Innovation -- Venture Capital Did Not Build That

William H. Janeway, a managing director at the private equity firm Warburg Pincus, contributed an essay to the Los Angeles Times today explaining that “At every stage, the innovation economy depends on sources of funding decoupled from concern for economic return.” He means the government:

As economists have long recognized, such funding will not be delivered by competitive markets. Only an active state in pursuit of politically legitimate missions — national development, national security, conquering disease — can play the required role.

Thus, from the Erie Canal to the Internet by way of the transcontinental railroads and the Interstate Highway System, the American state has played a strategic role in the deployment of the transformational technologies that have created a succession of "new economies." In disregard of this history, forces have been at work for a generation to delegitimize the state as an economic actor — even as the next new economy can already be defined in broad strokes.

FROM ERIE CANAL TO THE INTERNET...

One final challenge confronts us. As in all the strategic economic contributions by government, a legitimizing mission is required. Responding to the existential threat of climate change presents just such a mission. So are the climate change deniers who have stalled needed state investments motivated by skepticism of the scientific consensus? Or is their asserted skepticism motivated by the knowledge that acceptance of the reality of climate change will bring the state back in as a legitimate economic actor? These are the questions we need to be asking.

Government certainly has a role to play in supporting pre-commercialization R&D in situations where the risk is more than private companies can assume. In general, the closer to basic/fundamental studies the greater the need for government support and generally the expense at this level is not too great. Janeway discredits himself when he refers to "scientific consensus". As a venture capitalist he should know that consensus is not part of science. If it were we would not be where we are today (think of Galileo, etc.). Beyond that who established the "consensus"? How about the 700+ scientists who the Senate notes get heartburn over the claim that global warming is due to human activities (http://epw.senate.go...n_id=&Issue_id=). Is this a consensus? And if it is does it really matter? Janeway also exhibits his bias by jumping into the "denier-skeptic" rabbit hole. What is he talking about? Few if any scientists claim that climate does not, is not, and has not changed. It always has and always will. In fact, if it didn't we would still be in the last ice age. The question is what is the cause. Many mechanisms have been proposed, ranging from natural effects to human activities, but so far none has been proven to a high degree in terms of verified models, reproducibility, etc. That being the case, it ain't too smart to accept unproven claims as conclusive. An example of how fluid things are is the next IPCC report (drafts are available) which notes that the multitude of computer climate models used do a poor job and have greatly over estimated the amount of global warming claimed in previous reports. This is certainly an area of fundamental research that most would agree qualifies for government support and, in fact, the government has stepped up to the plate to the tune of more than $80B in the last 25 years. Is this too much, too little, or just right? What is Janeway's point?

Edited by colion, 29 December 2012 - 12:35 AM.

What a crock!
It's funny how all of the history books are now somehow wrong.
I've read that many of the famous inventions were by driven individuals with an idea, working in makeshift garages and laboratories, often spending their very last dime before accomplishing their goals, often after many failures.

In the list below, find an example of government innovations.
They can't even get their own Houses of Congress to work properly!

They did build that:
Benjamin Franklin
Alexander Graham Bell
John Moses Browning
Willis Carrier
Samuel Colt
Henry Ford
Robert Fulton
Charles Goodyear
Cyrus McCormick
Samuel F.B. Morse
Dr. Jonas Salk
Eli Whitney
Orville & Wilbur Wright
George Washington Carver's accomplishments were unbelievable, especially since he could only afford junk yard pots and pans. In 1941, Time magazine dubbed Carver a "Black Leonardo".
Steve Jobs could easily be added to this innovators list.
List of many more

Most of these guys were able to accomplish what they did through private Venture Capital, even without Federal highways (which were actually built by private contractors).

Edited by Rogerdodger, 29 December 2012 - 11:20 PM.

There's a reason Steve Jobs and Steve Wozniak started Apple in their garage: We've stopped rewarding inventors.

THE TINKERERS -- HOW CORPORATIONS KILL CREATIVITY

The word “tinkerer” had, until recently, a slightly negative connotation, suggesting individuals who are somehow aimless, lacking focus, or not sufficiently motivated to create something genuinely new. To many, “tinkering” sounds like a quaint pastime reserved for those who are retired or otherwise disengaged from the everyday process of mainstream productivity. That’s if they think of tinkerers at all. The term itself has fallen out of use, at least in the traditional sense. But historically, American tinkerers were a relatively eclectic bunch who hatched extraordinary, life-changing innovations by sheer will and forward momentum. Benjamin Franklin, Eli Whitney, Cyrus McCormick, Samuel Morse, Charles Goodyear, Thomas Edison, the Wright Brothers.

Then life got more complicated. It’s often assumed that somewhere in the late 1800s, at the turn of the century, tinkerers went the way of the horse and buggy. But I would argue to the contrary: America’s tinkering tradition has always been a key part of its ongoing greatness.

So what do I mean by tinkering, in contemporary terms? At its most basic level, tinkering is making something genuinely new out of the things that already surround us. Secondly, tinkering is something that happens without an initial sense of purpose, or at least with a purpose quite different from the one originally identified. Tinkering also emanates from a place of passion or obsession. Lastly, tinkering is a disruptive act in which the tinkerer pivots from history and begins a new journey that results in innovation, invention, and illumination.

Increasingly, however, American tinkering is the unlikely byproduct of a country driven by greed and conformity. Within our success as a nation and a global economy lies a paradox. The United States, with its highly disciplined approach to capitalism, invented the modern corporation and the marvelous, sleek objects it produces. Indeed, our processes have become so rationalized and efficient that we can produce new things that are cheaper than the old ones they replace. But as those wondrous corporations become bigger and more efficient, they conspire to take control of many of the outlets of our tinkering, threatening to snuff out the very creativity and brilliance that fueled the growth of those corporations.

There's a reason Steve Jobs and Steve Wozniak started Apple in their garage: They were building illegal telephone hacking "Blue Boxes".
LINK
The investigation and prosecution of several hackers by the FBI finally made the blue box and other phreaking equipment obsolete.
The hacking community evolved into other endeavors, such as building computers.
Steve Wozniak on one occasion dialed Vatican City and identified himself as Henry Kissinger (imitating Kissinger's German accent) and asked to speak to the Pope (who was sleeping at the time).

Edited by Rogerdodger, 30 December 2012 - 09:35 PM.