Wealth: It’s Created In Lots of Ways

I think it’s unquestionably true that one strength of the United States vis-a-vis Europe is that our setup is friendly to a certain kind of startup firm and this is why we’re world leaders in much of the high tech industry. But this kind of rhetoric is annoying and inaccurate:

[Google CEO Eric] Schmidt said that in parts of Europe the venture capital industry was being held back. “It takes a very long time to get a proper venture capital industry going. And in Europe there are many countries where the failure of venture capital is in fact seen as criminal, Germany, for example.” […]

“Jobs are created by the private sector not by the public sector. Wealth is created by the private sector not by the public sector. If you are going to have great companies you have to be willing to support and encourage the creation of real wealth-generating capitalists. That means you have to put up with them.”

You would think the CEO of an Internet firm wouldn’t be totally dismissive of the idea that CERN and DARPA are contributing to wealth creation. And of course education is important to wealth-creation, and much of it is state-financed. And transportation infrastructure — typically state-financed — creates wealth. Of course even if the state completely removed itself from education finance, it’s not like nobody would go to school. Presumably the private sector would step in to fill some of the void. But conversely in places where the state steps beyond what we’d consider appropriate in the United States it still creates wealth. State-owned firms like Areva are generating value.


I raise these points not to make the case for a bigger or smaller public sector (I would say bigger than the US but smaller than France is ideal, but both are clearly workable) but simply to underscore the point that the performance of public agencies matters a lot. Even under “small government” the state is still undertaking a lot of important functions, and it matters a great deal whether or not they’re done well. Simply dismissing the whole thing as irrelevant is dumb.