Why Technological Innovation Relies on Government Support

Andy Grove’s life reveals the role of public investment in creating and nurturing Silicon Valley—and the dangers of disinvestment.

Paul Sakuma / AP

Andy Grove, the Silicon Valley pioneer who died last week at age 79, was many things: a survivor of the Nazi occupation of Hungary and refugee of Cold War Eastern Europe, a keen scientific thinker with a Ph.D. in chemical engineering, an innovator who became CEO of Intel, and a bestselling management theorist. As Wired put it after his death, Grove was “a titan of tech” who was “routinely mentioned as part of the same pantheon that includes Bill Gates, Larry Ellison, and Steve Jobs.” Yet the side of Grove’s success that has received scant notice—even though Grove himself repeatedly acknowledged it—is the huge debt that he and the industry he led owed to U.S. public policy.

Grove came to the United States just as massive federal investments were transforming the nation into the world’s scientific superpower. He then flourished at two public institutions, City College of New York and the University of California Berkeley, that were part of a spectacular post-war expansion of higher education. These enormous public investments both promoted fundamental research and educated a new generation of innovators who could exploit that expanding knowledge.  Grove began his career at Fairchild Semiconductor, a firm (one of many) that was directly linked to the efforts of the Defense Department and NASA to foster modern computer technology. In the years that followed, he never wavered in his support of active government policies to foster America’s high-tech economy.

In the wake of Grove’s death, observes Wired, “The tech industry has come together to mourn the loss of Andy Grove,” as well it should. Yet in addition to celebrating Grove’s many achievements, the industry should also be celebrating the farsighted policies that helped make those achievements possible—policies that are now not just widely forgotten but under broad assault. Even more important, the industry and its allies should see in Grove’s remarkable life an inspiration for reviving the active government role in the knowledge economy on which future Andy Groves—and American prosperity more broadly—depend.

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Government support for science in the United States goes back to the earliest days of the republic. Lewis and Clark’s famous westward expedition, for example, was in substantial part a scientific mission. President Jefferson not only insisted that Meriwether Lewis train with leading scientists but also devoted his own time and intellect to preparing him.  Yet the biggest early public spurs for science came from investment in defense-related technology and from support for higher education—most notably, in the Morrill Act of 1862 and its successors, which artfully used the disposition of public lands as a substitute for tax-financed spending. These investments seeded U.C. Berkeley and roughly 70 other institutions—including Cornell, the University of Minnesota, the University of Wisconsin, and MIT—that became the core of America’s scientific infrastructure.

Government’s role in science expanded dramatically in the 20th century: first during World War I and then again amid the programmatic flurry of the New Deal. The watershed, however, was the U.S. entry into World War II.  Within a decade, the United States had eclipsed Germany as the home of the greatest scientific thinkers, as signaled by its sudden rise to dominance in the tally of Nobel Prize winners in the sciences. In traveling from Hungary to the United States, Andy Grove was part of a brain drain that recast America’s place in the scientific world and helped propel more than two generations of technological innovation.

It was not just that scientists poured into the United States. Even more important, the federal government poured unprecedented sums into scientific R&D. Drafting the blueprint for this revolution was Vannevar Bush—an MIT scientist who headed the Defense Department’s office for scientific research during World War II and served as a close advisor to FDR.  Bush was a conservative Republican who believed in the independence of science from government meddling. He also believed that America’s economic and national security rested on massive public investments in science through new institutions like the National Institutes of Health and National Science Foundation.

This was the world that gave rise to Fairchild and modern Silicon Valley—and that helped make possible the achievements of Andy Grove. Fairchild would not have existed but for the Defense Department. Though a private company, 80 percent of its transistors and 100 percent of its early integrated circuits were destined for military use in 1960. Nor was Fairchild an aberration. According to a careful study by the Brookings Institution, 18 of the 25 biggest breakthroughs in computing technology between 1946 and 1965—breakthroughs like magnetic core memory, graphics displays, and multiple central processors—were financed by the federal government.

