[dkhenry]

So what do you say when the government doesn't decide to support your start up, but instead picks your competitor and runs you out of business because they happen to be related to a senator ? The ends don't always justify the means.

[rayiner]

Leaving aside the silliness of deciding macroeconomic policy on hypothetical edge cases for a moment... How often does that happen? The US government is utterly paranoid about nepotism, to the extent that we waste a huge amount of money in the bidding process for government contracts because we don't want to seem as if we're favoring anyone, even if that favor is the result of something like having done good work in the past. It's an imagined problem.

[dkhenry]

This isn't an edge case. In fact the NYT just did an expose on how this effects China[1]. You will also find this kind of corruption in every other country where the government is allowed to openly partner in private ventures. Heck we did it in America with Boeing under the pretense of security and managed to mothball our entire aviation industry.

1. http://www.nytimes.com/2012/10/26/business/global/family-of-...

See Also: http://en.wikipedia.org/wiki/Yukos

[rayiner]

It's an edge case in the US, and it's not like we don't have public/private partnerships here.

[dkhenry]

For now its an edge case. Thats partially the case because we put such stringent restrictions on the kinds of assistance we can offer, but even in America there are claims of corruption with giving out government assistance.

http://www.politifact.com/florida/statements/2011/nov/15/ame...

[Shivetya]

Nepotism is a live and well at the local and state level. If anything it works just fine at the national level, the difference is that today's politicians have become very adept at keeping you from finding out. Better yet, when you do find out and they get caught they rarely suffer any consequences for it.

[rayiner]

Yes, there is a problem, we just can't see it! Sigh.

Every federal government contract that has even a hint of favoritism is litigated to all hell, where lawyers comb through everyone's emails going back years to dig up any dirt they can find. If it was a big problem, we'd know about it.

Nepotism is alive and well at the state and local level. This is partly because state and local governments are far less sophisticated than the federal government in terms of process and people, and also because there is not a strong culture of litigating contracts.

[rdl]

There is structural favoritism, if not nepotism, in the federal system. The byzantine bidding process, requirements, etc. mean only either very large companies or very specialized companies tend to go for direct government contracts. Plus, even in cases where they are initially assigned fairly, they become a prime contractor and can be gatekeepers on every other aspect of the system. Even if their decisions are then not made on profit motives, they're not made on "best interest of the customer", either -- it's about reducing risk (of all kinds) vs. delivering the best expected product to the customer.

[rayiner]

I used to work for a smallish company that works on DOD contracts. It's really not that bad. We did most of it in-house. I doubt it's worse appreciably worse than dealing with any big faceless organization (try contracting with Wal-Mart or Boeing).

Big organizations have transaction costs associated with them. That's kind of inevitable. But the question is whether eliminating a few billion here and there in transaction costs is worth forgoing potentially huge benefits from public/private partnerships.

[rdl]

It really depends on the type of contract. (I also did defense contracting, both bootstrapping my own and working for a larger (25-50 person) company)

I'd say overall it is beyond what an early stage startup can do (non-dod-focused), without a great partner. Selling products is a lot easier than selling ongoing services, but the profit is all in services. A lot of the difficulty was due to it being a classified contract (the work itself wasn't, but the work locations and interoperability were). It's probably feasible for a successful small business with a full time person, particularly if the business is set up to go after government from the beginning.

Big companies aren't cost-free as clients, but there's less "if you do X wrong, you could go to jail" (which essentially never happens absent willful fraud, but still). The citizenship requirements also make it really hard for tech companies.

[tptacek]

From experience: it's harder to contract for the DoD (former company) than it is to contract for Fortune 100 companies (current company). Substantially harder.

[Shivetya]

Okay, let me put it another way. While they may not get the contract, friends and relatives of the same politicians suddenly do find themselves beneficiaries of those who do win the contracts.

Remember the fun with Countrywide and the sweet heart loans? How some politicians or their friends do so well in the stock market or get into IPOs at a level not afforded to the public. If not family is it not worse when those who support your campaigns are the ones more likely rewarded with the contracts?

So yes, while direct attempts may be protected against nothing stops the train of indirect benefits.

[Cushman]

What do you say when Apple does the same thing? "Well, crap," I imagine.