How the Government Built Silicon Valley

Peter Diamandis is the founder and head of the X Prize Foundation, an organization that funds competitions to bring about “radical breakthroughs for the benefit of humanity.” The foundation achieved its highest public profile several years ago, when it offered a $10 million prize to the first non-governmental team to build a reusable spacecraft and send it into space twice within a two-week period. The team financed by Microsoft co-founder Paul Allen won the prize in 2004.

Diamandis has recently published a book titled Abundance: The Future Is Better Than You Think. According to Diamandis and his co-author, Steven Kotler, “Within a generation, we will be able to provide goods and services, once reserved for the wealth few, to any and all who need them. Or desire them. Abundance for all is actually within our reach.”

I don’t happen to find a lot of economic merit in that claim because to achieve it, global growth would have to be at least eight times faster than it has been over the last couple of decades.

But there is another — and much bigger — problem with the vision in Abundance. It is largely a libertarian vision of individuals (supported by super-rich patrons donating their money and empowered by new tech tools like cloud computing and 3-D printing) being the new drivers of innovation. This is the vision of people such as TechCrunch founder Michael Armington and PayPal founder Peter Thiel, and it begs the question: Who needs government?

In this completely ahistorical and ideological vision, government and big corporations are the problem. All big corporations do is resist change. All government does is get in the way. No, innovation comes from people giving TED talks. Really!

Silicon Valley libertarians

The fact that most of the innovations in Silicon Valley can trace their source back to federal support for research seems to escape these folks. In fact, Silicon Valley would still be full of apricot trees without federal support for research.

In 1992, California’s Santa Clara County received more defense contract dollars per capita, mostly for research and development, than any other county in the nation. Oracle got started doing work for the Central Intelligence Agency, and Intel sold much of its early output to the Pentagon. Sergey Brin was working on bibliographic research with a National Science Foundation (NSF) grant when he conceived Google. The founders of Genentech and other Bay Area biotech firms relied in part on federal research money to universities.

Granted, these and many other companies became forces in the market independent of government. But does anyone really think that the federal dollars that flowed into Stanford, Berkeley and the Lawrence Livermore National Laboratory had nothing to do with the Silicon Valley of today?

No, Silicon Valley libertarians want to deny all this. You do not need collective action, they would say, to solve problems (that is, all of us as taxpayers contributing a bit each year so that government agencies like DARPA, ARPA-E, NIH, NIST, and NSF can fund leading-edge innovation around the nation). No, just rely on the rich guys.

As evidence, the authors cite Warren Buffett and Bill Gates’ Giving Pledge, in which they encourage billionaires to give away up to half their wealth to philanthropic endeavors. It is a wonderful vision — and all the credit in the world should be given to Gates and Buffet for leading it. But to pretend that this is enough and can replace, rather than supplement, government support for innovation is delusional in the extreme.

Assume that America’s billionaires give away half their wealth. By one calculation, that is about $600 billion.

Now assume it rolls in over a 20-year period. That is $30 billion a year. And most of that will — rightly — go into social causes rather than R&D. Now compare that number to the $145 billion annual R&D budget of the U.S. government. Is it any wonder that Bill Gates himself has been one of the leading voices in calling for more federal support for R&D (especially for clean energy)?

But for cyber-libertarians, the world is moving to self-organizing systems where people are empowered by IT networks. Big organizations — government and industry — “don’t get it.” (That phrase is a cyber-libertanian’s favorite insult. If you don’t agree with them, you just “don’t get it.”) Diamandis is optimistic because three billion people will come online soon and they will be the new innovators.

But the vast majority of this new wave will have less than eight years of education. You cannot find the cure to cancer with an eighth-grade education. This does not mean that open innovation, distributed innovation and customer-driven innovation are not important. They are. But this is not “either-or.” It’s “both-and.” Bottom-up innovation is important, but so is top-down.

Techno-utopians base their visions on the fact that there are more scientists and engineers on the planet than ever before — and therefore there should be more innovation than ever. It is important to remember, however, that innovation is getting harder to achieve at the same rate, even with the growth of resources we throw at it.

Thomas Edison could invent the light bulb with a small group of helpers in his New Jersey laboratory, because it was not all that complex a problem. Curing Alzheimer’s is not like inventing the light bulb. That is why life-science innovation has slowed, not because the drug companies are lazy or greedy, but because the low-hanging fruit of medical innovations have been picked and what’s left is really, really hard.

This doesn’t mean innovation will end, or course. If we commit to making not just significant private investments, but even more significant public investments, in innovation then, yes, you can call me a techno-optimist. I’m just not a cyber-libertarian utopioan.