Should U.S. Taxpayers Support Industry Initiatives?

Just as the Malcolm Baldrige National Quality Award program was defunded by the federal government during the Obama Administration, President Trump and Mick Mulvaney, director of the Office of Management and Budget (OMB), are now contemplating the eventual demise of several long-standing government institutions. Evidence for this comes from the Trump administration’s proposed federal budget for 2019, which was released on Feb. 12, 2018. Some of the agencies and programs suggested for elimination will be familiar to those of us in industry: The Hollings Manufacturing Extension Partnership (MEP). The Agency for Healthcare Research and Quality (AHRQ). The Chemical Safety Board. You can find the full list here.

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Bearing in mind that the legislative, not the executive, branch holds the constitutional power to appropriate funds, one should not read too much into this first shot across the budgetary bow. However, it does prompt questions and discussion. As CEO and publisher of Quality Digest, respectively, we often find ourselves on the same side on issues of government and social policy as they apply to quality management. In this instance, however, there’s more than a little daylight between our perspectives. We therefore thought it might be interesting to explore those differences in this column, which we’re presenting in the form of a conversation—one that’s certainly ongoing and open to anyone else in the QD audience who might wish to participate. Comment below if you’d like to weigh in.

Mike Richman: I find myself surprised—borderline shocked—at some of the agencies that the Trump administration is seeking to cut in this 2019 budget proposal. I don’t want to politicize this, but these prospective cuts, which Congress will ultimately decide on, really do reveal a certain mindset. How can U.S. industry seek quality and continuous improvement while the executive branch of the federal government is so aggressively cutting the funding for the spread of best practices, data-driven research, and oversight? And how does defunding and deregulating some of these agencies help private industry, exactly?

Jeff Dewar: Deregulation encourages private investment. However, when private industry looks at investing millions or billions of dollars (as Musk, Bezos, and to a lesser extent, Branson, have in space launch capabilities) it comes with the recognition that private wealth is nothing compared to the government’s massive resources. As Musk described the initial spark for SpaceX, he saw a fundamental flaw in NASA’s cost structure for lifting mass into orbit: They were spending roughly 100 times the cost/energy to move a unit of mass. He went back to first principles of physics, and said, “Let’s build something that puts all the resources into moving the mass we want to move.” So he was willing to take the risk, and he found, sort of, a loophole in NASA’s thinking. And since no one was producing those big rockets anymore, SpaceX could be uniquely positioned to provide launch services. 

However, there have been many companies (e.g., Boeing, Lockheed Martin, GE Aviation, Northrop Grumman, Raytheon) who had people just as knowledgeable as Musk in matters of physics, only with much more money behind them. Still, none of these companies would have invested the money to do it themselves like SpaceX did, because they were perennially afraid that NASA would suddenly get funding, and someone else would get the contract—and that’s not a fair playing field by any stretch. The fact that the Feds generally advance companies huge sums of money along with huge guarantees makes the playing field that much less level. 

The bottom line is that when the Feds are waiting to fund something, private industry finds it easier to sit in the bleachers until the government sets up a formal program and requests bids rather than risk their own money. 

MR: But isn’t that the point? Don’t we need the U.S. government (heck, federal governments from anywhere) to step in with the funding for essential projects, by which I mean projects of discovery, or projects for the greater good, or projects that may take us down endless blind alleys? Don’t we want our elected officials to greenlight funding for things that may or may not ever “pay off” in the sense of dollars, but which have the potential to eventually help society?

Take the Agency for Healthcare Research and Quality (AHRQ), for instance, which this budget proposes merging with the National Institutes of Health. This agency analyzes various drugs, procedures, and systems, tracking trends, and often (but not always) demonstrating improved outcomes for patients. There’s certainly some value in reducing the length of hospital stays and understanding readmission rates by type of patient and diagnosis; this information helps doctors and patients alike make more informed decisions to reduce costs and improve health. The precise value of these things is harder to ascertain, but the existence of the AHRQ leads to information that better supports healthcare in general. Still, it’s hard to see what kind of private industry would step in to support this valuable mission if the federal government didn’t do so.

