One of Ronald Reagan’s zombie theories is the claim that “Government is not the solution to our problem; government is the problem.”
Similar free market cultists assert that government threatens our economic security, and that innovation and economic growth are produced by creative geniuses in places like Silicon Valley.
In reality, government was pivotal in the development of the computer industry, the pharmaceutical-biotech industry, information technology, jet aircraft, communication satellites, nanotech and green technology, along with the aviation/space and defense industries.
The case of Apple, the most valuable corporation in the world, is illustrative.
According to Mariana Mazzucato (The Entrepreneurial State), there are 12 key enabling technologies in Apple’s signature products -- the iPod, iPad, and iPhone -- including microprocessors (CPUs), dynamic random-access memory (DRAM), micro hard-drive storage, liquid crystal displays (LCDs), lithium-ion batteries, digital signal processing, the internet and the internet languages (HTTP & HTML), cellular technology and networks, the Global Positioning System (GPS), click-wheel navigation & multi-touch screens, and artificial intelligence with a voice-user interface (i.e., Apple’s Siri).
Every one of those technologies was funded with government money, says Mazzucato, frequently through partnerships with research organizations like Bell Labs, Xerox PARC, Fairchild Semiconductor, Intel, and others. Apple’s contribution was mostly in integrating existing technologies.
It was DARPA (Defense Advanced Research Projects Agency) which developed the Internet, first called ARPANET, and the USG which orbited and maintains the 31 satellites that constitute NavStar (the GPS) at a cost of $700 million per year. CERN, The European Organization for Nuclear Research, played a major role in developing HTTP and HTML.
The USG founded SEMATECH and then gave it $500 million to develop semiconductors.
Additionally, the Strategic Computing Initiative provided $1 billion to computer researchers. Apple also received money from the SBA’s Innovation Research Program, which supplies $2 billion per year in direct funding to commercialize new technologies.
In addition, the USG negotiates open markets abroad for US corporations and protects intellectual property, both vital to Apple’s success.
Beyond that, Apple received billions in tax incentives from the state of California, and hundreds of millions in tax incentives from North Carolina, Texas, Nevada, and Oregon, and benefits from government-provided transportation and communications infrastructure.
Despite decades of government support, Apple claims it is not a US corporation and pays almost no US corporate taxes.
The government was critical to innovations in other fields, as well. R&D magazine found that 77 of the 88 most important innovations between 1971 and 2006 were fully funded by the government.
The seventeen National Laboratories, supported by DOE, developed the world’s fastest semiconductors, the most powerful lasers, nuclear power, maglev technology, clean energy tech, and other innovations. DOD has invested tens of billions more.
National Science Foundation grants developed the algorithm that led to Google’s success (J. Battelle, The Search, 2005). NSF also created the National Nanotech Initiative, funded at $1.8 billion per year.
Likewise, most of the really innovative new drugs were developed by publicly funded laboratories, according to Marcia Angell, the former editor of the New England Journal of Medicine. The National Institutes of Health fund 26 research centers that have played a role in virtually every bioscience and pharmaceutical breakthrough.
NIH awarded 500,000 grants to more than 325,000 researchers, a total of $624 billion, between 1976 and 2010.
Similarly, the UK Medical Research Council funded the discovery of molecular antibodies, the basis of the biotech industry.
Big Pharma does research but directed principally at tweaking existing products so they can (re-)patent them, writes Mazzucato, despite justifying high drug prices as necessary to fund R&D. Their most profitable drugs are the result of the Orphan Drug Act which subsidizes otherwise unprofitable drugs that target rare diseases; this helped create Biogen, Amgen, Genzyme and Genentech.
Surprisingly, because of the Bayh-Dole Act (1980), researchers can patent the results of government-funded research, in effect privatizing the profits from taxpayer investments.
Patents encourage venture capital investing, which usually comes late in the commercialization process, typically 15-20 years after government investment enables the key developments.
Inevitably, any organization that attempts innovative research risks failures: the government had Solyndra; Apple had the Lisa.
Yuval Noah Harari (Sapiens) has written about free markets that “The most important economic resource is trust in the future … which is constantly being threatened by thieves and charlatans” and for which the market itself offers no protection.
It is government that brings law and order to society, including regulating markets and sanctioning cheaters, and provides infrastructure,
The reality is that without government, there would be no orderly markets, and no Apple or Silicon Valley.
A version of this appeared in the Mankato (MN) Free Press.
