Government Support Actually Integral to Silicon Valley’s Development

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In an otherwise quite nice report from the Government Accounting Office (GAO) called Global Manufacturing: Foreign Government Programs Differ in Some Key Respects from those in the United States, the authors discuss the efforts of countries including Canada, Germany, Japan, South Korea, and the United States to support manufacturing, in part through the development of regional high-tech clusters. Yet the report’s authors argue that “the effectiveness of cluster policy has not been established; the formation of successful clusters in the United States, such as California’s Silicon Valley, suggests that government support for clusters may not be necessary.”

Unfortunately, here the GAO authors are echoing the point of view of individuals such as Michael Arrington, who believes that the Best Way to Fix Silicon Valley is to Leave it Alone. But as Robert Atkinson convincingly argues in Divorce Washington at Your Peril, Silicon Valley—as will a forthcoming MIT-ITIF report, Federally Supported Innovations: 22 Examples of Major Technology Advances that Stem from Federal Research Support (February 2014)—government support has actually played a fundamental underlying role in the development of Silicon Valley (as it has in the development of other high-tech clusters in the United States, such as North Carolina’s Research Triangle Park) in large part through federal investment at universities and by supporting the development of cutting-edge new technologies that have underpinned many of the break-through start-up companies that have made Silicon Valley so vibrant.

As a 1992 Congressional Office of Technology Assessment report, After the Cold War: Living with Lower Defense Spending, pointed out, the U.S. county with the highest per-worker amount of defense contract dollars was Santa Clara county (i.e. Silicon Valley). As early as the 1950s, driven by the Cold War and the space race, Department of Defense demands for ever-faster integrated circuits (microprocessors) and computing capacity were instrumental in providing funding for firms such as Fairchild Semiconductor and Intel that literally gave the term “Silicon Valley” its start. The Internet emerged from the Defense Department’s Advanced Research Projects Agency (ARPA).

Subsequently, federal funding of research into computer networking at Stanford was instrumental to the development of networking technologies that Leonard Bosack and Sandy Lerner ultimately commercialized as Cisco. Funding from the National Science Foundation’s Digital Library Initiative played a role in Larry Page and Sergey Brin developing a new algorithm, PageRank, which gave rise to Google. The founders of Genentech and other Bay Area biotech firms relied in part on federal research money to universities. In fact, the Science Coalition’s report Sparking Economic Growth 2.0 traces well over a dozen innovative Silicon Valley companies that got their start directly as a result of federally funded research into Silicon Valley area universities such as Stanford and the University of California at Berkeley.

To be sure, vibrant high-tech clusters need a number of ingredients, including strong universities, ambitious entrepreneurs, and deep pools of risk capital. And certainly these and many other companies became forces in their respective markets independent of government, but does anyone really think that the federal dollars that have flowed into Stanford, Berkeley, and the Lawrence Livermore Lab have had nothing to do with the development of the modern Silicon Valley? While government planners did not meet in a room in Washington in 1952 and say “we’re going to build a high-tech cluster in Silicon Valley” the reality is that without extensive government investment in technologies, R&D, and skills at both universities and in companies themselves, Silicon Valley would not be the world’s leading high-technology cluster today.

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About the author

Stephen Ezell is vice president, global innovation policy, at ITIF. He focuses on innovation policy as well as international competitiveness and trade policy issues. He is coauthor of Innovating in a Service-Driven Economy: Insights, Application, and Practice (Palgrave MacMillan, 2015) and Innovation Economics: The Race for Global Advantage (Yale, 2012). Ezell holds a B.S. from the School of Foreign Service at Georgetown University.