And while it’s true that Sergei Brin and Larry Page wrote the algorithm that created Google, what’s less well-known is that they made their key discoveries with funding from the National Science Foundation.
If American taxpayers funded the research that led to the development of the iPhone, shouldn’t those taxpayers share in the rewards?
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Mazzucato’s argument is simple. As a matter of history, the core technologies that enabled Silicon Valley were not developed by Silicon Valley geniuses funded by Silicon Valley venture capital. It was the federal government, chiefly through DARPA, who made the development of these now ubiquitous technologies possible, and who gifted them to anyone who was interested.
American (and, of course, increasingly, Chinese) companies have been very interested, and their vast profits are the fruit of investment by the US taxpayer. Public risk, private profit.
Let’s take Apple, who have sold over a billion iPhones: current net profits are around 20%, its market capitalisation is edging towards one trillion dollars, and at the moment it has nearly $300 billion just sitting in the bank. If anyone has done well out of US public science investment, it’s the company Steve Jobs built.
This story of how a government agency, DARPA, jump-started the digital economy needs to be better known, and one signal service of The Entrepreneurial State has been to help puncture the illusion that the Silicon Valley geniuses came up with it all themselves. It also raises some big questions about who drives innovation, and how it is paid for.
DARPA and other US government funding agencies did not just invent the internet – they devised the tools that made the digital economy possible
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If American taxpayers funded the research that led to the development of the iPhone, shouldn’t those taxpayers share in the rewards? Mazzucato makes a strong case for a clawback, which could be recycled into further public science investments. She may be right, if it can be done in a way that does not inhibit the next round of entrepreneurs. But it’s important to note that these companies already benefit the economy – and therefore the public purse. They pay tax, have created a lot of high-paying (as well as low-paying) jobs, and had the usual multiplier economic impact on their localities and supply chains that vibrant innovative companies produce.
Nonetheless, a windfall tax on digital companies making outsize returns – ring-fenced to fund new research – could be one solution to the Mazzucato challenge. A form of DARPA dividend. It’s worth noting that Apple’s current cash mountain alone could fund DARPA one hundred times over.
A more fundamental question is whether governments should see themselves as “entrepreneurial”, and set out to do just what DARPA did, as a matter of practice. The idea that governments should set industrial policy is hotly contested, with critics tending to characterise such an approach as ‘picking winners and losers’.
It’s ironic that while European governments (and the Japanese) are happier talking like this, it was in the United States, where the rhetoric of free-market capitalism tends to shut down conversations about industrial strategy, that the DARPA-digital lift-off actually took place. There’s a good argument that governments can’t avoid industrial policy choices – either they have one they talk about, or they have one by default. On the other hand, there’s also an argument that the DARPA-digital story is unusual, perhaps unique, and certainly not something that a government could set out to replicate.
Maybe it was unique, but that’s no reason to sit on our hands. Governments have nothing to lose and everything to gain by funding far-sighted research. One of the beauties of the DARPA model has been to keep this separate from the National Science Foundation/National Institutes of Health funding, which suffers from traditional peer review (fellow-experts who tend to strangle really fresh thinking at birth), and also from pressures to make it translate readily into business ideas and profits. The internet is worth trillions, but it took a generation before that became clear.
A windfall tax on digital companies making outsize returns – ring-fenced to fund new research – could be one solution to the Mazzucato challenge
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While there have been huge commercial and economic benefits from these technical advances, it is, however, important to remember that neither Vannevar Bush nor President Eisenhower had profit on their minds as they planned science and technology’s central role in America’s future. Their focus was security – keeping ahead of the Soviet Union. Their efforts succeeded beyond their wildest dreams, in part precisely because the focus was on long-term innovation rather than economic returns. There will always be private capital for the latter.
The clearest lesson from The Entrepreneurial State is that the blue-sky thinking of the mid-20th century paid off in the 21st – but that the original objectives of that research investment could not have foreseen the digital revolution that it spurred.
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Subscribe[…] as the most innovation-intensive ecosystem in the world. But what many people do not know is the role that the government played in its formation! p.s. Did you know that every key technology needed to make the iPhone was made […]
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