JD: Yet professional and industry associations, from the American Society for Quality (ASQ) to the Society of Automotive Engineers (SAE), and from the Association for Manufacturing Excellence (AME) to the Technology Services Industry Association (TSIA), and thousands upon thousands of other organizations, all share huge amounts of information on best practices, with little or no government funding.

MR: Those associations and organizations are different from governmental agencies. The motivation of these kinds of associations is generally to support the success of their members, whether they be companies or individuals. Sure, best practices are shared, and those members therefore tend to have greater success as individuals or organizations, but there aren’t necessarily broader societal benefits at play. Plus, the benefits that do accrue to these members are almost wholly financial in nature. Despite what Trump and many in private industry would tell you, not every decision can or should be considered purely on dollars and cents.

JD: I totally agree—to a point. To your point, most experts agree that the internet would never exist in its current form today without the U.S. Defense Department’s Advanced Research Projects Agency Network’s (ARPANET) direct role in leading its development and involving private industry and educational institutions.

A good example of what I’m saying is Trump’s reinstatement of the National Space Council, which is seriously talking about changing NASA’s role from designer and producer of space programs to one of public-private partnerships that nurtures the industry. After last month’s Falcon Heavy launch, the Mars Society wrote that, seven years ago, the Augustine Commission (sponsored by the executive branch) said that NASA’s moon program had to be cancelled because the development of the necessary heavy lift booster would take 12 years and $36 billion. SpaceX has now done that, on its own dime, in half the time and a 20th of the cost (so it means we’re talking an order of magnitude here), and the launch vehicle is renewable. 

One could wail at the cutting of NASA’s budget, but that’s not necessarily a bad thing, providing that it can be repurposed/transformed into something better.

MR: Understood, but without the original foundational knowledge developed by NASA starting in the 1960s (paid for by you and me, not to mention our parents), Falcon Heavy never would have gotten off the ground, quite literally. Think of everything that society has gained because of those billions of dollars invested in NASA. This takes the form not just of abstract knowledge, but also in practical applications in the fields of computer simulation, telecommunications, microprocessors, and fiber optics. Not to mention Tang! The discoveries and insights that sprang from NASA during the last six decades or so—and which are, by the way, ongoing—have been worth hundreds of times the value of the initial government investments.

JD: And think of all fantastic contributions SpaceX alone has already made to science, engineering, and IT, along with a management culture of radical innovation and risk-taking!

MR: Sure, but when dealing with the taxpayer’s money, one has to be a little more cautious and thoughtful about spending it on capricious ideas (which isn’t at all meant to infer that SpaceX isn’t making a valuable contribution to science—quite the opposite). Rightfully, there’s a lot of criticism and oversight as to how the government allocates funds. There’s waste in the system, just as there is in any large, complex system, but that shouldn’t prevent us from supporting the programs that will help us achieve our goals as a society. We can debate, as we’re doing here, the best way to accomplish that goal.

JD: NASA, the Department of Defense, and other humongous federal purchasing agencies should study Walmart, Amazon, and other smart purchasers. Government defense and space operations have to move at the speed of technology—not the speed of bureaucracy. When for the same price you can buy 10 flights from the private sector with Musk’s Falcon Heavy or Bezos’ New Glenn vs. one flight with the government’s Space Launch System (SLS), which has yet to fly, you know there are huge savings to be uncovered. 

Musk, Bezos, and guys like them are geeks and dreamers, and are safe in their CEO positions. Very few other “normal” CEOs would take the risks they have, even if their scientists said that they could achieve the aforementioned 10-to-1 cost advantage by doing things so radically different. It’s just too easy to sit back and let NASA spend billions and billions to build their own product rather than take the risk, despite the glaring potential for a better solution (and massive profits). Even if private industry succeeded in building the rockets, there’s still no guarantee that NASA wouldn’t use its own SLS system.

Nevertheless, the good news is that NASA is a terrific customer for these fledgling space-capability companies, and by all accounts it is heartily embracing the nurturing of private industry partnerships (after they demonstrate they can deliver the goods!). Of course, it’s not just NASA that is a potential customer, but also research labs, satellite companies, other governments, and universities, that can help pay the bills and lower future funding risks.

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