Conservatives are angry about Elon Musk and all of the subsidies his companies receive from the federal government. Musk reaps hundreds of millions of taxpayer dollars, whether it’s lucrative contracts for SpaceX from NASA or energy rebates and other incentives to manufacture his Tesla electric sports cars. To many Americans on the right, it smacks of corporate welfare. And why in the world should the federal government subsidize a product—in this case, an electric car costing upwards of $135,000—that few people want and even fewer can afford?
But Musk’s critics miss the mark. The reason to back Musk and his ventures isn’t so one-percenters can get a discount on a new Model S. More important than the products he makes are the research and development he undertakes. Musk’s ideas will very likely result in everything from cheaper rockets and smaller, higher-capacity batteries.
Yes, of course, Musk stands to become even wealthier than he is today. But that kind of R&D is gold for the country that adopts harnesses the resulting technology first. Properly understood, R&D isn’t corporate welfare—it’s an investment in the future.
U.S. Lags in New Innovation
A generation ago, the United States led the world in semiconductor and fiber-optic technologies that fueled the information revolution. Much of the research that made those innovations possible was government-funded.
Today, China is in danger of overtaking the United States with advances in quantum computing, nuclear fusion, and renewable energy development. America is lagging in those and other fields of cutting-edge research, in no small part because we’ve let research and development slip away while our international competitors have stepped it up.
Without question, China, not the United States, is leading the way in technological innovation. A recent KPMG tech innovation survey of 841 international technology industry leaders found that most believe Shanghai, not Silicon Valley, would lead the world in innovation by 2020.
Meanwhile, China has surpassed the United States as the leader in global patent applications. Hong Kong has been ranked as the “most economically free” place in the world for the 22nd year in a row. The United States, on the other hand, is ranked 17th . . . and falling. Since the 1980s, despite billions of dollars and innumerable fads passing for “reform,” the U.S. education system largely has failed in terms of preparing Americans to compete in the global market. This, at a time when China is surging forward in producing the world’s next great innovation leaders.
And, it’s not just in the science and technology fields that Chinese students are besting their American counterparts. For instance, you’re looking for young people studying and performing the music of Bach and Beethoven, they are most likely in Shanghai, not San Francisco.
Historians once credited Islam with “preserving” part of Western civilization during the so-called “Dark Ages” in Europe. Similarly, China might one day become the place where American children from elite families go to learn and experience the treasures of the West, as Western Civilization declined into mediocrity—unless we start getting more competitive in the new global information and technology economy.
Certain Investment, Uncertain Outcome
As the United States has consistently underfunded R&D, our economy has suffered. The industries of the future all have some technological component that, if not developed fully, will hamstring the entire economy—and weaken our national security.
Elon Musk and others like him recognize the value of developing and testing new technologies that many today consider unnecessary or haven’t bothered to consider.
The thing about innovation is that nothing is certain. Trying really does count. Ask yourself: how many people attempted to build a working flying machine before the Wright Brothers pulled it off? Did the Wright Brothers simply invent the technology from nothing, or did they build upon theories and concepts that others had tested?
Fact is, most great innovations are the result of years of trial and error. Innovation is hard to follow and, given the requirements in today’s technical world, it is an extremely onerous—and expensive—task. Yet, it is the sine qua non of a modern economy. We should be celebrating the few who have the gumption and willingness to try, not relishing in the defeats of those innovators.
Learn to Stop Worrying and Love (Some) Subsidies
Philosophically, I understand and share in a distaste for government subsidies to industry. But innovation is indispensable for remaining competitive in the world today. We should be helping innovators whenever possible, not griping about the subsidies.
Historically speaking, subsidizing successful innovations has proven to be the silver bullet for maintaining America’s overall dominance. The Chinese have no qualms about fully supporting their tech innovators—no matter how many failures those innovators may suffer before they create the next “killer app” (emphasis on “killer”).
Here’s another fact: nonrenewable sources of energy, such as oil, natural gas, and coal, despite their popularity today, are declining in terms of availability. This explains why Russia and ExxonMobil are racing to the inhospitable Arctic in search of new oil and natural gas fields (and if they ever can tap them fully, where do they go when these new Arctic sources have been depleted in 30 or 40 years?). It’s also why Saudi Arabia is trying desperately to cut its reliance on the petro-economy by 2030. In 2015, Goldman Sachs reported that we reached peak coal, and thus far no data has arisen disproving this assessment. This also explains why China has been seriously squawking about reducing their own considerable reliance on coal.
All of this indicates that the world is going to need new sources of energy outside of fossil fuels. Neither wind nor solar are practical solutions (despite what several people, including Musk, argue). Nuclear fusion is likely going to be our future. Even if solar and wind do end up working as advertised, America will be increasingly dependent on things like electric cars. So, Tesla’s commitment to developing the electric car is a net benefit for society.
Otherwise, We Lose
Without greater direct investment in R&D, however, the only incentive the government can offer is in the form of subsidies and tax breaks. Whatever happens with the profitability of Tesla Motors, the research that Tesla has done will go a long way into making electric cars more efficient in the years ahead. As society moves closer toward fully embracing electric cars and renewable sources of energy, American firms might just have a decisive advantage, since groups like Tesla were experimenting with the technology before the Chinese ever took the product seriously.
Elon Musk isn’t our savior. And for the record, Musk this summer insisted the federal government stop subsidizing Tesla Motors. (Despite what many conservatives argue today, Tesla’s subsidies are nothing compared to the subsidies other industries receive.) Nevertheless, Musk and other innovators like him will be responsible for keeping America competitive—and dominant—in the global tech economy.
America doesn’t win just because we used to win in the past. Winning the future means making an investment today (and adapting to the new, competitive international environment, where state-owned enterprises are serious competitors for American firms). The country needs Elon Musk and the few others who are like him, and we need to help them remain competitive against cutthroat international opponents.
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