Wed, Aug 28, 2013 - Page 9 News List

Technological revolutions require large amounts of government support

Technology entrepreneurs are ploughing funds into science and engineering projects, but they need longer and larger investments to fund the years it takes for daily application to catch up to invention

By William Janeway  /  The Guardian

Moreover, movement to a new energy infrastructure for the global economy is as massive a proposition as the development of the railways and the deployment of electricity grids and the wired and wireless internet. Herein lies the double rub.

First, commercialization of new materials takes decades, during which production is reduced to cheap and reliable practice. In parallel, commercialization also requires an extended search for applications in which the new material’s characteristics allow it to replace what is already used, or induce the invention of entirely new applications.

This is why, with one exception, new materials have invariably been commercialized by large, established enterprises (as plastics were by ICI, DuPont and General Electric), not by start-ups, however visionary their entrepreneurial leadership may be. Silicon, that singular exception, is the one that proves the rule.

Network building is the second challenge. Since the 1770s we have experienced five successive waves of technological innovation at sufficient depth and scale to generate “new economies.” Each has depended on processes of trial-and-error and error-and-error: upstream inventions and downstream explorations of what the inventions are good for. At the core of each has been the deployment of networks of transportation and communication whose value in use cannot be known at the outset of construction.

So at each stage the innovation economy depends upon sources of funding unconcerned with near-term, quantifiable economic value. Angel investors have always played a role, from James Watt’s partner Matthew Boulton onward. The complementary sources of institutional support for innovative investments at scale have been masses of financial speculators, participating in capital market bubbles, and the state, in pursuit of politically legitimate missions, from national development to national security.

The canals and railways of the first two waves of innovation were supported by compulsory purchase orders in the UK and, in the US, by direct subsidies. In each case, financial manias followed. The electricity grids of the third wave attracted finance during the 1920s due to the provision by the state of regional monopolies. The highways of the fourth, automobile revolution were directly constructed by the state as the multitude of car manufacturers sorted themselves out competitively.

Silicon is the source material of the fifth, digital revolution. Its commercialization was in substantial part led by entrepreneurial start-ups, notably Texas Instruments and Intel. Their distinctive success was directly due to the encompassing role of the US defense department. For the US government not only funded fundamental research across all the digital domains, it served as a creative, collaborative customer, pulling all its suppliers down the learning curve to low-cost, reliable production. The dotcom/telecom bubble at the end of the last century was its baby.

We cannot expect the present generation of technology philanthropists to replace the agencies of the state. Scale matters. For 25 years, from 1953 to 1978, federal funding accounted for more than half of all research and development in the US or about 1 percent of GDP. An equivalent amount would be more than US$1.5 trillion today. Even the annual budget of the US National Institutes of Health is “only” US$35 billion.

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