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:
Why has it been in the world of information technology and, secondarily, biomedicine that venture capitalists have been successful? In brief: Only in these sectors did the state invest at sufficient scale in scientific research and in its translation to working technology. In over 40 years as a working venture capitalist, I learned that my colleagues and I and the entrepreneurs whom we backed were all dancing on a platform constructed by the federal government.
Let’s focus on information and communications technology. National funding of the basic research that enabled the IT revolution was overwhelmingly provided by the Defense Department. The Soviet threat, crystallized in the years after 1945 and amplified by the Korean War in 1950 and the launch of Sputnik in 1957, was the context for the U.S. military’s massive commitment to renewing its wartime role as the principal financier of technical research and the principal customer for the products that generated.
He goes on to explain that developing the technologies needed to power a low-carbon revolution — such as efficient batteries and solar cells — will, you guessed it, also require government investment.
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.