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Thu Jul 4, 2013, 08:10 AM

Debunking The Narrative Of Silicon Valley's Innovation Might

This is going to sound completely heretical to everything Forbes has stood for over 96 years (and The Economist for a few decades longer than that) but here goes: The real innovation engine in the global economy is not the entrepreneurial class blazing capitalist trails through the thicket of government red tape and taxation. No. The real engine of innovation is government.

That’s crazy, you say. One Mark Zuckerberg or Steve Jobs is worth ten suits in D.C. or Brussels. If we left investment and risk capital to the state, all we’d get are bad bets such as Solyndra, Fisker Automotive and the Concorde.

Wrong, says economist Mariana Mazzucato, a professor of economics at the University of Sussex. In her new book The Entrepreneurial State (adapted into a rousing TED talk delivered this week in Edinburgh), Mazzucato argues that long-term, patient government funding is an absolute prerequisite for breakthrough innovation. There is something seriously wrong, she says, with a system that asks taxpayers to take all the risk while the private sector takes all the rewards (shades of what happened in the financial crisis and ensuing bailout). “By constantly painting the government as a big bad leviathan we’re stunting the growth and opportunities before us,” she writes. “If we’re funding all the risks where are the rewards for the state?”

Her case study for myth-debunking is the iPhone, that icon of American corporate innovation. Each of its core technologies–capacitive sensors, solid-state memory, the click wheel, GPS, internet, cellular communications, Siri, microchips, touchscreen—came from research efforts and funding support of the U.S. government and military. Did the public see an iPhone dividend? Not really. The “stay foolish, stay hungry” geniuses ran away with the gains, says Mazzucato, and now the company is under fire for not paying enough taxes or creating enough high-wage jobs in the U.S. Apple’s five-year R&D spending as a percentage of sales has hovered around 2% to 3%, while companies such as Nokia and Samsung Electronics spend 9% and 8%, respectively. Steve Jobs’ real genius was not in developing new technology but integrating technologies invented somewhere else, often backed by tax dollars.


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