Edison holding a lightbulb

Are Private Markets the Best Source of Innovation?

Philip Dhingra
Oct 10, 2020 · 3 min read

We forget that for most of human history, innovation didn’t come from free markets, but from whatever was the closest largesse, whether it was for the glory of the Crown or Church, or sponsored by a local warlord or rich patron. The notion that there is some unannounced prize sitting on the marketplace that will magically draw, like an invisible hand, the great ideas from aspiring entrepreneurs, is a relatively new concept and should be treated as such.

Even looking at recent human history, we find shifting centers of gravity for innovation. The 1990s, for example, was the first era of big tech I.P.O.s. For instance, Netscape went public in 1995 and became worth three billion dollars at the end of its first day of trading. By the end of that year, it was worth nine billion. “Build a company and go public” quickly became the mantra for aspiring tech entrepreneurs like myself.

After the dot-com crash of 2001, the dream shifted to selling something to a big tech company. For example, in 2003, Jawed Karim offered me a choice between finishing college or taking a job as YouTube’s first employee. I stayed in school, but three years later, Google bought YouTube for $1.65 billion. Another Stanford colleague co-founded Siri, which Apple acquired for more than $200 million. And another friend worked with Kevin Systrom, who later founded Instagram and sold it to Facebook for $1 billion in 2012. “Build something worth acquiring,” that was the new motto.

Today, the pendulum has swung back to the 1970s–1980s era of R&D labs, when Bell Labs and Xerox Parc were hotbeds for new ideas. The goal now is to be a part of OpenAI, Google Brain, or Waymo. These three are working on artificial intelligence moonshots, whether taking self-driving cars to market or developing the first self-aware A.I. The salary for an entry-level machine learning engineer is six figures, and probably higher if you work for one of the majors. Better yet is the dream of becoming an A.I. rockstar, for whom million-dollar salaries are the norm. “Getting made” is the new dream.

But for most of the 20th century, new technologies in the U.S. were funded by the state. Innovations around aircraft and spacecraft, and inventions like GPS and the Internet, were sponsored by government. Breakthroughs in computing and chemical manufacturing came from public-private partnerships with companies like IBM and DuPont. And much of what we consider to be groundbreaking research coming out of universities was funded by federal grants. For example, Larry Page and Sergey Brin were working at the Stanford Integrated Digital Library Project, which was supported by $4.5 million from the National Science Foundation, when they came up with the idea for Google.

If we shift our attention outside of the West, we see that most Chinese innovation comes from public-private partnerships. The top Chinese tech firms, including Tencent, Alibaba, and Baidu, are all practically arms of the state. And it is worth reminding that when Larry Page and Sergey Brin wrote their groundbreaking paper for PageRank, the algorithm behind Google, they cited RankDex, an algorithm invented by Robin Li, a co-founder of Baidu. This footnote in Google’s history is ironic, considering that you’ll often hear people in Silicon Valley write off China by saying, “Yeah, but will they build the next Google?”

Consider the Great Pyramids, the Roman aqueducts, and the advances in shipbuilding necessary for circumnavigating the world. These achievements were all funded by states. The idea that an individual could and should independently build a career out of inventing is relatively recent, starting with Edison in the late-1880s. The rugged solo entrepreneur is now as American as apple pie. It is part of the national story, right up there with the Wright Brothers at Kitty Hawk or Benjamin Franklin flying a kite.

But, just as nobody would be surprised if the first self-driving cars were to be rolled out in China, nobody should be surprised if the great 21st-century innovations came from outside of private markets.


Complete essays from Philosophistry: The Love of Rhetoric

Medium is an open platform where 170 million readers come to find insightful and dynamic thinking. Here, expert and undiscovered voices alike dive into the heart of any topic and bring new ideas to the surface. Learn more

Follow the writers, publications, and topics that matter to you, and you’ll see them on your homepage and in your inbox. Explore

If you have a story to tell, knowledge to share, or a perspective to offer — welcome home. It’s easy and free to post your thinking on any topic. Write on Medium

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store