Where the iPhone Came From

Albert Einstein famously held the view that “imagination is more important than knowledge.” What we think we know can limit what we see as possible. The greatest thinkers challenge what everyone believes to be obvious. They allow us to see the world anew.

We may be primed for another lesson, this time in economics. It has been “obvious” to most people over the past 30 years that the creative dynamism of the free market, the energy of private individuals pursuing their own dreams, is the best driver of economic innovation. The global economy carries the indelible imprint of the brilliant visionaries who created companies such as Microsoft Corp., Apple Inc. and Google Inc. Innovation is a private affair, best left free of the typically sluggish and wasteful interference of government.

What seems so obvious might also be completely wrong. This is the point that economist Mariana Mazzucato makes in her recent book, The Entrepreneurial State: Debunking Private vs. Public Sector Myths.

Think of the Internet, biotechnology, electronics, photonics, materials science and nanotechnology – all the crucial technologies of our age. Go back further to oil, rail, the airlines and nuclear energy. None of these would be as developed as they are, and some would hardly exist, without the founding vision and directed action of government agencies.

Long-Term Vision

Consider the Internet and the World Wide Web, energized by competition among behemoths such as Google and Facebook Inc. and countless garage-style startups such as Clarity and Avaaz. This frontier of market freedom was brought into existence by government pursuing a long-term vision that no company would have attempted. People at the Defense Advanced Research Projects Agency had the imagination to support a consortium of universities and research firms to build a network of computers able to exchange information, and undertook the sustained effort required to make it happen.

What about Google? The genius and inspiration of the company’s founders, Sergey Brin and Larry Page, played a big role in making it happen. So did funding from the US National Science Foundation, which let the two computer scientists develop the algorithm that so transformed Web search and propelled the company ahead. Forward-thinking leaders at the foundation offered funding in precisely this area because they thought it would pave the way to a world of new technologies.

Even Apple, normally viewed as the singular creation of the lone genius of Steve Jobs, owes much to government. Mazzucato points out that Apple received crucial finance in its early years from the US government’s small-business investment program. Every one of the most important technologies in Apple’s smart products, including the iPhone and iPad, were developed elsewhere and largely thanks to state funding.

The picture is similar throughout the economy. Of the roughly 100 most important innovations from 1971 to 2006, as identified by R&D Magazine, almost 90 percent depended heavily on federal research support, according to Mazzucato. And whatever big pharmaceutical companies might say about the risks they take and amounts they spend to develop new drugs, most of the really innovative discoveries the past few decades have come from publicly funded laboratories.

The point isn’t that Jobs wasn’t a genius, or that the energy and creativity of the private sector aren’t necessary. It’s that governments have had a huge and widely unappreciated influence on our economic well-being. They can often achieve things the private sector cannot, creating new technologies and entirely new markets.

It’s a point that John Maynard Keynes made long ago: “The important thing for Government,” he observed, “is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all.”

White Elephants

Governments do have flaws. They are prone to pursue white-elephant projects and to suffer from stifling bureaucracy. These are problems to battle against, while benefiting from the best things government can do.

Mazzucato warns that the perception of government impotence in innovation can be self-fulfilling. Uncertainty in policy is a recipe for failure. Government is most effective when it acts with confidence, as evidenced in places such as China and Brazil, which have successfully developed technologies for the anticipated “green revolution” with the help of state aid.

As long as we remain under the spell of myths and don’t recognize the potential for visionary government action to help lead society forward -- as it has in the past -- we are likely to suffer. Viewed correctly, government should be an invaluable partner of the private sector, one that is willing and able to take the crucial risks that business won’t.

Mark Buchanan, a theoretical physicist and the author of The Social Atom: Why the Rich Get Richer, Cheaters Get Caught and Your Neighbor Usually Looks Like You, is a Bloomberg View columnist. This article originally appeared on Bloomberg.

Photo Credit: MarianaMazzucato.com (left); CNet.com (right)