Subscribe to Inc. magazine
WIRE

Who Funds Silicon Valley? Not VCs

Government deserves credit for entrepreneurship in the U.S. But it needs to register a return.
Advertisement

In recent months, a head-to-head contest has come to be seen as government vs. business. And according to one narrative, government is the problem. But that narrative, according to economist Mariana Mazzucato, is wrong.

Speaking at TEDGlobal this week, Mazzucato laid out an impressive argument that the biggest investor in the United States is none other than: the United States government.

Case in Point: the iPhone

Taking the homely iPhone as an example, Mazzucato pointed out that most of its key capabilities came from government-financed research projects:

  • Internet access (which makes it a smart, not stupid phone) grew out of DARPA
  • GPS grew out of the defense department's NAVSTAR
  • Touch screen technology was funded by the CIA and National Science Foundation
  • Voice recognition software SIRI derived from defense or military research spending

And Apple got its start (along with Compaq and Intel) with investment from the Small Business Innovation Research Initiative.

As for the other lauded behemoth, Google, well that was started when the National Science Foundation invested in its original search algorithm.

Government Funding Is a Good Thing

Mazzucatto isn't dismayed by this information; she's delighted by it. When Europeans ask (as they always do) what makes the U.S. so much more entrepreneurial than Europe, her answer is: government investment.

There is a problem, however. Having invested millions in basic hard core research, the government gets nothing back. Venture capitalists, on the other hand, come in late and reap all the reward. The taxpayer who made the original investment and has taken the biggest risk receives nothing.

When the federal government made the original investments in what became the Internet, the risk of failure was huge--very much higher than it was by the time Sandhill Road pitched in. And only the government was prepared to take the original risk.

Where There's Risk, There Should Be Reward

What the U.S. needs now is a payback mechanism so that the government coffers that make innovation possible can grow, invest more, and create jobs--and further innovation. Imagine, Mazzucatto asked her audience, if just .5 percent of the revenue derived from the original investment in Internet technologies went back to reinvest in green technologies, nanotechnologies (a word coined by a federal program), or more biotechnology. That rate of return--a very great deal more modest than any VC demands--could change the economic landscape.

It isn't just high tech, of course, where this problem resides. The National Institutes of Health, in funding billions of dollars of core medical research, makes possible the army of scientists and vast resources of learning and data that eventually turn into drugs and health care. But U.S. citizens pay for it twice: first in the core research and then again when they buy their pills. Shouldn't the system which fuels this industry be repaid and thus renewed?

It's arrogant and simply wrong to imagine that in a world as complex as our own, wisdom, truth, and ingenuity are the monopoly of any one sector. Great partnerships aren't about dominance; they recognize the value each party brings to the table.

Big government isn't the problem; the failure of business to understand the ecosystem in which it thrives is.

Last updated: Jun 12, 2013

MARGARET HEFFERNAN

Margaret Heffernan is an entrepreneur and author. She has been chief executive of InfoMation Corporation, ZineZone Corporation, and iCAST Corporation. In 2014, she published her fourth book, A Bigger Prize: How We Can Do Better Than the Competition.




Register on Inc.com today to get full access to:
All articles  |  Magazine archives | Livestream events | Comments
EMAIL
PASSWORD
EMAIL
FIRST NAME
LAST NAME
EMAIL
PASSWORD

Or sign up using: