There’s a widespread belief, including in the South African government, that governments can be entrepreneurial and innovative. NASA’s Space Launch System, however, proves that wrong.

South Africa’s Presidential Economic Advisory Council is a body of experts, carefully selected so as not to contradict the ruling ANC’s ideological lodestones of a ‘developmental state’ in a ‘mixed economy’ (meaning mixed capitalism and socialism), that ‘harnesses markets’ to deliver ‘inclusive growth’. 

All of these are euphemisms that critique capitalism and minimise the role of free markets, on the grounds that they produce unequal outcomes, and maximise the role of the state as the grand orchestrator of economic life. 

These advisors are not there to argue with the ANC over its economic ideology, but to give advice on how to achieve its state-led economic objectives. 

One of its members, Mariana Mazzucato, is a professor at University College London in Economics of Innovation and Public Value. She is a proponent of, and wrote a book about, the ‘entrepreneurial state’. This is the view that economic success does not originate with free markets and private sector innovation, but that the state and public money are the prime movers of innovation and economic success. 

In particular, she argues that countries shouldn’t try to emulate what the United States claims it did to succeed (hew to the doctrine of free markets and small government), but as it actually did (direct vast amounts of public funding to investment in innovation and technology).

This is not an unusual view, and appears, on the surface, to have merit. 

War and peace

Government needs – especially the need to make war – paid for developments that later found application in the private sector. Jet engines were first used in military aircraft, and rockets were first use to rain death and destruction upon innocent civilians, as states are wont to do from time to time.

Several early computers were developed for government applications such as census tabulation, ballistic missile trajectory calculations, firing tables and code breaking. 

The precursor of the internet was the Advanced Research Projects Agency Network (ARPANET), a military project to establish a decentralised network that would resist the destruction of some of its nodes by, for example, nuclear attack. 

Other familiar technologies, such as teflon, memory foam, ‘space blankets’, and battery-operated handheld power tools, came out of the government-funded and government-run space race.

Governments have also used taxpayer money to pay for a great deal of research into public health, which is certainly a legitimate purpose of the small and limited government that classical liberals prefer.

Alternative future

Generalising from these observations that government is entrepreneurial and the primary driver of economic success, however, is misleading. It lacks a comparison to an alternative future in which military spending, particularly during the second world war, did not happen. 

Of course a government that blows billions on warfare technologies will spark innovation among the defence contractors tasked with developing solutions to military problems. Of course the private sector, once they gain access to such technology, will build on it, rather than re-inventing the wheel.

It isn’t at all clear, however, what would have happened in an alternative world, where the demand was not from a government eager to tabulate the citizens it wanted to tax, or the enemies it wanted to kill, or the space race it wanted to win against an enemy state. 

Every one of the military technologies that did find application in the world of wealth creation, instead of the world of death and destruction, could easily have been developed privately.

Rivalry for profit

Electricity was a purely private development, spurred by rivalry among profit-seeking inventors. So was the telephone. So was the steam engine. So was the internal combustion engine. So was railway transport. So was powered flight. 

These were technologies that government used and improved, but did not create. It was only in the 20th century that governments began to take a more active role in technological development, by directing vast amounts of public funding towards military research.

Whether universities are government-funded or privately-funded might change their focus, from research into questions the government wants answers to, to research into questions the private sector wants answers to, but it isn’t a difference in kind.

The state-led perspective on technological innovation and economic development ignores the often far greater role that private investment and innovation played in creating the modern economies of today. It even misrepresents who the true innovators were.

The germ of what would become the internet, for example, was not a government research project. The concept of connecting networks together into a distributed ‘internetwork’ came from the visionary J. C. R. Licklider at Bolt, Beranek and Newman, a private firm, in the early 1960s. It was his own money that funded research that would ultimately result in the government-funded ARPANET project.

It also took the private sector to wrench the internet out of the dark corridors of the military and academia, to realise its economic potential, and to turn it into the extraordinary engine of broad-based economic growth that we know today.

