Mazzucato and the iPhone (I)

[This post is translation of this other post of mine]

The most important example in Mazzucato’s book The Entrepreneurial State is probably that of the iPhone: She goes as far as dedicating one entire chapter only to that example.

The fixation with Apple’s device is justified: It takes one of the typical examples of supposed entrepreneurial creativity, an effort of garage entrerepeneur, and a triumph of capitalism, and subverts it, making us se that the visible hand of the State has been behind it, without having, unjustly, reapt benefits from it.

In this preliminar article, I will compile articles found in the net where Mazzucato’s example is talked about, to try to capture how people have understood it. I will also include presentations from the book’s author to add more precision to the type of words, and the way she frames the example within her explanatory framework.

In the next article, I will criticise the arguments presented in the book related to the example.

A cautionary note before reading the article: This article does not judge. Do not interpret it as such. It just presents information. Assesment of the arguments and facts come in other posts. If you are curious about it, I’m not denying the claims that, at least among some people, there is not much knowledge of how State intervention has shaped the course of technological advancement, and I don’t deny either that you can’t understand the History of Technology without talking about the State. That is, what I dispute, as we will see later on but not in this post, are not the facts in general -Some of them will be disputed too-, but the interpretation and conclusions drawn from them.

Let us begin with Bruce Upbin, who in 2013 wrote in Forbes

Her case study for myth-debunking is the iPhone, that icon of American corporate innovation. Each of its core technologies–capacitive sensors, solid-state memory, the click wheel, GPS, internet, cellular communications, Siri, microchips, touchscreen—came from research efforts and funding support of the U.S. government and military. Did the public see an iPhone dividend? Not really. The “stay foolish, stay hungry” geniuses ran away with the gains, says Mazzucato, and now the company is under fire for not paying enough taxes or creating enough high-wage jobs in the U.S. Apple’s five-year R&D spending as a percentage of sales has hovered around 2% to 3%, while companies such as Nokia and Samsung Electronics spend 9% and 8%, respectively. Steve Jobs’ real genius was not in developing new technology but integrating technologies invented somewhere else, often backed by tax dollars.

We follow with an article by Mazzucato herself in INET

Consider Apple’s iPhone and Google’s search engine. In both cases these extremely popular consumer products benefitted mightily from state intervention. For the iPhone, many of the revolutionary technologies that make it and similar devices “smart” were funded by the U.S. government, such as the global positioning system (or GPS), the touchscreen display, and the voice-activated personal assistant, Siri. And for Google, the creation of its algorithm was funded by the National Science Foundation. Plus, of course, there’s the development of the Internet, another government funded venture, which enables the iPhone to be a valuable tool and makes Google searches possible.

Jeff Madrick in The NY Review of Books, 2014

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. […]

These later breakthroughs were almost completely dependent on government-sponsored research. “While the products owe their beautiful design and slick integration to the genius of Jobs and his large team,” writes Mazzucato,

nearly every state-of-the-art technology found in the iPod, iPhone and iPad is an often overlooked and ignored achievement of the research efforts and funding support of the government and military.

A major government-funded discovery known as giant magnetoresistance, which won its two European inventors a Nobel Prize in physics, is a telling example of such support. The process enlarges the storage capacity of computers and more recent electronic devices. In a speech at the Nobel ceremony, a member of the Royal Swedish Academy of Science explained that this breakthrough made the iPod possible. Other major developments by Apple also had their “roots” in federal research, among them, Mazzucato writes, the global positioning system of the iPhone and Siri, its voice-activated personal assistant.

Mazzucato again, writes in 2014 in FT Alphaville

The iPhone is a good example. This chart shows how every technology that makes it so smart, traces its funding back to a mission-oriented public agency in the US government which likes to pretend it believes in the free market when actually it has been one of the most interventionist in history

Here we find a by now well known figure – if you have followed the discussion of the book, that is – that summarises the origin of the key technologies present in the iPhone

Slide1

Mazzucato again in Slate, 2013,  had an article running with the following title “It’s a Myth that Entrepreneurs Drive New Technology. For real innovation, thank the state.”

