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State of Innovation

December 10th, 2010

In discussions about markets and innovation, I’ve repeatedly made the point that the biggest single innovation of recent decades, the Internet, was not produced by markets at all. It started in the university sector (aided by a little seed money from the US Defense Department) and was developed by amateurs and volunteers for a couple of decades before it was handed over to the dotcommers, who proceeded to waste a trillion dollars or so on silly get-rich-quick schemes.

I’ve never had the time to go much beyond that, but a recent book, State of Innovation, edited by Fred Block and Matthew Keller takes a close look at the process of innovation in the US and the role of government funding. The key conclusion

over the last four decades, government programs and policies have quietly become ever more central to the American economy. From “basic research” to commercialization, the fingerprints of government can be found in virtually every major industrial success story of the late 20th and early 21st century.

At least in part, this reflects the disappearance of big corporate R&D outfits like Bell Labs, and the conversion of General Electric into a finance company. But there are lots more interesting details about the relationship between startups, venture capital and public funding. Well worth reading.

  1. December 10th, 2010 at 17:33 | #1

    Pr Q said:

    It started in the university sector (aided by a little seed money from the US Defense Department)

    Not quite accurate. The internet was developed by a Department of Defence agency called ARPNET, forerunner of DARPA. The project was aimed at making a communications network which would be robust in case of a Soviet nuclear attack. This agency subcontracted work to private sector firms and some public sector universities. Later on the unis picked it up and ran with it themselves.

    The DoD also sponsored the first programmable computers, Turing of course worked on the Enigma project. Von Neumann more or less designed ENIAC, the better to help make bombs and direct artillery and rocketry.

    More generally, the internet and the satellite communications came about mainly through the instigation of Ike who was worried the post-Sputnik Reds were going to steal a march on us through capture of the high-ground of space. Ike was a real network guy, he also promoted the interstate highway system.

    There are times when militarism and Cold War hysteria do more good than harm.

  2. paul walter
    December 10th, 2010 at 21:38 | #2

    Why am I thinking of Japan and its system, prior to the nineties. That worked well, yet they came unstuck, even the sober Japanese. They didnt pick the real estate bubble for what it was and never seem to have been the same since, altho I understand the Kobe quake might have cost them.
    For JS,
    “I like Ike”.

  3. James Haughton
    December 10th, 2010 at 21:44 | #3

    Of course, Bell and GM got busted up by anti-trust in the name of free market competition too. Maybe there is something to be said for oligopolies with long-term planning horizons.

  4. Ikonoclast
    December 11th, 2010 at 16:26 | #4

    There is much more to be said for responsive social democratic government with long term planning horizons. However, we will not have responsive social democratic government until we rein in the excess power of corporate capital.

    Corporate capitalism has engendered the endless growth ideology and over-consumption of limited resources. Corporate capitalism has been allowed to govern our society and our developmental direction by default as government retreated and surrendured all levers of power to the unfree corporates dominated market.

    JQ is quite right that the corporate market is uninnovative. Innovations usually happen in small, new genuinely entreprenurial enterprises or in the military-educational complex. Corporate capitalists appropriate, standardise (in endless flavours of pseudo-variation), exploit and destroy.

  5. Greg
    December 11th, 2010 at 16:50 | #5

    Isn’t this (or, rather, what it represents in social terms) a bigger innovation from the last three decades?

    Entirely done by private enterprise, too.

  6. December 11th, 2010 at 19:48 | #6

    @Greg
    It makes you wonder when shareholders are finally going to work out that their top executives are all involved in a conspiracy to rob them blind.

  7. paul walter
    December 11th, 2010 at 23:34 | #7

    I think the link between government and capitalism actually needs reversing. To close the circle and balance the scales you need to consider the reciprical take over of government by trans national capital since the advent of the neolib breakaway from Keynesianism. What hey do is try to fit an accomodation between the free market and the state by which the state acts merely as a shopfront for capital, through patronage and influence as well as merit and need determine uses, structures and modes of (the) economy.
    It’s an experiment that sees a play off between need and taste, but one overly determined by a particular factor in society.
    For art in life, watch student/ government events in once GB at this time.

  8. Alice
    December 12th, 2010 at 07:14 | #8

    @Ikonoclast
    Saw last night that the majority of young people in the US now want more socialism. No surprise there. Also saw that it was Keatings innovation that dropped the tax rates on upper income earners by more than 20% in Australia as part of his neoliberal pro business plan. Same government who capped the incomes of workers with the accord and laid the ground to destroy the union movement in Australia. Keating – capitals friend.

