November 07, 2012
Byting the Hand That Feeds
Why Silicon Valley Should Improve, Not Abandon, Washington
The separatist rhetoric of Silicon Valley that went viral in 2013 reveals a systematic lack of appreciation across parts of the tech community for the role the US government plays in supporting the most innovative economy in the world. Rather than dismiss or underplay its role, Silicon Valley needs to acknowledge that a productive federal government continues to support our national innovation system. In turn, Washington needs to acknowledge how the Valley turns new inventions into good jobs and productive commercial products.
This op-ed was originally published at Forbes and is reprinted with permission. The authors are Teryn Norris, a U.S. policy advisor, and Sheel Tyle, a venture capitalist at New Enterprise Associates. The views expressed are their own.
In Silicon Valley, 2013 will be remembered as the year the idea of separating from the United States went viral. There was the Stanford lecturer and investor, Balaji Srinivasan, who called for “Silicon Valley’s Ultimate Exit,” declaring to a large audience of elite entrepreneurs, "We need to build an opt-in society, outside the U.S., run by technology.”
There was Larry Page, the CEO of Google with a net worth over $30 billion, who suggested a more experimental approach in which technologists “set aside a small part of the world” beyond existing laws and institutions. Page’s vision is shared by billionaire investor Peter Thiel, who in 2008 co-founded the Seasteading Institute to create floating city-states in the ocean.
And then there was Chamath Palihapitiya, another influential venture capitalist, who took a step further in proclaiming, “The government, they're completely useless … If the government shuts down, nothing happens and we all move on, because it just doesn't matter.”
It’s tempting for many observers to dismiss these ideas as outlandish: after all, Silicon Valley is not on the verge of seceding from the Union. Yet it is also a fact that the United States has seen few, if any, separatist thought movements backed by such wealthy and elite individuals since the mid-1800s.
Even beyond the erosion of national identity, what this thought movement reveals is a systematic lack of appreciation across parts of the tech community for the role the U.S. government plays in supporting the most innovative economy in the world. Indeed, the U.S. federal government remains the world’s single greatest benefactor of scientific discovery and technological invention, without which Silicon Valley would neither exist nor persist.
In the end, Silicon Valley and Washington need each other to thrive. Instead of dreaming about abandoning U.S. governance, the Valley should strive to improve it — not only through forward-looking policy advocacy, but also through new ventures to make American government more productive.
The Limits of Silicon Valley
It is now well established that Silicon Valley was born largely through U.S. defense and intelligence spending in the 1940s and 1950s, laying the foundation for the global information technology revolution. As serial entrepreneur Steve Blank has documented in “The Secret History of Silicon Valley,” this occurred through a series of federal grants to Stanford and early-stage companies developing microwave systems and vacuum-tubes, and eventually semiconductors and the Internet.
While the State laid the foundation, there is little question that Silicon Valley’s private investors and entrepreneurs ultimately built much of the information technology sector as we know it. And to this day, the Valley remains one of the most forward-looking places in the world: Tesla’s electric vehicles, Coursera’s platform for free higher education access, and Google’s self-driving cars are just a few examples of its companies working to solve big problems.
Despite these examples, there is a growing sense of disappointment with what the Valley is delivering — what some are calling a “systemic failure in the startup ecosystem” that primarily creates Instagrams instead of Hyperloops. As Harvard Business School Professor Josh Lerner concluded, “the venture capital model is no panacea for innovation. The boom-and-bust cycle, the mercurial effects of public markets, and the narrowing of its objectives have made it something far less substantial.”
These trends make sense given the incentives facing most venture capitalists in today’s markets: if the public markets reward fast-growing internet companies like Twitter at multiples as high as 40x revenue, then why wouldn’t investors pursue high-flying software or consumer internet deals?
As a result, VC investment in more capital-intense and higher-risk technologies has fallen substantially in recent years, with software startups increasingly dominating at the expense of sectors like energy, transportation, biotech, and advanced manufacturing. As Peter Thiel has lamented, “We wanted flying cars. Instead, we got 140 characters.”
The Entrepreneurial State
Fortunately, the federal government continues to provide the seed corn for the U.S. innovation system through unmatched investments in high-risk technology research and development (R&D). On the order of nearly $150 billion per year, this commitment far exceeds any other nation and is almost five times the size of the entire global VC market, driving the development of new, foundational technological platforms upon which the private sector builds commercial value.
Nuclear power. Jet engines. The Green Revolution. Semiconductors. The Internet. Hydraulic fracturing. Solar photovoltaics. Gas turbines. Advanced batteries. Recombinant DNA and genome sequencing. All of these blockbuster technologies and more were originally developed with U.S. government funding, and future breakthroughs in path-breaking areas like quantum computing, nano-manufacturing, and fusion power will require the same.
Of course, today it is commonplace for skeptics to point to examples like Solyndra. But whether or not the government should finance large-scale manufacturing facilities is besides the point: even the most libertarian economists agree on the productive role of public spending on research and development.
This doesn’t mean the private sector doesn’t develop breakthrough technologies on its own — the bygone Bell Labs is a prime example — nor should it discourage venture capitalists from developing new investment models. But as British economist Mariana Mazzucato concluded in her recent book, The Entrepreneurial State, “most of the radical, revolutionary innovations that have fueled the dynamics of capitalism… trace the most courageous, early and capital-intensive ‘entrepreneurial’ investments back to the State.”
State of Innovation
Silicon Valley and Washington need each other to thrive: the Valley needs a productive federal government to continue supporting our national innovation system, and Washington needs a Valley that turns new inventions into good jobs and productive commercial products.
Of course, the Beltway city could also use its own strong dose of disruptive innovation to deliver more value. Instead of dismissing government, the Valley should direct more of its energy toward ventures that make it more efficient and responsive. For government operations, companies like Palantir have only scratched the surface in overhauling data mining and analysis capabilities. For government advocates and watchdogs, startups like OpenGov, Outline, and FiscalNote have much greater potential to provide analysis tools on complex public programs. For civic empowerment, there remains enormous opportunity to create information and organizing platforms, such as NationBuilder, to engage the public and make government more responsive. And this is only the beginning of what’s possible, both here and for governments across the world.
For over a half-century, the unique partnership between Washington and Silicon Valley has produced transformational results and helped make the United States the most dynamic and entrepreneurial society in the world. Today, the challenges of the twenty-first century demand even more ambitious and meaningful innovation, and that is why we must renew and strengthen our partnership — not abandon it.