourage you, dear reader, to write your representatives in Congress too.

Richard Hanania and Scott Alexander both have far larger readerships than this blog. If they believe that Dr. Hillman's treatment could be a benefit to humankind, they also could encourage their readers to write.

If you believe in this treatment, you can feel edgy circumventing the regulatory state and making it available to biohackers. You can hit Hanania's affiliate link and become a biohacker yourself. Totally cyberpunk. Awesome.

Alternatively you can help improve the institutions through which the treatment might contribute to the welfare of millions and ultimately billions of people. Maybe that's a bit cringe.

Cynicism about democracy is a self-fulfilling prophesy. Only you can say what kind of prophesy you prefer to see fulfilled.

p.s. Here's my letter to Anna Paulina Luna, my representative in Congress. Feel free to use it as a starting point!

p.p.s. If the treatment does work, the state should grant Dr. Hillman and Oragenics generous rewards, despite any weakness in their intellectual property portfolio. In general, we should deemphasize grants of monopoly to encourage innovation, and try other models, including retrospective funding. State-granted monopolies may be time-limited, but they lack meaningful ceilings in the costs and economic distortions they impose while they last. (And grantees have proven very capable of innovating around the time limits!)

draft by Steve Randy Waldman
[2024-04-22 @ 08:20 PM EDT]