  9. Bloix
    December 13th, 2010 at 03:33 | #9

    Actually, Pr Q, the internet had its origins in what used to be the very high cost of computing, which is something we tend to forget about. The design of nuclear weapons and weapons delivery systems is computation-intensive, so the DoD paid for the construction of massive supercomputers at major universities and DoD labs around the country. It was horribly inefficient to leave these big computers idle even for a moment and so a network was developed to allow them to divide and share tasks. If the computer at Berkeley was overloaded, say, a chunk of a job could be sent to Chicago and the results could be returned to Berkeley and used there for the rest of the computation. The system was set up so the computers did the sharing by themselves, without human involvement. As it got more sophisticated, the supercomputers became more and more closely linked so that they could operate almost as a single computational device.

    Because the computations were highly secret, the network had to be completely independent of existing communications systems. That was the origin of the ARPAnet. (The agency was then called ARPA – it was later renamed DARPA because the bosses decided that ARPA was turning into a generalized R&D agency and they wanted to remind everyone that the focus was on weaponry.)

    The scientists and engineers who used the ARPAnet quickly realized that they could communicate among themselves (about their work) over the same network. As their communications cost virtually nothing compared with the costs of the huge data transfers between the supercomputers, no one in charge tried to stop the faculty and grad students who were using it as a communications network for human beings. And, as the costs of computing came down, the human communications side of the things increased in importance until it was the main event.

    If the ARPAnet had been invented intentionally as a network for human communications, it would never have been possible for faculty and grad students, working on their own time, to develop it into an open system. It would have been heavily regulated and policed from the beginning. The only reason it came into existence was (i) the human communications side was so small in data terms that it could piggyback at no cost, and virtually unnoticed, on the massive data transfers between the supercomputers, and (ii) everyone who was using it had to have clearance even to get near the thing, so there wasn’t a big concern about security.

  10. stockingrate
    December 13th, 2010 at 21:16 | #10

    @Ikonoclast
    “Corporate capitalism has engendered the endless growth ideology and over-consumption of limited resources.” Governments are surely just as bad – GDP growth worship is the main focus of Liberal and Labour.

  11. brookside
    December 15th, 2010 at 02:53 | #11

    @Bloix
    Quiggi’s original post and all these comments about the Internet are not correct. The Internet was created in 1986 by the National Science Foundation (NSF) as an open wide area network running on the tcp/ip protocol which is the software version of ARPAnet. NSF connected the 5 NSF designated supercomputing centers with high speed data lines (the internet backbone) and required the centers to accept connections from anyone. In the early 1990′s NSF added the hypertext transfer protocol (http or the World Wide Web-www) on top of the internet. HTTP was developed by Tim Berners-Lee when he was working for CERN.

    The original ARPAnet was created in 1969 as a closed network connecting the various mainframe computers at the university based research centers funded by the DoD’s Advanced Research Project Agency (ARPA). Because of limitations of computers at the time the original ARPAnet protocol was hard wired into Honeywell minicomputers which served as the original network routers. In 1979 Vint Cerf and researchers at the Xerox’s Palo Alto Research Center translated the ARPAnet communications protocol to a software program and released it to the public as the tcp/ip program. ARPAnet was originally intended to allow the ARPA research centers to share computer resources but that did not really happen. ARPAnet was was used mostly for person to person communications (e-mail was the first ARPAnet application) and data sharing using the file transfer protocol (FTP). ARPA was not directly involved in developing weapons but funded more general research. As a matter of fact DoD does not develop or manufacture nuclear weapons. The Atomic Energy Commission (now part of the Department of Energy) does the nukes.

    The history of the development of ARPAnet and the internet is more complex and instructive than commonly believed. The best history is “Where Wizards Stay Up Late: The Origins of the Internet” by Katie Hafner and Matthew Lyon.

  12. John Quiggin
    December 15th, 2010 at 05:51 | #12

    I’m aware of the history – I guess I’m not seeing how the detailed accounts differ from what I said. For example how does “The original ARPAnet was created in 1969 as a closed network connecting the various mainframe computers at the university based research centers funded by the DoD’s Advanced Research Project Agency (ARPA)” differ from “started in the university sector (aided by a little seed money from the US Defense Department)”

  13. Ken
    December 17th, 2010 at 13:14 | #13

    @James Haughton : Actually, Bell Labs remained intact under the terms of United States v. AT&T, remaining part of AT&T and funded with a percentage of revenues. The Labs breakup happened in the dot-com era, when AT&T spun off their equipment division as Lucent, the larger share of the Labs going to Lucent. Lucent collapsed some years thereafter, in part due to dubious accounting practices.

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