Demystifying the role of government

By way of an opening statement: the idea that the US government did and does not interfere in innovation policy is a myth and needs serious debunking. It is a myth that is both cherished by European observers and American entrepreneurs alike, though from different perspectives. European observers typically think that the US government leaves innovation policy to free market forces, whereas American entrepreneurs routinely believe that government as a rule should (and does) stay out of business and innovation. Reality, however, is quite different. The stereotyped vision of a passive government that only indirectly supports innovation and innovative startups should be discredited. US federal policies focusing on the development of advanced technologies actually made a substantial difference.

In Chapter Two it was demonstrated that the US government played a proactive and highly significant role through its massive funding of defense and space research. Particularly during both World Wars and the Cold War period. Moreover, the American government was a driving force behind the development of the Internet, and invested considerably in health technology and nanotechnology. The 1981 R&D tax credit law was an important policy instrument that facilitated and enhanced investments by companies in basic research and development activities. The previous chapter on the role of universities in creating Silicon Valley's advanced ecosystem showed the great historic impact of federal funding of basic research by these renowned both public and private institutes of higher learning and by independent research laboratories. Which is still true today. As the Bay Area Science & Innovation Consortium Report concludes: “No other region in the United States or in the world has more federally funded research centers and laboratories.” Stanford University, a world class private university, gets over 80% of its more than 5,300 externally sponsored projects (totaling $1.33 billion in 2014-2015) funded through federal money. Mariana Mazzucato, professor in the economics of innovation, University of Sussex, is quite accurate in her conclusion that “despite the perception of the US as the epitome of private sector-led wealth creation, in reality it is the State that has been engaged on a massive scale in entrepreneurial risk taking to spur innovation”.