Government Funding Spurs Enormous Innovation

A new book called The Entrepreneurial State, written by a British economist, apparently documents the fact that government-funded scientific and medical research has paid massive dividends in spurring technological innovation and life-saving medications and treatments.

Fortunately, a new book, The Entrepreneurial State, by the Sussex University economist Mariana Mazzucato, forcefully documents just how wrong these assertions are. It is one of the most incisive economic books in years. Mazzucato’s research goes well beyond the oft-told story about how the Internet was originally developed at the US Department of Defense. For example, she shows in detail that, while Steve Jobs brilliantly imagined and designed attractive new commercial products, almost all the scientific research on which the iPod, iPhone, and iPad were based was done by government-backed scientists and engineers in Europe and America. The touch-screen technology, specifically, now so common to Apple products, was based on research done at government-funded labs in Europe and the US in the 1960s and 1970s.

Similarly, Gordon called the National Institutes of Health a useful government “backstop” to the apparently far more important work done by pharmaceutical companies. But Mazzucato cites research to show that the NIH was responsible for some 75 percent of the major original breakthroughs known as new molecular entities between 1993 and 2004.

Further, Marcia Angell, former editor of The New England Journal of Medicine, found that new molecular entities that were given priority as possibly leading to significant advances in medical treatment were often if not mostly created by government. As Angell notes in her book The Truth About the Drug Companies (2004), only three of the seven high-priority drugs in 2002 came from pharmaceutical companies: the drug Zelnorm was developed by Novartis to treat irritable bowel syndrome, Gilead Sciences created Hepsera to treat hepatitis B, and Eloxatin was created by Sanofi-Synthélabo to treat colon cancer. No one can doubt the benefits of these drugs, or the expense incurred to develop them, but this is a far cry from the common claim, such as Gordon’s, that it is the private sector that does almost all the important innovation.

The rise of Silicon Valley, the high-technology center of the US based in and around Palo Alto, California, is supposedly the quintessential example of how entrepreneurial ideas succeeded without government direction. As Summers put it, new economic ideas were “born of the lessons of the experience of the success of decentralization in a place like Silicon Valley.” In fact, military contracts for research gave initial rise to the Silicon Valley firms, and national defense policy strongly influenced their development. Two researchers cited by Mazzucato found that in 2006, the last year sampled, only twenty-seven of the hundred top inventions annually listed by R&D Magazine in the 2000s were created by a single firm as opposed to government alone or a collaboration with government-funded entities. Among those recently developed by government labs were a computer program to speed up data-mining significantly and Babel, a program that translates one computer-programming language into another.

Sounds like a hell of a deal to me.

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  • blf

    As far as I am aware, Unix™, and its hugely important spinoffs, including Linux®, C, and C++, had no government funding at any(?) stage of their development (which the possible(? probable?) exception of “BSD”, the Unix variant which essentially added “Internet” capabilities to the core Unix system — a hugely important development, without with the Internets, et al., would not be anywheres near as useful or capable (or perhaps even existing?) as it is today).


    Having said that, there was an amusing article in today(?)’s INYT(? (formerly the IHT))

    saying Putin was saying (paraphrasing) “The Internets is a CIA plot which they are continuing to develop. Russia is now building an ‘Internet replacement’ not controlled by the CIA.”

  • matty1

    Given what governments tend to do with data Mining I’m not sure if I’d consider it a benefit

  • Libertidiots pretty much hate gummint that asks THEM for money, when the flow is in the opposite direction, why, it’s the “Invisible hand”.

    ” “The Internets is a CIA plot which they are continuing to develop. Russia is now building an ‘Internet replacement’ not controlled by the CIA.”

    Is being available 24/7 (July, 2024) across all of USS, er, Russia, DA!

  • blf

    Gah! Swap the “which” with the “with” and my parenthetical comment @1 might muck moar cents.

  • matty1

    While CIA conspiracy is pushing it my understanding is that the US does have control over key parts of the infrastructure that underlies the Internet so someone like Putin wanting an alternative makes a kind of sense.

  • iknklast

    And that doesn’t even touch the other things government does, such as cleaning up our wastewater and drinking water, building roads, providing energy in many places (I’m on public power, and always have been; it’s extremely reliable). Government funding for farmers makes up about half their income, but the farmers around here are totally unable to vote school bonds, because they don’t want to pay more taxes out of their hard earned dollars; after all, nobody ever gave them anything.

