The November 26, 2012, issue of Chemical and Engineering News, celebrated the recent promulgation of federal plans to push more research out to companies in an effort to help the economy. These plans came as a direct result of an October, 2011, memo by President Obama. The idea is to commercialize technology that has been developed by the federal government and push it into the private sector. This is generally termed “technology transfer.” These plans are now being promulgated, especially by agencies such as the Department of Energy (DOE), the National Institute of Health (NIH) and the various national laboratories. What is unclear is if the main focus is commercialization of viable technologies or just an attempt to stimulate the economy. The article is filled with excitement over the prospects of more “free” money becoming available for technologists. Unfortunately, this could result in a plethora of new Solyndra-like escapades. This Blog investigates why well intentioned government efforts so often end up as a boondoggle and suggests some ways to mitigate such outcomes.
Let’s first look at where we are today. The recent election has made clear that we as a people are interested in continuing our experiment with greater government intervention into business, technology, health and many aspects of life. Political and fiscal Conservatives have long warned that this is a bad idea. Well, for now, that issue is settled. It is time to get on with how best to make this experiment work. It is pointless to sit back and whine. It is even worse to work at cross purpose to the general will of the American people. We, as members of the American community, have an obligation to participate in a friendly and constructive way, seeking common ground, common good and harmonious discourse. This is the great tradition of America going back to the first principles espoused by Thomas Jefferson and the framers of the Constitution. The forming of a “more perfect union” was never conceived to be without disagreements, failures and adjustments. So let’s just get on with it.
Progressives should not, however, ignore the viable criticisms of Conservatives as they forge ahead with this experiment. The Conservative criticism that carries the greatest weight is their claim that government programs are rife with waste, fraud and corruption. Our history is full of examples going back to the Continental Congress. We have an almost unbroken string of corrupted government programs including real estate scams, Indian relocation policies, carpetbaggers, war profiteers and investment bank bailouts. Why should technology transfer be any different? Conservatives are correct in their assertion that Americans do not have a history or tradition of good government. We seem to expect and get fraud and corruption wherever government money is flowing.
In my opinion there are two major problems:
- We have come to expect corruption and
- We have no effective controls on financial activities other than the free market.
Because we expect corruption we tolerate it and, hence, get more of it. It is almost a self-fulfilling prophesy. We are all at fault here. Conservatives promote the narrative that only the free market can be relied upon to control fraud and corruption. They contend that the free market abhors fraud and corruption and eventually punishes it. They further contend that this natural selection process does not work efficiently in the public sector. They create the expectation that every government program will be corrupt and full of waste. Furthermore, in their zeal to keep government small, they often oppose funding watchdog entities. When unwatched programs go awry, Conservatives seem to do nothing but say, “See, I told you so.”
Modern Progressives, on the other hand, seem to be somewhat ambivalent toward corruption and fraud. They seem to take one of two stances on the issue. Some seem to agree with Conservatives in that a “certain amount” of waste and corruption is just unavoidable. They just excuse it away and wait for the furor to die down. Others tend to think that waste and corruption is irrelevant. After all, isn’t the purpose of government just to keep the money flowing? Who cares what it actually goes for? From an economic stimulus perspective, isn’t a bridge to nowhere just as good an outcome as an AIDS vaccine?
And, of course, both sides point to the other as the nefarious benefactors of fraud, waste and corruption. Both sides seem to claim that the other is just “against what they’re not in on.” Unless we all come to conclude that corruption and waste in government is universally bad and that we can do something about it, we will live with more and more of it.
I suppose I should ask, “Should we be against waste, fraud and corruption in government programs?” Maybe it doesn’t matter how the money gets spent, only that it does get spent. I strongly disagree with that thinking. I have been in countries where fraud and corruption are the rule. My best personal example is The Gambia. The whole place runs on corruption, kickbacks and extortion. Countries like that have no law. The cost of doing legitimate business is so high that only a “black market” succeeds. Taxes cannot be collected in any organized way. The police and military use their firepower to extort operating funds from the citizenry. The government is forever broke and on the verge of collapse. We cannot go there and remain a prosperous or even civilized country. We simply cannot let loose government money corrupt all our institutions. If we are going to go down the path of bigger government, it is imperative that we all get behind the notion of better government. But how do we do that?
When faced with the need to provide extra-market controls on business, the original Progressive – Teddy Roosevelt – turned to the regulatory agency and very tough law enforcement. Ironically it was Teddy who resuscitated the Sherman Anti-Trust Act and supported legislation that eventually created the ITC, the SEC and the FDA. This icon of Conservatives was a tireless crusader for good government. He liberally offended powerful members of both parties with is interminable legal campaigns against fraud, waste and corruption. If there is any topic where Progressives and Conservatives should actively and emphatically agree, it should be in stamping out fraud, waste and corruption. If we are really going to experiment with government intervention in business, technology and health, we had best get busy. We don’t have good government in our tradition – especially after decades of laissez faire under the last five Presidents. We need to nurture such a tradition, but where do we start?
First of all we must change our expectations. All of us should deliberately expect good government. We can start in our own personal and business transactions. We should expect, for example, that tax returns, accounting reports, loan applications, SEC filings, bills of lading, etc., be truthful. We need to get past the notion that a tax cheat or over weight limit truck driver is somehow a folk hero. When we see fraud in these areas, we should be appalled. We should feel under obligation to call it out to the proper authorities. We should actively participate in the prosecution of fraud by volunteering to be witnesses even at substantial cost to ourselves. We should support stiff penalties for deliberate infractions. If we cannot depend on the truth of the information used by our government and an engaged watchdog citizenry we can have no hope of finding and ferreting out fraud.
