Did The Government Create The iPhone?

Government at its best.

I’ve enjoyed and admired Apple products since I got my first Macintosh in the mid-1980s. Apple products are intuitive; they’re designed for people rather than technologists. I think of the company as innovative and dynamic.

On the other hand, I often hear that our technology and pharmacy companies would be much more innovative if the government would just get out of the way. Critics claim that governments are meddlesome nuisances.

Not so, argues Mariana Mazzucato in her new book, The Entrepreneurial State. A professor at the University of Sussex, Mazzucato documents the government-funded research that enabled many of the great leaps forward in information technology and pharmaceuticals.

Mazzucato argues that the state is the true innovator, willing to invest in high-risk endeavors that can affect all aspects of society. By contrast, private companies are relatively non-innovative; they simply take the results of governmental research and commercialize them. In Mazzucato’s view, the government bears the risk while private companies take the profits.

In an extended example, Mazzucato analyzes Apple’s iPod, iPad, and iPhone and the technologies they incorporate. She identifies a dozen embedded technologies and traces the origin of each. In each case, the technology originated in government (or government-funded) projects.

Mazzucato documents government investments from around the world.  For instance, we wouldn’t have the iPod if not for German and French investments in giant magnetoresistance (GMR) that enables tiny disk drives. In the United States, the multi-touch screen was developed at the University of Delaware (my alma mater) with funding from the NSF and the CIA.

Mazzucato argues that we do ourselves a disservice by denigrating governments as bumbling meddlers. Private companies invest for the short-term and are relatively risk averse. Governments can look much farther into the future and can accept much less sanguine risk/reward ratios. As I’ve argued before, governments can create fundamental platforms that many entrepreneurs can capitalize on.

Mazzucato struggles with but doesn’t quite resolve the fundamental issue of fairness. Should Apple pay the government back for all the technologies it has capitalized on? One view is that Apple already reimburses the government through taxes. However, the recent ruckus about Apple’s ability to avoid taxes suggests that the reimbursement may not be full or fair. Perhaps Mazzucato can develop a mechanism that will help reimburse governments adequately for fundamental breakthroughs.

As Mazzucato points out, we tend to tell only half the story. We point to the successes of private industry and the failures of the government. If half the story becomes the whole story, we will underfund government research and drive away talented researchers. We won’t take the big risks but only the incremental, short-term risks that private capital can afford. For all of us who love the iPhone, that would be a shame.

(Click here to watch Professor Mazzucato give a TEDx talk).