    We mostly notice the government when it doesn’t work; if it quit doing all the things it’s doing, we’d all be in bad shape.

  • Just one more basic fact that libertarians have been consistently wrong (and pathologically dishonest) about since 1978.

  • Sure, it sounds good when you put it like that, but what about the real cost? Imagine how many amazing things our paragons of finance and industry could have developed had that been Small Government tax cuts instead instead of Big Government spending (except for for the Defense related spending, because Freedom). And what about the moral cost, of simply giving our tax money to Ivory Tower Intellectuals instead of giving it back to those Ivory Tower Intellectuals after they leave the university due to funding cuts, allowing them to form the mom & pop international corporate conglomerates that form the backbone of the base of the core at the center of our country’s foundation?


    Basically, what I’m saying is, no matter the evidence, that government makes things worse. Solyndra.

  • Unix and C were developed at Bell Labs at the time that AT&T was heavily regulated. They were allowed to set rates based upon “cost plus”. Thus, they were free to do a lot of research that had no obvious immediate paybacks, because they’d get back the cost of it (plus some profit). In some large sense, that was like a government subsidy.

  • khms

    I’m not sure what impact that has on the topic, but let’s not forget that Unix grew out of ideas developed by the Multics project (the name’s an obvious pun).

  • Michael Heath

    Raging Bee writes:

    Just one more basic fact that libertarians have been consistently wrong (and pathologically dishonest) about since 1978.

    True but it’s predominately conservatives taking over the GOP that has resulted in a drop of our GDP as decrease investments.

    I don’t have a cite for this, it’s merely a memory from my econ classes in the late-1980s. And that memory was that government investment in education, R&D, and subsidies to emerging business sectors resulted in a return of 25%/annum.

    I googled this assertion and found a CBO finding that put R&D at 28%/annum back in 1985: (page 17).

    Obviously it’d be preferable to see a more recent finding. However I’d be surprised if it was higher. The quality of spending decisions made by Republicans has been astonishingly bad since the Gingrich years where even a typical growth-friendly expenditure like war was turned into a $2 – $3 trillion economic loss (Iraq War).

  • dingojack

    MH – so ‘libertarian’ and ‘conservative’ are mutually exclusive sets now?



    As I recall a certain President of the US, way back in your ‘Econ classes’ days, was very conservative in social values but libertarian in economic matters. The GoP lost ground when the Libertarians and the RRW got hold of the reins (in exchange for a few ‘magic beans’ in the form of votes).

  • D. C. Sessions

    blf, there’s no doubt at all that the Government (in this case, the University of California with perhaps some Federal grants for graduate work) underwrote all of the BSD development.

    Also, a remarkable amount of Linux development has been contributed by NASA, the DoD, NSA, NIST, etc.

  • caseloweraz

    Sounds like a hell of a deal to me.

    Of course it is. Investing in pure science has always paid off. It just doesn’t pay off on a set schedule, or in ways that can always be anticipated and quantified.

  • colnago80

    Re caeloweraz @ #14

    Case in point, the paper on stimulated nuclear emission by Einstein which led to the development of the laser.

  • colnago80

    It should also be noted that the development of the computer chip was heavily supported by NASA, which required small such computing devices for the space program.

  • raven

    There was a similar article on science and the economy recently in Science magazine.

    1. US GDP per capita has been increasing at 2% since 1880.

    This is a 9 fold increase.

    2. 85% of this 9 fold increase was due to advances in science and technology.

    Land and resources don’t multiply. Labor per capita doesn’t multiply. R&D does and is cumulative and exponential.

    3. US average lifespans have increased 30 years in the last century thanks to advances in medicine and public health.

    4. There is a good correlation between amount spent on science R&D and prosperity. The third world doesn’t spend much and they have the poverty to show for it.

    The science haters and denialists are very definitely attacking the basis of our modern civilization, the USA, and our prosperity.

  • raven

    http:// www.

    Science 15 November 2013:

    Vol. 342 no. 6160 pp. 817-822

    DOI: 10.1126/science.342.6160.817

    •Association Affairs

    Presidential Address

    What’s So Special About Science (And How Much Should We Spend on It?)

