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Divorce Washington at Your Peril, Silicon Valley

June 15, 2010
| Blogs & Op-eds

Washington, D.C. and Silicon Valley are separated by 3,000 miles and vastly different cultures. But if the Valley itself and, more broadly, the U.S. economy are to thrive, then Washington and Silicon Valley need to appreciate each other more than they currently do. From my perch inside the Beltway, I’d like to offer some words of advice for the Valley.

First, I salute your entrepreneurial and organic spirit. It has helped transform the world and create jobs and wealth. But while Washington doesn’t always understand what Silicon Valley does or needs, you need to abandon the myth that Washington had nothing to do with your creation.

Remember: the Internet emerged from the Defense Department’s Advanced Research Projects Agency (ARPA). Oracle got started doing work for the Central Intelligence Agency and Intel sold much of its early output to the Pentagon. Sergey Brin was working on bibliographic research with an National Science Foundation (NSF) grant when he conceived Google. The founders of Genentech and other Bay Area biotech firms relied in part on federal research money to universities. Granted, these and many other companies became forces in the market independent of government, but does anyone really think that the federal dollars that flowed into Stanford, U.C. Berkeley and the Lawrence Livermore Lab had nothing to do with the Silicon Valley of today?

Second, whatever tangential role the feds played years ago, many in Silicon Valley agree with Michael Arrington, editor of the widely read blog Tech Crunch, that it was time for Washington to “just leave Silicon Valley alone.” Oh really? No need for a more generous research and development tax credit? What about intellectual-property infringement? Are the busy people creating and running the companies in the Valley going to lead the charge for cracking down on IP theft in countries like China? What about federal funding for research? I don’t need to tell you that a lot of the best minds and ideas that end up in your companies were trained and/or nurtured at these prestigious California institutions, where federal money flows in from NSF, the Department of Energy, the National Institutes of Health and others. Imagine where the Valley will be in the future without the public private/partnerships and government research dollars. The countries with the fastest broadband are the ones in which government invested in the networks.

Third, don’t kid yourselves — while success in the IT industry in the past might have depended on private companies simply commercializing and marketing their good innovations, success going forward depends on robust public-private partnerships. Intelligent transportation systems, the smart electric grid, mobile payments, digital signatures, health IT and, of course, broadband all represent transformative changes in how we live and work. The commercial opportunities for private companies will be huge, but can companies alone lead the way? Probably not. As we have shown in a report, other nations are ahead of us in all these areas and it is because of smart public private IT partnerships. Only when government commits to the historic redesigns of how we travel, communicate, share data, conduct commerce and use energy will the vast commercial opportunities become accessible for Silicon Valley companies.

Fourth, don’t assume that if government simply loosens up H-1B visa restrictions and lowers taxes, everything else will take of itself. Yes, we need to be able to attract and retain the best minds in the world so we are not starved for talent in the U.S. And yes, we should lower corporate taxes to compete for mobile, high-value-added jobs with countries that have lower effective corporate tax rates. We need to make our R&D credit more generous (we now rank 18th among OECD countries) and should explore tax incentives tied to investment and workforce training workers. But it’s important to note that these countries are matching tax cuts with proactive government efforts to marshal resources to establish leadership in IT and other key economic sectors. Silicon Valley is hanging its fate on a very narrow reed by focusing on worker visas and taxes, and giving short shrift to the many other ways where government plays an integral role in its future.

That leads to the fifth and final piece of advice: Play a more active role in shaping policy in Washington that is good for the country and good for Silicon Valley. Rather than wishing the government would simply cut taxes and leave, get behind government efforts to make innovation a more central part of economic policy. Support more robust investments in national laboratories and university research. Stand up for government efforts to kick start the development of “platform technologies” like the smart grid and intelligent transportation systems. Lead the charge for a better trade policy that defends U.S. innovators against foreign technology mercantilism. Silicon Valley has been the chief beneficiary of Washington’s research and vision, and stands to gain the most from these policies going forward.