Silicon Valley or Demand Mountain?

Jul 24, 2013 Edward Jung

Everyone wants to know how to build the next Silicon Valley: an innovation hub that draws talent and capital and creates jobs, companies, and whole new industries. But most schemes are missing the state-sponsored demand that was essential to Silicon Valley's birth and growth.

BELLEVUE, WASHINGTON – Everyone wants to know how to build the next Silicon Valley: an innovation hub that draws talent and capital, and that creates jobs, companies, and whole new industries. Developed-country governments scramble to subsidize technology that could be the Next Big Thing. Emerging-market policymakers hope that incentives like tax breaks and free land will induce innovators to settle and prosper there. But most of these well-meaning schemes are missing an essential ingredient: demand.

Demand for innovation in specific areas of technology has been the common force behind all high-tech hot spots, as well as the most important inventions. Technological breakthroughs such as antibiotics and cars responded to a compelling need felt by a huge number of consumers. Government projects such as the United States’ Apollo program – intended to put a man on the moon – drove demand for more basic technologies (which are simply inventions that no one has asked for yet).

Silicon Valley itself was built on demand. The US Department of Defense put up tens of billions of dollars in contracts for microelectronics, a commitment that both paid down innovators’ risk and created an infrastructure that would support the growth of start-ups.

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Lewis Perelman Aug 7, 2013

I think this is a little naive, maybe anachronistic re the role of government acquisition. The latter may have been useful in the past, but it has become bloated, wasteful, and often corrupting. Dependency on government contracting poorly prepares and even undermines a firm's capabilities to respond to consumer demands and to function in commercial markets.

DOD? Consider:

The P-51 Mustang, the premier fighter aircraft of World War II, went from a sketch to full-scale production in about 18 months. The cost of each airplane to the government in today's dollars was about $660,000.

The new F-35 Lighting II will have taken about 20 years from the time of its first development contract until initial delivery scheduled for 2015. By combining the functions of several aircraft in one, the F-35 was supposed to save the US and other nation's defense departments money. But the costs of the program have mushroomed while the aircraft's performance has been fraught with problems. The projected cost per airplane has doubled from $81 million to over $160 million...and rising. ( http://j.mp/15MwlPR )

Or this: The total cost of the legendary Manhattan Project which created the fist atomic weapons during World War II was about $24 billion in today's dollars. Today, the cost to the government just to dispose of 37.5 tons of unneeded warhead plutonium is about the same, or a bit more. ( http://j.mp/15MwgeV )
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Nathan Coppedge Jul 30, 2013

I have tried marketing my idea of a knowledge generator calculator to Texas Instruments, and with no response. For those that like this idea, you can contact me on twitter or go the cheap route and try to research categorical deduction without my advice.

The book that announced categorical deduction was published this year: The Dimensional Philosopher's Toolkit (2013).
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Dallas Weaver, Ph.D. Jul 30, 2013

In watching government funding in my narrow area of aquaculture, I have observed that gov't support seems to go to the best government connections, not to the best technology. I have watched some companies win contract/grants after contract/grants with masterful proposals, while producing little innovation and spending huge amounts of OPM (other peoples money). I have watched some non-profits (who pay better that profitable originations in this field) who just rip off ideas and concepts from other small firms and claim that these are their innovations, while having a congress directed funding line and 15 lawyers on their staff to destroy any of those who got riped off.
- Lewis Perelman Aug 7, 2013
  
  Dallas, yes, this is otherwise known as "crony capitalism."
  
  Here is an egregious example of someone who made millions selling a completely useless device to government security agencies: http://j.mp/13koxzj
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de Lafayette Jul 30, 2013

{Fortunately, by sponsoring long-term, targeted initiatives, governments can stimulate more predictable demand.}

Not always, and not everywhere.

I recall in the 1970s/1980s that France and the UK desperately wanted to beat the Americans into exploiting Information Technology. Their governments splurged on domestic companies inciting them to develop new products.

It all came to naught, because the companies in question became very quickly "also-rans" in terms of innovative IT solutions. Why?

For the most part because they were competing against American companies who were developing products for a very large US-market. They then transferred that technological knowhow to Europe by opening foreign subsidiaries.

I was part of that effort ... I also worked in a part of France that was called the Silicon Valley of Europe. None of the American companies (including IBM) still have offices there.

So, what happened? Europe demonstrated that government-supplied investments sometimes go quite wrong because they don't meet the match of customer requirements for goods and services.

Just because some political functionary wants to show that s/he is "doing something", does not at mean that it work and produce entire new industries.

Otoh, sometimes, big Industrial Oaks out of little acorns grow. A testament to that fact is Airbus that has challenged Boeing in the commercial aircraft market. It was no start-up, but, then neither was Boeing. And commercial aircraft technology is not exactly the "cutting edge" - carbon-fiber technology included.
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Gunnar Eriksson Jul 28, 2013

Mr. Jung reminds us about something we already know but have hidden below many layers of neglect and focus on quarterly profit for the few.
The "Green Revolution" is a good example of a "Demand Mountain" that resulted in considerable increase in food production. The UN played a central role in this effort, but also with national and private participants.

The tasks ahead are not so hard to pinpoint;
-Sustainable energy production and usage
-Cures for the most pressing ailments
-Sustainable water usage and food production

As the market economy has failed to show progress in such vital areas we should look for public initiatives.
The UN is best placed to lead and need fiscal capacity, (a financial transaction tax would serve the purpose).
The "Demand Mountains" should seek both National and private participants and tax incentives for individuals should be considered.
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Aurelian Dochia Jul 26, 2013

You certainly have a point here: demand created by governments provide a big stimulus for innovation. The problem is with the real-life implementation of government sponsored projects that have a multiplier effect. I hardly see a developing country government having the resources to initiate and manage an "Apollo" project! Too often, governments tend to engage in pharaonic projects that lead to nowhere and there are many examples of such failed endeavors all over the world.
Government created demand is only a part of the equation. It can foster innovation if the rest of the economy is prepared to deliver. Silicon Valley is nurtured by many factors, like California universities, the size of the US market etc., which cannot be replicated.
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