Apple is a perfect example. In its early stages, the company received government cash support via a $500,000 small-business investment company grant. And every technology that makes the iPhone a smartphone owes its vision and funding to the state: the Internet, GPS, touch-screen displays, and even the voice-activated smartphone assistant Siri all received state cash.The U.S. Defense Advanced Research Projects Agency bankrolled the Internet, and the CIA and the military funded GPS. So, although the United States is sold to us as the model example of progress through private enterprise, innovation there has benefited from a very interventionist state.

This year, the Sussex economist said in twitter that her example shows that “every technology that makes the iPhone smart was publicly financed”

In this excerpt from a conference in 2014 she is somewhat less ambitious in her claims,

What makes the iPhone so smart? Was it only the genius of Steve Jobs and his team and the visionary finance supplied from risk-loving venture capitalists? No. In my book The Entrepreneurial State: Debunking Public v Private Sector Myths, I tell the missing part of that story by analysing the public funds that allowed the smartphone to be created. The research programmes that made the internet, touch-screen displays, GPS and the Siri voice control possible all had government backing.

The point is not to belittle the work of Jobs and his team, which was both essential and transformational. But we must be more balanced in the historiography of Apple and its founders, where not a word is mentioned of the collective effort behind Silicon Valley. The question is this: who benefits from such a narrow description of the wealth-creation process in the hi-tech sector today?

In Harvard Business Review, 2013, she emphasised the relation between what corporations do, the rhetoric they use, and why they should pay more taxes to finance those state innovations Mazzucato talks about,

Many of the revolutionary technologies that make the iPhone and other products and services “smart” were funded by the U.S. government. Take, for instance, the Internet, GPS, touchscreen display, as well as the latest voice-activated personal assistant, Siri. And Apple did not just benefit from government-funded research activities. It also received its early stage finance from the U.S. government’s Small Business Investment Company program. Venture capitalists entered only after government funding had gotten the company to the critical proof of concept. […]

This also stands in stark contrast to the steps that Apple, Google, and other technology companies take to avoid paying taxes. Apple set up a subsidiary in Reno, Nevada, a state without a corporate income or capital gains tax, and channeled a portion of its U.S. sales there, reportedly saving $2.5 billion in taxes. […]

Yet it’s a capitalism impossible to conceive of without the U.S. government, which through DARPA and other initiatives stands out worldwide for its astoundingly positive track record in funding true innovation. This includes the government’s most recent claim to fame, its steadfast financial support of (controversial) shale gas and fracking technologies, begun over three decades ago during the otherwise much-maligned Carter Administration. […]

An even bigger question for the American taxpayer is whether such support leads to a “parasitic” innovation eco-system. Consider Apple. Despite benefitting directly from taxpayer-funded technologies, it has strategically “underfunded” the tax purse on which it has in the past directly depended.

In an interview to Spanish newspaper El País, 2014 titled “Revolutionary innovations always come from the public sector”

My position is not that of saying: Everything must come from the State. Obviously, Steve Jobs and Apple were very important. But we already know that. We are told that every day of our lives. What I would like to do is to make History even by telling the other point of view. It’s not that the private sector is not important. But it has been able to surf a giant technological wave financed by the State, cojoining both existing technology with an importante sense of design, and a cool new way of marketing the product. That is known by all. 80% of Steve Job’s biography is about that. I don’t want a chapter, it would be enough with, at least, a page for the public side of things. […]

It cannot be guaranteed that every expenditure will be successful. Innovation is always an uncertain process. In fact, most times innovators fail. However, along the process, learning occurs. Organisms able to learn have to be created inside the government, along with flexible corporate policies and adapted towards exploration. With correct indicatos to value every investment. To do this, intelligent people are required. I don’t say there aren’t such people in the public sector. But if the public sector is continuously criticised, it will be harder and harder to attract the brightest minds. With some exceptions – In Singapore, public servants are paid up to one million dollars per year!- it will be very hard to attract the best just with money, it has to be transformed into an honor. And you can only do this if you have the power to create a new horizon in your field. That’s why is very important that in the US, a Nobel Prize like Steven Chu has accepted to lead the Department of Energy […]