Second, we need to shore up the competency and independence of the Inspectors General (IG) system as well as other government watchdog programs. The IG system of “independent” auditors and investigators was created by the Inspectors General Act of 1978 (amended 2008). Many Inspectors General are appointed by the President and confirmed by the Senate while others are appointed by the agency heads they are supposed to investigate. This is supposed to be done based on competence and not political affiliation. Unfortunately this system has not always worked well. One of the more well-known failures was the tenure of Janet Rehnquist, the daughter of former Chief Justice of the Supreme Court, William Rehnquist. I invite you to check out that story at http://en.wikipedia.org/wiki/Janet_Rehnquist .
Currently the IG system is dominated by law enforcement, public policy and financial personnel. There appears to be little technical expertise in this organization. Technical review seems to be left to the discretion of the federal agencies. The IG’s may be good at finding infractions of the law and even breaches of procedure, but I don’t see how they can really find waste when it is a matter of poor judgment – especially technical judgment. If they are to be a useful watchdog entity for technology transfer, they need to expand on their subject matter competencies – either internally or through contractors.
Historically the IG’s have looked to the federal agencies to be subject matter experts. In my experience this has not worked that well. I have worked with several federal agencies over my career and have seen many times where technical and financial reviewers failed to ask the tough questions. Even the “independent contractors” who were hired by the agencies to do these reviews often failed to ask the really pertinent questions. I think the agencies fear that asking tough questions will delay or derail projects. Agency heads are not rewarded based on commercial success, but on having executed a plan, spent money as budgeted and avoided any political embarrassments. There is a natural tendency to just “bury” issues. It seems that their contractors follow suit and that no one is really prepared to ask the tough questions.
The case of Solyndra is instructive. If the right person in authority with subject matter knowledge had asked the right questions about Solyndra early on, it would have become very clear that they had a bad idea. Their claims were rather ridiculous. The notion that a new, cylindrically shaped copper/indium/gallium/selenium cell could compete with a well-developed, flat silicon cell was pretty absurd. That “right person” could have been a small team of experts contracted by the DOE. A small team of subject matter experts could have shown that the production costs were completely out of whack with the potential benefits. They could have challenged the “experiments” that were supposed to be the basis of their enhanced performance claims. Solyndra should never have been given a dime by anyone, let alone millions of taxpayer dollars.
The IG did investigate the matter after the fact, but could only comment on how “rushed” loan reviewers were. By the time of loan review, however, it was much too late. The program had a life of its own. By that stage, no one was even looking at the basic assumptions of the whole deal. Hence, the IG criticisms really don’t get to the heart of the matter. What the IG should have done was to do an in depth review that went back to the very basic premises. I’m almost certain that they would have found that the DOE did not do an adequate job of challenging the product testing and process engineering designs. Had the IG done that deep of a review, the DOE and other agencies might be encouraged to improve their technology assessment skills. They would certainly have been put on notice that their technical opinions are subject to review. Unfortunately, I suspect that the IG does not have the technical resources to dig that deep. As it stands today, not much was learned from Solyndra and similar mistakes are almost certain to occur in the future.
What is needed to protect the taxpayer (and other stakeholders) is detailed, recurring and independent investigation of data and claims. This should be done by a small team of experts who don’t ask just simple questions, but dig deep into the experiments that were performed to generate the engineering data upon which claims are based. Too often the experiments are flawed by poor design. Overzealous researchers and – more especially – company “spin doctors” then promulgate flawed conclusions. Sometimes this is just plain fraud, but more often it is the natural consequence of “wanting to believe.” The data generated is almost never sufficient to be statistically valid and almost always subject to “interpretation.” A small body of independent experts should evaluate the data and suggest confirming tests. That body should be independent of the company and the agency. They should have no financial or programmatic stake in the outcome of the review. They should have subject matter expertise, experimental expertise, process engineering expertise and financial expertise. They should raise a whole host of questions ranging from the basic assumptions to potential for sustained success in the marketplace. To preserve their independence they should have connection with the relevant IG office. Their reports should go to the IG so that the IG can monitor the technical performance of the federal agency and, if necessary, prosecute those who ignore legitimate concerns
And finally, we need to hold our public servants accountable. We seem to expect our politicians, regulators and judges to be corrupt and they seem to faithfully meet our expectations. We should start raising the bar for public service. Surprisingly, a convicted felon cannot be prohibited from running for Congress or even President. Even someone in prison can run for office. In 1798 Representative Matthew Lyon ran for Congress and won while serving time in prison for “libeling” President John Adams. We have a long history of sordid public servants. Maybe that was OK when the government didn’t do that much, but now we are expecting government to do more. We cannot afford to have a bunch of scoundrels running large portions of the economy.
We should set rules that prohibit those convicted of certain serious crimes (e.g. voter fraud, tax evasion, embezzlement, child abuse, others?) from ever holding elected or appointed public office. This would be no simple task. It would require a Constitutional Amendment. Furthermore, we should aggressively prosecute politicians, regulators and judges for fraud, bribery and kickbacks. Those convicted should face mandatory and serious punishments – including significant prison time and loss of many of the privileges of citizenship.
Maybe if we get serious about having better government we can mitigate some of the negatives of having government so involved in our lives. I see no practical alternative for us, regardless of our political persuasion. We all have to do more to stop fraud, waste and corruption. We will have to work together on this and commit to ferreting it out wherever we find it – including within our own sphere of influence and political camp.
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