No less crucial, federal purchases allowed these new developments to come to scale, after which they could begin to find private markets. (The Internet was created in a similar way—with the new network first shunned by private companies, then embraced after public investments created something extensive and powerful enough that private investors recognized it as valuable.) Following these initial breakthroughs, the federal government financed more than 60 percent of all university research in computer science and electrical engineering from the mid-1970s into the mid-1990s.  Perhaps most important, the federal government and the states invested heavily in ensuring more young adults could go to college. The share of 25- to 29-year-olds with a college degree shot up from around 5 percent in 1940 to around 25 percent in the mid-1970s.

Grove understood that his own success, and that of Silicon Valley, was built on government support and infrastructure of this sort. Like fellow technologists, he was skeptical of government-run research or overly directive industrial policies (though he strongly supported the creation of a government-funded consortium of semiconductor manufacturers in the late 1980s set up to compete with Japanese companies). Nor did he make government’s role a major theme of his management writings, which focused on the role of a corporation’s structure and culture in allowing scientifically equipped employees to apply existing technology and knowledge to new problems. Yet Grove understood what too many business leaders today reject—that a “mixed economy” in which government investment and regulation complements a dynamic entrepreneurial market was essential to America’s long-term prosperity, as he wrote in 2010, in one of his last major interventions in public debate:

Our fundamental economic beliefs, which we have elevated from a conviction based on observation to an unquestioned truism, is that the free market is the best of all economic systems—the freer the better. Our generation has seen the decisive victory of free-market principles over planned economies. So we stick with this belief, largely oblivious to emerging evidence that while free markets beat planned economies, there may be room for a modification that is even better.

Grove never accepted the increasingly stylish view in Washington that high-tech could thrive without the public investments in R&D, education, and infrastructure that had made America’s technological rise possible. He vigorously debated those, such as the libertarian futurist George Gilder, who denied the pivotal place of such investments. And he was dismissive of those who thought the market alone would ensure the sector’s continued success. (Sometimes humorously so: When George H. W. Bush’s top economist, Michael Boskin, said it didn’t matter to him if the United States produced silicon chips or potato chips, he sent a violin to the Bush White House to suggest it was acting like Nero when Rome was on fire.)

Today, however, these highly successful policies are under siege. The clampdown on federal discretionary spending has ravaged federal R&D expenditures, which have fallen from nearly 2 percent of GDP when Grove joined Fairchild to less than 0.8 percent today. State and local support for public universities has similarly withered, contributing to rising student debt and the glacial growth of young people finishing college that has transformed the United States from the world leader in college completion when Grove left U.C. Berkeley into a second-tier performer.  When, during the 2012 campaign, Mitt Romney told a student who had asked about how he could afford college that he should shop around and not “expect the government to forgive the debt that you take on,” he was voicing a blinkered view that is widely shared in national policy circles.

Even in the progressive precincts of Silicon Valley, business leaders now talk about government as if it is were mostly a constraint on their ability to innovate and produce. Put to the side the grumblings of the tech sector’s lonely libertarians, such as PayPal cofounder Peter Thiel. Google’s CEO, Larry Page, has envisioned a utopian “Google Island” where technologists can innovate free of government’s heavy hand.  To Chamath Palihapitiya, a tech venture capitalist (and part owner of the Golden State Warriors), “Companies are transcending power now. We are becoming the eminent vehicles for change and influence … If companies shut down, the stock market would collapse. If the government shuts down, nothing happens, and we all move on, because it just doesn’t matter.”

Never mind that if government had shut down in the decades after World War II, none of the basic components of the iPhone or Google’s search algorithm or, for that matter, the World Wide Web would have come to exist. Steve Jobs (an admirer of Grove) was well known for his disdain for government’s ineptitude. Yet he never could have created his pioneering products or built the world’s most valuable company without the enormous reservoir of public investment and publicly trained talent that nurtured California’s innovation hubs and fed directly into every major element of the technology on which he drew.

Grove knew this. Yet most Americans have forgotten a major lesson of his life: that government plays a vital role in providing critical long-term investments that private markets alone will not produce. To extend America’s legacy of technological success will require many of the policies and priorities that helped make a leader like Grove possible in the first place: investment in public education, research and development, and the infrastructure that supports a modern knowledge economy. If there’s any part of the economy that should understand and embrace this, it’s Andy Grove’s Silicon Valley.