The first programmable machine was invented by Joseph Marie Jacquard, in the textile industry, not by government-funded researchers. Many of the components of the first digital computer were created by privately-funded inventors. 

Private businesses, like the Computing-Tabulating-Recording Company (later IBM), had been working on automating routine business transactions since the turn of the 20th century. There is no reason why such private businesses would not have developed a digital computer if the US government hadn’t funded one first, and they probably would have done so for a fraction of the cost.

Once again, regardless of early government funding for large computers, it was the private sector that improved computers to the point where every office, every home, and even every pocket, could have one.

Rocket wars

It is hard to speculate what an alternative world without massive public expenditure on the tools of government and warfare would have looked like, but recent history has produced an excellent case study, pitting traditional government-funded research and development against parallel and equivalent private sector projects.

The US National Aeronautics and Space Administration (NASA) and Elon Musk’s Space Exploration Technologies Corporation (SpaceX), are both developing a super heavy lift launch vehicle, to power the next generation of space flights to Earth orbit, the moon, Mars and beyond. Both might see maiden launches later this year, but might not.

SpaceX is working on Starship (see photo), a rocket consisting of a super heavy lift booster with a spacecraft on top that can carry people and cargo, as well as land and depart from extraterrestrial destinations. It is the tallest, heaviest and most powerful rocket ever built.

NASA is building the Space Launch System (SLS), a super heavy lift vehicle to replace several previous return-to-the-moon programmes that were cancelled. 

The two are not direct competitors. NASA is a customer of SpaceX; SpaceX is a supplier to NASA. SpaceX is one of several private firms that offers potential alternatives to NASA’s own space vehicles.  

The two rocket systems are polar opposites of each other. Starship is the future. The SLS is the past. 

Old-school rocket engineers and defence contractors built the SLS as a sort of updated version of the Saturn V rocket that took astronauts to the moon more than 50 years ago. It liberally re-uses parts from the shuttle programme of the 1980s. 

Starship is built by a new generation of gung-ho space cowboys that threw the rule-book out the window, and rapidly innovated on a shoestring budget by learning from failure. 

Let’s compare the two. The SLS is scrap metal after launch. Starship is fully reusable, from top to bottom. 

The SLS is built from expensive, high-tech materials. Starship is built from stainless steel.

The heaviest version of the SLS can send 46 tons to the moon. Starship, with a twin used for refuelling in Earth orbit, can send over 100 tons to the moon. 

The heaviest version of the SLS produces 9.5 million pounds of thrust at take-off. Starship produces 17 million pounds of thrust at take-off.

The SLS is 98m tall. Starship, with its booster, is 122m tall.

The killer

And here’s the killer (literally, in the sense that it should kill the SLS off entirely). Three years ago, laumching the SLS once was estimated to cost $2 billion. More recently, that estimate jumped to an eye-watering $4.1 billion. For a single launch, which it could do once or twice a year. Starship, by contrast, can be launched several times per day at a launch cost of a mere $2 million a pop.

In terms of launch costs, Starship is 2 000 times more efficient than the SLS. In terms of flight frequency, it is perhaps 100 times more efficient. Combined, that makes the privately-built Starship 200 000 times more efficient than the government-funded, government-run solution to the very same problem. All these numbers are estimates, but whichever way you slice it, Starship will outcompete the SLS by orders of magnitude.

Governments rarely operate under competitive pressure. When they do, they don’t operate under competitive financial pressure. It doesn’t matter, within some very large practical limit, what it costs to win the space race, or win a war. It takes private sector competition, and the profit motive, to create innovative technology that actually improves economies. 

It is even arguable that successful economies succeed despite all the money sunk in endless government research projects that are always over budget and plagued by delays and cancellations. 

That SpaceX’s Starship is many thousands of times more cost-effective than the US government’s SLS rocket, is all you need to know about the ‘entrepreneurial state’ in which the left-wing advisers to the South African president would have you believe. There is no such thing. 


Ivo Vegter is a freelance journalist, columnist and speaker who loves debunking myths and misconceptions, and addresses topics from the perspective of individual liberty and free markets. Follow him on Twitter, @IvoVegter.