Episode 45 – Why Government is Essential for Innovation

In this episode, I discuss why I believe that government is absolutely essential for innovation to flourish.

Many people believe in reducing the size and scope of government. They claim that this will help people achieve freedom. What many people don’t always acknowledge or even understand is just how important government is in achieving creativity. Government has made possible some of the most life-changing innovations in human history. I make the claim that without government intervention, the United States would not be the economic powerhouse that it is today.

Not only that, but reducing government intervention in innovation is likely to significantly reduce American power and influence around the world. The United States is the dominant power on Earth because of an innovative spirit. Without that unique position in the world, we will lose the respect of nations across the globe. That will change the balance of power, and lead to a more unstable world, which is not good for anyone.

How did we achieve our current position as the most innovative nation on Earth? Did we have millions of inventors cloistered in their garages busy developing new ideas that would change the world? The answer is no, we did not. Undoubtedly, there were inventors coming up with new ideas, but often, what you need is a boost.

GDP has grown exponentially over the last 130 years. One study found that technological innovation was the primary factor in that growth. The fact is, technology produces wealth, which spurs more innovation. The government is a primary source of that innovation. It started back in 1797 with the government providing funding and the market for the first U.S. armory. The weapons produced there were the most technologically advanced on Earth at the time.

Firearm standardization allowed for parts to be interchanged. That advance spurred advances in other industries, like sewing machines. By the middle of the 19th century, factories used standard parts for their machines imported from elsewhere.

The military remained a hive of innovation. Computers were developed because the military needed them. The Defense department produced research on semiconductors, because there was no commercial market. Commercial uses of semiconductors would not have happened until the 21st Century without the Department of Defense. The technological boom of the 1990s would not have happened without the investments by the Defense Department in the 1970s.

After the launch of Sputnik by the Russians in 1957, DARPA, the Defense Advanced Research Projects Agency was born. That agency invested in high-risk, high payoff research helpful to society. The innovations they discovered fueled the massive advancements in personal computing that we see today. Entrepreneurs were able to take those inventions and commercialize them. This allowed them to create a great deal of wealth. That wealth was only possible because of the investments in public research and development. This meant that entrepreneurs did not have to finance their own research and development.

The innovations provided by DARPA have an impact of every part of our lives. The Internet was a project that emerged from DARPA. Without the foundation provided by this research, the explosion of growth in the 1990’s would not have been possible. Consider the profound impact that the Internet has on our lives. Today everything runs off the Internet. It allowed for the emergence of companies like Google and Amazon that have profoundly changed our lives. Thousands of businesses exist today because of the Internet. Because of government.

Google itself would not exist if not for a project by the National Science Foundation. The Foundation financiad the Digital Library Initiative. This indexes and sorts data from websites. The founders of Google created an algorithm that ranks pages by importance. With that algorithm, they founded Google.

GPS, which we use in so many devices today was a project financed by government. The military needed an application that allowed for advanced guidance systems for ICBMs. They can keep track of every ship, every aircraft, and increasingly, every army unit in the field. None of that would have been possible without GPS.

How many people know that baby formula began as a NASA project? They developed an algae supplement to help recycle oxygen during space travel. More than 90% of baby formula now uses this supplement.

Another source of government sponsored funding happens in universities. The government provides grants to study a wide variety of subjects. The kinds of grant provided allow for the study of natural phenomena for which there is no commercial market today. Environmental impact studies allow us to understand the influence that people have on the planet. This allows us to grasp the enormity of changes in climate around the globe. We can forecast with increasing accuracy the rise in global temperatures that will have an impact on all life on Earth. Without financing of NOAA, The National Oceanic and Atmospheric Administration, our knowledge of climate change would be largely non-existent.

Universities today can patent their discoveries, paid for with public funds, without any payments to government. In this way, discoveries can enter the world of commerce, enriching a great many people. One source calculated that livensing agreements from universities to industry account for between $47 and $187 Billion of U.S. GDP. Another $82Bn came from royalties. By some estimates, around 300,000 jobs were created between 1996 and 2007 and industry output increased by 300Bn.

Space flight was not as commercially viable as it is today. The government is the source of funding and its customer. There was no commercial market available for space flight. The launch of space telescopes like Hubble allowed for a dramatic expansion in our knowledge of the universe. No commercial enterprise had the deep pockets of government allowing for expenses like this. Without NASA, there would be no Spacex. Without government there would be no Spacex. Government provided the funding to allow Spacex to invest in space flight.

Government provides seed money for basic research that corporations are not willing, or able to fund. For the most part, there is no commercial incentive. It is only when the process of innovation is quite far advanced that commercial applications are seen. Without that fundamental foundation, there would be no advances. Research is risky, and few commercial enterprises are willing to take that risk.

Not only that, but because the United States has some of the top research universities in the world, scientists, engineers, mathematicians and technologists want to come to the United States to study, and often to stay. This provides enormous benefits to the country, and to the world. When we cut back on funding of basic research, these well-educated people go elsewhere and their knowledge is lost to this country. Immigrants of all stripes founded many of the companies that have sprouted up in Silicon Valley. It is this rich interplay of people from a variety of nations that enriches our nation. If the funding of science dries up, the nation will suffer.

The GOP continually tries to remove funding from government agencies like the National Science Foundation. Yet, agencies like this are the foundation of the economic growth that we see today. Without basic research produced by this and other agencies, economic growth would be stagnant. The current obsession with reducing the role of science in government and in society will have a profound impact on future economic growth.

Nations like China spend heavily on research and development. This will give them a massive advantage in the future of our world. It is extremely shortsighted to cut back on funding because of some ill-paced obsession with reducing government, and budget deficits. Innovation needs to be financed, and it needs to be nurtured. By withdrawing from scientific realities, today’s GOP is a death blow to our continued world dominance.

I encourage you to continue to enhance your life with the Power of Three and search for a more innovative way to live.

Until next time, go well my friends.