The Myth of Silicon Valley/ How do you create a Silicon Valley

The myth goes that Silicon Valley was built by the entrepreneurial spirit of pioneer and dynamic visionaries such as Apple, Google, Compaq and Intel.

This is one of the myths that Mariana Mazzucato, Professor of Economics at Sussex University busts in her book The Entrepreneurial State.

Why Can’t we Have a Silicon Valley and Google and Apple? This is a question many countries ask and that includes the UK, several countries in Europe and India. India is characterised by its Enlgish literate, numerate young population. Every global IT company has Indians at every level. Bangalore is one of the prominent IT hubs in the world and most importantly the spirit of entrepreneurship is in every city and every street of India – in its billionaires, millionaires and hole in the wall shops that can fix your iphones to your laptops to ipads for a few cents. The answer comes from understanding how Silicon Valley was created says Mariana.

She debunks these myths through research and examples.

There is a prevalent belief that State is a slow, bureaucratic, not craeative entity that deals with infrastructure and building social capital to deal with education and health. It is the private sector that is infused with the entrepreneurial spirit that is creative, dynamic, inventive and quick. A bit like the hare and the tortoise.

The right mix of Venture Capital, focus on small and medium enterprises, create the right environment for innovation and withdraw so that the spirit of the private sector will be unleashed.

She argues against demonising the State and that you need far greater participation from the State than is in most countries. The Internet came from DARPADefense Advanced Research Projects Agency, as did GPS. The NIHNational Institutes of Health with 27 different institutes with specific research agenda and funded directly from Congress – its mission is is to seek fundamental knowledge about the nature and behavior of living systems and the application of that knowledge to enhance health, lengthen life, and reduce illness and disability.

The State takes on research in targeted sectors which are capital intensive, high risk and fraught with uncertainties. The private sector comes in several years later to ride this wave. Nanotechnology, biotechnology and clean technology are such examples.

Small Business Innovation Research initiative helped financially Apple, Compaq and Intel in the early stages.

The government is not just a condition setter and a market fixer but it is a market shaper and a risk taker.
In the 70s and 80s when Japan joined the developed economies club it was spending al Government is the lead innovator in all innovation.
The government needs to create the right framework of linkages of public, university and private linkages and diffusion of knowledge and Japan did it well in the 70s and 80s. Russia failed to understand this and did not do well.

Countries like the US, Japan and Germany spend close to 3% of their GDP on R&D. Korea and China are close to that. India is only……..

If the government is going to invest in the high risk high uncertain sectors they are entitled to earn returns. They get indirect returns through taxes but that is very small. If they had equity stake they would have enoguh money to invest in green technology. If 0.5% of profits from the Internet cam back they would have enought to invest in green tech. The Norwegian government invested in Nokea and is now using the returns to support new start ups. In Brazil the public sector banks are investing heavily and getting 20% returns, china is making 8% returns against World banks -2%.

Small Business Innovation Research Initiative (SBIRI) for Public Private Partnership is one such initiative by the Indian government. The distinctive feature of SBIRI is that it supports the high-risk pre-proof-of-concept research and late stage development in small and medium companies lead by innovators with science backgrounds which is unique in nature to support private industries and to get them involved in development of such products and processes which have high societal relevance. SBIRI has unique process for generating ideas by bringing users and producers of technology together, it has the direct focus on producing product and a sense of urgency for producing defined results that only private sector engagement can produce.

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