Sunday, March 18, 2012

The role of state technologies

One of my favorite professors had a term he used for technologies that were too expensive and complex to be produced without massive government involvement.  He called them "state technologies" and while he mostly used the term to describe nuclear power generation, it also applied to things like moon rockets and satellites.

Large airliners come under the heading of a state technology.  It is inconceivable that Boeing would have been able to build the 707 without the big order it had for the KC-135.  For that matter, it is impossible to imagine that Boeing would have had the expertise to build 707 if had not already built the B-52, the B-29, and the B-17—all projects paid for by the USA taxpayers.  So while Boeing is a private company with a listing on the NYSE, the very idea that air transport would even exist in USA without government orders, subsidies, and investments is absurd.

Even though air transport meets the classic definition of a state technology, we have had a ongoing battle between Boeing and Airbus over who has gotten an unfair advantage because of money funneled to them by governments.  In this case, both of them got money.  So we have the situation where some theological argument (that somehow makes sense to economists) provides the basis for expensive legal wrangling over who has committed the greater sin in pursuing the ability to build air transportation devices—devices whose mere existence proves that the builders are clearly "economic sinners".

Unfortunately, this legal fracas is not the only example where economists have failed in their task to describe the world and decided to prescribe how the world should work based on some (usually preindustrial) pet theories.  Were that it were so—because this sort counterproductive behavior is one of the main obstacles standing in the way of producing the technologies needed to address Peak Oil and Climate Change.

We can also be reasonably certain that the money spent by Boeing and Airbus to bring their cases in front of the World Trade Organization will not be spent making their airplanes safer, more fuel efficient, or more reliable.  But of course, if it were not for this sort of nonsense, how would the Predators extract their pound of flesh from a Producer Class activity like building airplanes?  (I mean besides the normal methods like rents and usury.)

WTO orders halt to US government's Boeing subsidies
In a final decision Monday, the World Trade Organisation ordered the United States to end subsidies and tax breaks for aviation giant Boeing, ruling that such policies resulted in "significant lost sales" for rival European plane manufacturer Airbus.

The World Trade Organization ordered Monday the United States to halt unfair subsidies and tax breaks to planemaker Boeing, judging them to have damaged European rival Airbus.

The WTO's Appellate Body said that it found that certain subsidies and tax breaks "caused, through their effects on Boeing's prices, serious prejudice in the form of significant lost sales" to Airbus in the market for civil aircraft with 100-200 seats, according to a summary of the 700-page ruling.

That segment is for the medium-haul Airbus A320 and Boeing 737, which are their top selling aircrafts.

It also found that research and development subsidies also skewed competition for larger aircraft of 200-300 seats, and that such subsidies for the 787 Dreamliner "caused serious prejudice to the interest of the European Communities."

The US has six months to comply with the ruling.

Even before the publication of the WTO ruling, both the European Union and United States claimed victory in the dispute.

The EU had launched the complaint, claiming the United States gave Boeing billions of dollars in illegal subsidies after Washington had disputed EU aid to European aircraft manufacturer Airbus.

In a ruling on March 31, 2011, the WTO partly upheld the EU complaint, but it was appealed.

The European Commission on Monday welcomed the WTO final ruling, saying it confirmed that billions of dollars in US subsidies to Boeing were illegal under WTO rules.

"Today's ruling vindicates the EU's long-held claims that Boeing has received massive US government hand-outs in the past and continues to do so today", said EU Trade Commissioner Karel De Gucht.

The United States took the opposite stand, saying the WTO decision confirmed that Europe's unfair trade subsidies to aircraft maker Airbus have dwarfed US aid to Boeing.

"This decision is a tremendous victory for American manufacturers and workers -- and demonstrates the Obama administration's commitment to ensuring a level playing field for Americans," Ron Kirk, the US Trade Representative, said in a statement before the WTO appeals panel published its findings.

"It is now clear that European subsidies to Airbus are far larger -- by multiples -- and far more distortive than anything that the United States does for Boeing," he said.

The US highlighted that the WTO had found last May in a separate case that the European Union gave Airbus $18 billion (13.7 billion euros) in subsidised funding that resulted in lost market share and sales for Boeing. more

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