MONEY

The Inconvenient History of Silicon Valley

If you believe that government funding only harms innovation, let us introduce you to Uncle Sam's most successful start-up: Silicon Valley
MICROWAVE VALLEY: At one point in its history, Stanford University essentially became a research lab for the CIA.
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Which way you lean in this Presidential campaign depends a lot on whether you think government spending is capable of doing any good, or whether it is by its nature obstructionist. If you believe the latter, you tend to believe that all good flows from private enterprise and capital alone.

And you will tend to have a lot of company among entrepreneurs. Self-made millionaires, people who started great companies in garages and dorm rooms, people who’ve read Atlas Shrugged 10 times—your classic successful entrepreneur—tend to think of government spending as only capable of throttling innovation and entrepreneurship, not encouraging them.

The only problem is, that point of view is hard to reconcile with the history of Silicon Valley. The entity that built the Valley and gave birth to its culture of collaboration and experimentation was none other than Uncle Sam. In other words, the creation of the hub of American entrepreneurship and innovation was a federal project.

The Secret History of the Valley

My source is entrepreneur and Stanford prof Steve Blank, as well as the multi-part blog he wrote a couple years ago, which he calls the Secret History of Silicon Valley. In a recent conversation with me, Blank exclaimed that hard-core libertarians, particularly those from the Valley, believed in a Valley creation myth in which the semi-conductor fabs sprang from orchards in one rapid evolutionary swoop. In fact, he says, before there was was Silicon Valley, there was Microwave Valley, which specialized in electronic intelligence—spying on Soviets air defenses, basically—and the seed capital for it came exclusively from the CIA and military. Private capital arrived much later.

 At one point, says Blank, the institutions of the Valley were so totally in the pocket of the Department of Defense that Stanford became essentially a research lab for the CIA. A number of engineering Ph. D.  theses were actually classified. The largest employer at the time—and still the third largest for-profit employer in the valley is not Google, and certainly not Facebook. It’s Lockheed Martin.

Could History Repeat?

At the moment, Blank is very excited about a class of students being funded by the fed’s National Science Foundation to attend his Lean Launchpad entrepreneurship course at Stanford.  The “students” tend to be scientists and academics who are working on big science challenges—hairy problems in biotech and pure technology--funded by the NSF. The government hopes Blank can help them turn those projects into commercial ventures.

 In Blank’s view, this is far from government meddling in matters best left to the private market. Private capital, he points out, is currently obsessed with social media. The reasons are understandable—a billion-dollar payday for Instagram, for example, tends to get investors’ attention—but let’s face it: another Facebook camera app is not going to save people’s health, or restore American competitiveness, or life ur standard of living or quality of life.  Those big goals sometimes need a government boost. Blank, for one, is very comfortable with that.

 Now, this is an election year and spending for science research, among other things, is on the Tea Party chopping block. It's one of the few non-defense budget items that isn't a politically explosive entitlement. The dogma among libertarian hard-liners is that government investment has never built anything lasting. Some people who echo that sentiment are from Silicon Valley. That’s kind of ironic.

IMAGE: Bloomberg/Getty
Last updated: May 30, 2012

ERIC SCHURENBERG | Staff Writer | Editor-in-chief, Inc.

Eric Schurenberg is the president and editor-in-chief of Inc. Before joining Inc, Eric was the editor of CBS MoneyWatch.com and BNET.com and managing editor of Money Magazine. As a writer, he is a winner of a Loeb and a National Magazine Award.




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