Marketing by Elon Musk

While the Uber story shows that a poorly regulated industry may be a good place to start a new company, Elon Musk suggests another opportunity borne by government:

But government is inherently inefficient. So it makes sense to minimize the role of government such that government does only what it has to do, and no more.

After this quote, some people cut their Social Security cards into pieces and run to a libertarian sea platform, away from government. This is, however, not what Musk means. Here’s some background.

It’s not a secret that, since 1958, NASA received $1 trillion dollars from federal budget to create the stack of technologies that SpaceX currently uses in its own commercial projects. SpaceX’s initial capital of $100 million makes 0.01% of this investment in space odysseys. The other 99.99% came from the government, which is presumably the necessary minimum mentioned by Musk.

And as Musk rightly reminds in the same interview:

But funded by the government just means funded by the people. Government, by the way, has no money. It only takes money from the people. [Laughter.]

So SpaceX took away dozens of engineers trained by publicly funded NASA and secured at least $500 million in government contracts.

Tesla Motors, another company founded by Musk, sells cars eligible for a $7,500-worth federal subsidy and numerous of state subsidies of a comparable amount. It’s about 20% off each car to help Tesla compete with fossil fuel vehicles.

His third company, Solar City, also advertises solar tax credits and rebates as its competitive advantage over traditional utilities. It promises that “some [state governments] are generous enough to cover up to 30% of your solar power system cost.”

The subsidies are, of course, not the point here. They are the second way toward clean and renewable energy, after complete pricing of fossil fuels (which is broadly supported by economists, see Pigou Club). In practice this transition will happen very much like what Tesla and Solar City do now.

But for anyone practically or intellectually interested in how this business works, executives happen to be a pretty misleading source. Even when these executives write long books about their companies or hire well-known economists without giving them complete data. Instead of the story how the company really works, the reader gets ideological cliches about business, management, and government. With teachers like them, it’s not a surprise that 9 out of 10 startups end up nowhere.

This happens mostly in hi-tech, with all this sudden success and media exposure. But the most competent executives manage to keep a low profile even here, because they know that they are best at running companies, not at teaching people how things work.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s