What causes productivity gowth is R&D spending…

Martin Wolf (one of the world’s most prestigious economic analysts) writes in 2013 for FT

A perhaps even more potent example is the information and communications revolution. The US National Science Foundation funded the algorithm that drove Google’s search engine. Early funding for Apple came from the US government’s Small Business Investment Company. Moreover, “All the technologies which make the iPhone ‘smart’ are also state-funded … the internet, wireless networks, the global positioning system, microelectronics, touchscreen displays and the latest voice-activated SIRI personal assistant.” Apple put this together, brilliantly. But it was gathering the fruit of seven decades of state-supported innovation. […]

Why is the state’s role so important? The answer lies in the huge uncertainties, time spans and costs associated with fundamental, science-based innovation. Private companies cannot and will not bear these costs, partly because they cannot be sure to reap the fruits and partly because these fruits lie so far in the future. [..]
The days of AT&T’s path-breaking Bell Labs are long gone. In any case, the private sector could not have created the internet or GPS. Only the US military had the resources to do so. […]

Mazzucato loves puncturing myths about risk-loving venture capital and risk-avoiding bureaucrats. Does it matter that the role of the state has been written out of the story? She argues that it does.

First, policy makers increasingly believe the myth that the state is only an obstacle, thereby depriving innovation of support and humanity of its best prospects for prosperity. Indeed, the scorn heaped on government also deprives it of the will and capacity to take entrepreneurial risks.

Second, government has also increasingly accepted that it funds the risks, while the private sector reaps the rewards. What is emerging, then, is not a truly symbiotic ecosystem of innovation, but a parasitic one, in which the most lossmaking elements are socialised, while the profitmaking ones are largely privatised. Do ordinary taxpayers understand that their taxes fund the fundamental innovations that drive their economy?

This book has a controversial thesis. But it is basically right. The failure to recognise the role of the government in driving innovation may well be the greatest threat to rising prosperity.

Mark Buchanan, in 2013, goes on to say that every important technology present in the iPhone come from state investments

Even Apple, normally viewed as the singular creation of the lone genius ofSteve Jobs, owes much to government. Mazzucato points out that Apple received crucial finance in its early years from the US government’s small-business investment program. Every one of the most important technologies in Apple’s smart products, including the iPhone and iPad, were developed elsewhere and largely thanks to state funding.

In a 2014 report for the OECD, says Mazzucato

Let me provide a brief example of the technology behind the iPhone, which until recently represented the emblem of Silicon Valley. Steve Jobs was a genius, what he did was to put together existing technology in a very cool way, with a sense of how important simplicity and good design are. All the innovative and smart features on the iPhone, internet, GPS, touch screen display, the Siri feature, were funded by government. Apple itself received a 500,000 dollar Small Business Investment Company (SBIC) programme in its early days.

This iPhone table (The one we just saw [My words, not Mazzucato’s]) shows that technology which went into the phone originated from numerous government agencies such as the CIA, DARPA and the Department of Defense.

Andrew Warner, in 2014, in The Long Now Foundation

Mariana Mazzucato’s research shows that many of the technologies that form the backbone of our technological revolutions were the direct result of multi-decade research by the state. Consider the examples of computers, the internet, and GPS–all of these technologies were developed and funded by the government for decades before entering the consumer market, and it’s impossible to imagine an iphone without these technologies.

Greg Satell, in 2014 Harvard Business Review

And [Vannevar] Bush’s model clearly works.  In fact, it is the envy of the world.  It is not an accident that the iPhone was invented by a US company, virtually all of its basic technology has its roots in some federal program.

This suffices for having an idea of the impact and the extent of the claims that are made about the iPhone.

In the next article we will study what is said in the actual book.

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2 Responses to Mazzucato and the iPhone (I)

  1. Pingback: Mazzucato and the iPhone (II): The myth of the Entrepreneurial State | Níntil

  2. Pingback: 2015 in Nintil: Top posts | Nintil

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