The iPhone has changed so much about how we live and interact with one another that it’s hard to believe that the original iPhone went on sale over 10 years ago, popularizing the concept of the smartphone. Since June 29, 2007, smartphones have become an essential part of our everyday lives — to the point where more people now browse the web on mobile than desktop, more Google searches come from mobile platforms, and more people in many developing countries use smartphones as their primary Internet-accessing device, bypassing PC Internet connections altogether.
Of course, not all smartphones are iPhones. In 2016, Apple was responsible for only 14.4 percent of smartphones sold globally, but there can be no denying that the original iPhone set the template for what a smartphone must be — a template that was further refined in the years that followed. Apple has sold more than 1.2 billion iPhones over the product’s lifecycle, bringing in over $700 billion in revenue and over $100 billion in profit.
As the company prepares to unveil the 10th-anniversary iPhone, which it hopes will redefine the category once again, it’s worth remembering that without public research funding, many of the technologies that are fundamental to smartphones would not exist. Moreover, the claim made by many Silicon Valley libertarians that the private market is superior to public funding simply isn’t supported by the evidence.
Publicly funded tech is central to Silicon Valley’s success
If we were to listen only to Silicon Valley CEOs and libertarian venture capitalists, they would tell us that tech companies and the “move fast and break things” model of capitalism that they practice are responsible for a level of innovation and entrepreneurship that has been seldom seen in the past. The technologies developed by start-ups and in the secretive labs of multinational conglomerates would not be possible without private funding and are threatened by any regulation — new or existing. The way to maximize innovation, they say, is for the government to get out of the way and let entrepreneurs do pretty much whatever they want.
But history contradicts these assertions.
The success of Apple, Google and many of the other major corporations that now dominate the Valley is not a result of the model they now preach. Instead, it’s highly unlikely that these companies would be as successful as they are today without the support the government has provided.
Steve Jobs may have been a genius — he certainly had an eye for design — but his most successful product would not exist if it weren’t for the billions of dollars that the US government spends every year on research and development. The best accounting of this has been done by Mariana Mazzucato, author of "The Entrepreneurial State," who skillfully explains that touch-screen displays, GPS, the Internet and even Siri were the product of public research funding — features the iPhone wouldn’t be very compelling without.
And that’s not to say that Apple should get no credit for the revolutionary product it created. The company assembled those technologies in a compelling package and has developed many of its own innovations to enhance it along the way. But that doesn’t change the fact that the fundamentals wouldn’t exist without the government.
In her research, Mazzucato even found that at an early stage, Apple received funding from the federal government’s Small Business Investment Company, which was created to provide stable, long-term support for new businesses. It was only after securing this endorsement that venture capitalists became interested. And Apple wasn’t the only company to get public money. The development of Google’s search algorithm — the very core of its business — was funded by the National Science Foundation, and it’s likely that Elon Musk’s companies would struggle without the billions they receive in public subsidies.
It’s clear that Silicon Valley’s thought leaders significantly discount the importance of public support to the innovations that its companies depend on. Instead of being thankful for government initiatives, the rising power of tech has corresponded with a renewed effort by corporations to minimize the amount of taxes they pay, and that greed is threatening the continuation of this virtuous cycle.
Tech companies are in it for themselves
Over the past few decades, the major tech companies have led the way in developing schemes to reduce their tax burden by setting up various shell accounts and subsidiaries in tax havens around the world. Eric Schmidt even bragged that he was “very proud” of Google’s tax-avoidance schemes, which he considers a central constituent of modern capitalism.
However, as a result of increased tax avoidance and the slashing of the corporate tax rate by successive governments over the past several decades, the amount of taxes paid by corporations has significantly declined both as a percentage of government revenue and as a percentage of GDP. This may seem like a positive development to corporate executives, but what it really means is that less money is available to fund the programs that are key to supporting small businesses and funding important research projects that lack a clear road to profitability.
And whether or not tech libertarians want to admit it, that’s a big problem. The right loves to say that the government shouldn’t pick winners, but the reality is that it has a pretty good record of picking the right ones. In a review of Mazzucato’s book, Jeff Madrick acknowledges that “including Solyndra, only roughly 2 percent of the projects partly financed by the federal government have gone bankrupt.”
There’s also an important distinction to make between private venture capital and the kind of support the government can provide. Venture capitalists rarely want to get involved at the early stages of a project when the prospect of return on investment isn’t clear. They prefer to wait until much later, when they can provide short-term support that will pay back within a few years. Public funding, on the other hand, usually supports research at a very early stage, when risk is much higher, which is why it was so important in the development of the foundational technologies of the Internet age.
With great profits comes great responsibility
Even though corporate giants are paying less in taxes, they’re not trying to replace the functions served by public dollars. Instead of investing more of their money in R&D, they’re sitting on record cash piles — Apple’s stands at more than $260 billion — which they’re increasingly spending on stock buybacks and dividends to artifically boost their share price, making their executives and wealthy shareholders even richer.
The public money that funds scientific advancement and technological innovation has been essential to human progress. Whether it’s optical storage, microchips, communication satellites or wind and solar technologies, the discoveries that drive our world forward are a result of the long-term investments that only the government dependably provides.
There’s no denying that corporations benefit immensely from this public spending, just as Apple did with the creation of the iPhone. And there’s no problem with that. The problem arises when those same companies reap the rewards while trying to avoid the responsibilities that come with them.
The only way this will change is by countering the lies of Silicon Valley libertarians, educating people about the importance of public research funding and showing them how tech companies make enormous profits from public investments while use mind-numbing schemes to reduce their own contributions. As Apple announces its new iPhone, it’s worth wondering whether a company that has benefited so much from public investment is really worth our support when it’s hoarding billions of dollars offshore just to avoid paying US taxes. I’m not sure about you, but that doesn’t sound like good corporate citizenship to me.
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