Who are the visionaries who drive human progress? The answer, as we all know, is the geeks, the free spirits and the crazy dreamers, who thumb their noses at authority: the Peter Thiels and the Mark Zuckerbergs of the world; the likes of Steve Jobs and the Travis Kalanick; the giants with an uncompromising vision and an iron will, as though they have stepped fresh from the pages of one of Ayn Rands novels.
Innovation, Steve Jobs once said, distinguishes between a leader and a follower. Now, if ever there were a prototypical follower, it would have to be the government. After all, why else would nearly all the innovative companies of our times hail from the United States, where the state is much smaller than in Europe?
Media outlets including the Economist and the Financial Times never tire of telling us that governments role is to create the right preconditions: good education, solid infrastructure, attractive tax incentives for innovative businesses. But no more than that. The idea that the cogs in the government machine could divine the next big thing is, they insist, an illusion.
Take the driving force behind the digital revolution, also known as Moores law. Back in 1965, the chip designer Gordon Moore was already predicting that processor speeds would accelerate exponentially. He foresaw such wonders as home computers, as well as portable communications equipment and perhaps even automatic controls for automobiles.
And just look at us now! Moores law clearly is the golden rule of private innovation, unbridled capitalism, and the invisible hand driving us to ever lofty heights. Theres no other explanation right? Not quite.
For years, Moores law has been almost single-handedly upheld by a Dutch company one that made it big thanks to massive subsidisation by the Dutch government. No, this is not a joke: the fundamental force behind the internet, the modern computer and the driverless car is a government beneficiary from socialist Holland.
Our story begins on 1 April 1984 in a shed knocked together on an isolated lot in Veldhoven, a town in the south of the Netherlands. This is where a small startup called ASML first saw the light of day. Employing a couple of dozen techies, it was a collaborative venture between Philips and ASM International set up to produce hi-tech lithography systems: in plain English, machines that draw minuscule lines on chips.
Fast-forward 25 years, and ASML is a major corporation employing more than 13,000 engineers at 70 locations in 16 countries. With a turnover of over 5.9 billion (5.2bn) and earnings of 1.2bn, it is one of the most successful Dutch companies, ever. It controls over 80% of the chip machine market the global market, mind you.
In point of fact, the company is the most powerful force upholding Moores law. For them, this law is not a prediction: its a target. The iPhone, Googles search engine, the kitty clips it would all be unthinkable without those crazy Dutch dreamers from Veldhoven.
Naturally, youll be wondering who was behind this paragon of innovation. The story told by the company itself fits the familiar mould, of a handful of revolutionaries who got together and turned the world upside down. It was a matter of hard work, sweat and pure determination against almost insurmountable odds, explains ASML in its corporate history. It is a story of individuals who together achieved greatness.
Government isnt just there to administer life-support to failing markets. Without it, many would not even exist
Theres one protagonist you never find mentioned in these sort of stories: government. But dive deep into the archives of newspapers and annual reports back to the early 90s and another side to this story emerges.
From the get-go, ASML was receiving government handouts. By the fistful. When in 1986 a crisis in the worldwide chip industry brought ASML to its knees, and while several big competitors toppled, the chip machine-maker from the south of Holland got a leg-up from its national government. Competitors who had survived the crisis no longer had enough funds to develop the next big thing, explains the companys site. So while its rivals licked their wounds, ASML shot into the lead. Is ASML an anomaly in the history of innovation? Not quite.
A few years ago the economist Mariana Mazzucato published a fascinating book debunking a whole series of myths about innovation. Her thesis is summed up in the title The Entrepreneurial State.
Radical innovation, Mazzucato reveals, almost always starts with the government. Take the iPhone, the epitome of modern technological progress. Literally every single sliver of technology that makes the iPhone a smartphone instead of a stupidphone internet, GPS, touchscreen, battery, hard drive, voice recognition was developed by researchers on the government payroll.
Why, then, do nearly all the innovative companies of our times come from the US? The answer is simple. Because it is home to the biggest venture capitalist in the world: the government of the United States of America.
These days there is a widespread political belief that governments should only step in when markets fail. Yet, as Mazzucato convincingly demonstrates, government can actually generate whole new markets. Silicon Valley, if you look back, started out as subsidy central. The true secret of the success of Silicon Valley, or of the bio- and nanotechnology sectors, Mazzucato points out, is that venture investors surfed on a big wave of government investments.
True innovation takes at least 10 to 15 years, whereas the longest that private venture capitalists are routinely willing to wait is five years. They dont join the game until all the riskiest plays have already been made by governments. In the case of biotechnology, nanotechnology and the internet, venture investors didnt jump on the bandwagon until after 15 to 20 years. Venture capitalists are not willing to venture enough.
The relationship between government and the market is mutual and necessary. Apple may not have invented the internet, GPS, touchscreens, batteries, hard drives and voice recognition; but then again, Washington was never very likely to make iPhones. Theres not much point to radical innovations if no one turns them into products.
To dismiss the government as a bumbling slowpoke, however, wont get us anywhere. Because its not the invisible hand of the market but the conspicuous hand of the state that first points the way. Government isnt there just to administer life support to failing markets. Without the government, many of those markets would not even exist.
The most daunting challenges of our times, from climate change to the ageing population, demand an entrepreneurial state unafraid to take a gamble. Rather than wait around for the market, government needs to have vision, be decisive to take to heart Steve Jobs motto: stay hungry, stay foolish.
Utopia for Realists: And How We Can Get There is available from the Guardian bookshop
This article was translated from Dutch by Elizabeth Manton
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