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Why Innovation Begins with the US Government

It has become a common misconception in these pessimistic times that all technological innovation originates from the private sector. But the reality is that both past and present, the government has inspired and funded dramatic innovations.  Below, you will find selected excerpts from a review by Jeff Madrick of the book The Entrepreneurial State, written by Sussex University economist Mariana Mazzucato. The central aim of the book is to undo misconceptions and demonstrate how vital government has truly been to technological innovation:

[The Entrepreneurial State] is one of the most incisive economic books in years. Mazzucato’s research goes well beyond the oft-told story about how the Internet was originally developed at the US Department of Defense. For example, she shows in detail that, while Steve Jobs brilliantly imagined and designed attractive new commercial products, almost all the scientific research on which the iPod, iPhone, and iPad were based was done by government-backed scientists and engineers in Europe and America. The touch-screen technology, specifically, now so common to Apple products, was based on research done at government-funded labs in Europe and the US in the 1960s and 1970s.

Click here to read the full review: http://www.nybooks.com/articles/archives/2014/apr/24/innovation-government-was-crucial-after-all/

The rise of Silicon Valley, the high-technology center of the US based in and around Palo Alto, California, is supposedly the quintessential example of how entrepreneurial ideas succeeded without government direction. As Summers put it, new economic ideas were “born of the lessons of the experience of the success of decentralization in a place like Silicon Valley.” In fact, military contracts for research gave initial rise to the Silicon Valley firms, and national defense policy strongly influenced their development. Two researchers cited by Mazzucato found that in 2006, the last year sampled, only twenty-seven of the hundred top inventions annually listed by R&D Magazine in the 2000s were created by a single firm as opposed to government alone or a collaboration with government-funded entities. Among those recently developed by government labs were a computer program to speed up data-mining significantly and Babel, a program that translates one computer-programming language into another.

Click here to read the full review: http://www.nybooks.com/articles/archives/2014/apr/24/innovation-government-was-crucial-after-all/

Mazzucato claims not that business entrepreneurs and venture capitalists did not make crucial contributions, but that they were, on balance, more averse to risks than government researchers. One successful venture capitalist, William Janeway, fully acknowledges the fundamental contributions of government research in his book, Doing Capitalism in the Innovation Economy. He is concerned that the antigovernment attitudes of recent decades may prove dangerous. “The very success in ‘liberating’ the market economy from the encroachment of the state,” he writes, which defines today’s conventional economic wisdom, as the quote by Summers suggests, “has potentially dire consequences for the Innovation Economy.”

Click here to read the full review: http://www.nybooks.com/articles/archives/2014/apr/24/innovation-government-was-crucial-after-all/

Mazzucato may underestimate the risks that venture capitalists take, even if she is largely right that it is the government that takes the biggest risks of all. Besides DARPA and the National Institutes of Health, Mazzucato cites three other major examples of government research programs that worked well and are generally neglected in public discussions. The Small Business Innovation Research program—started, it may surprise some readers, by Ronald Reagan—provided research funding to small independent companies, such as the computer security company Symantec and the telecommunications company Qualcomm. The success of this little-known agency, which distributes $2 billion in funding directly, is almost a secret. Yet a survey and analysis of forty-four recipients of funding by several scholars showed a significant positive return on the government’s investment. The Orphan Drug Act, also signed by Reagan, provides funding for drugs designed to treat rare diseases. Novartis drew on such funding in developing its leukemia drug Gleevec, which by 2010 had generated sales of $4.3 billion.

Click here to read the full review: http://www.nybooks.com/articles/archives/2014/apr/24/innovation-government-was-crucial-after-all/

Click here to view and purchase The Entrepreneurial State: http://www.amazon.com/The-Entrepreneurial-State-Debunking-Economics/dp/0857282522

About John Friscia

John Friscia is the Editor of Computer Aid's Accelerating IT Success. He began working for Computer Aid, Inc. in 2013 and continues to provide graphic design support for AITS. He graduated summa cum laude from Shippensburg University with a B.A. in English.

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