    “It is striking that the powerhouse industrial nations of the past 50 years (e.g., United States, Germany, Japan, and South Korea), lead the pack at the upper right (in R&D spending as a percentage of GDP) , together with the Scandinavian countries and (recently) Singapore. These countries might thus be identified as the technology leaders. The United States ranks third or fourth among large economies in what we spend per capita on R&D and ranks eighth among all countries (8).”

    I thought this might be behind a paywall. It’s not. The article is long but not difficult to read.

  • A Masked Avenger

    Note that there’s a sharp division between Friedman and Rothbard. It’s idiotic on its face to say that government research produces no innovations. Rothbard’s argument is that government research carries an opportunity cost (which is true by definition–doing one thing always precludes doing something else at the same time with the same resources), and that the cost takes the form of not developing some alternate technology that fills a more pressing need. The latter point is of course debatable. Rothbard attempts to set it up as another tautology: if people must be commanded to finance X, and therefore can’t instead finance Y that they otherwise would have, then in their estimation at least the opportunity cost exceeds the benefit. This is equivalent to the “public goods” problem, of course: the question whether non-rivalrous, non-excludable goods are systematically underproduced in a free market. Rothbard is essentially denying that proposition.

    I sympathize to the extent that this technology is a byproduct of military research (which lots of it is). I’m not sure that vast expenditures on better ways of killing our fellow humans are really justified by the fact that some of it can be used to make a better iphone.

  • criticaldragon1177

    Ed Brayton

    This is off course the opposite of what Ayn Rand style libertarians and anarchists will tell you.

  • D. C. Sessions

    This is off course the opposite of what Ayn Rand style libertarians and anarchists will tell you.

    Ayn Rand’s heroes didn’t need R&D at all — they were inventors who created whole new technologies by pure power of intellect and superior moral character.

    Have you ever considered the amount of automation necessary for life in Galt’s Gulch? It’s not like they could trust the lower orders with the secret, after all.

  • @15:

    “Galt’s Gulch”? Excuse me, but this IS a family blog!

  • D. C. Sessions

    Put down the creme de menth, democommie. GG was mentionedin 21, not 15.

    Be that as it may, of course it’s a family blog. Else we’d be talking about “Taggert’s t***,” or “Hank’s Rear Den.”

  • dogmeat

    Rothbard attempts to set it up as another tautology: if people must be commanded to finance X, and therefore can’t instead finance Y that they otherwise would have, then in their estimation at least the opportunity cost exceeds the benefit.

    This is a major theme amongst those who argue against government involvement in just about every sector of the economy:

    1) The assumption is that the investment by the private sector in “Y” is superior to the government’s decision to invest in “X.” As we see with the 47 different boner pills, what drives private investment and technology isn’t necessarily something that is better for humanity. 90 year old man with a boner versus cure for cancer… hmmmm, boner it is!

    2) The follow-up assumption is that the private sector would invest in research, again, we see no evidence that this assumption is true. Much like the dismal failure of “trickle-down” to actually, you know… trickle-down, we have no evidence that businesses or individuals, left alone with their resources to do as they wish, will actually invest those resources in something as esoteric as research. They may, they may not, and even if they do that research might be profitable but not beneficial. As often as not, they invest that money in ways that let them make more money at minimal risk (not research) and/or invest that money in political schemes to let them keep more of that money. We see this currently with the stockpile of lendable currency that isn’t being lent. If the logic followed that they would be using this money so effectively, they’d be, you know… using the money.

    3) Privatization assumes that a private company can do the job better than government can based upon the argument that government waste is greater than private profit + waste. We see that this is not the case more often than not with the soaring costs of private contractors providing services to the military that they once provided to themselves. This is doubly problematic because the military loses the ability to conduct operations reducing effectiveness at the same time increasing costs and dependence.

    All in all the Republican policies towards investment, technology, infrastructure, and the economy as a whole are extremely damaging and destabilizing. They concentrate wealth, stagnate growth, and cripple government’s ability to effectively administer just about any programs.

  • freehand

    I’ve always had trouble imagining how free enterprise (let alone entrenched capitalism) could have built the US interstate highway system. What, would people have done?

    1. Paid to drive on the best run roads and the cheapest.

    2. Miracle.

    3. The interstate highway system is completed.


    I’d like to see massive investments in medication research by government subsidized universities. Anything useful which is developed could be licensed out for a pittance. Why should our health be held hostage to somebody’s unquenchable greed?


    And college should be available at close-to-free to all who qualify academically.