Thursday, January 26, 2017


So President Trump wants to cut government funded research in areas like physics and advanced scientific computing to 2008 levels. He also wants to eliminate the Office of Electricity and the Office of Energy Efficiency and Renewable Energy, while scuttling the Office of Fossil Energy - which happens to study the impact of technologies that reduce carbon emissions.  

If President Trump is successful in eliminating or reducing these programs, apart from from undermining the spirit of the Constitution (Art. I, Sec. 8; promote the progress of science and the arts), one thing is clear: Donald Trump is going to do long-term and even irreparable harm to our economy, and its competitiveness, by undermining government funded programs that have helped spur scientific investigation, basic research, and the grunt work that leads to market innovation ... 

If you want a brief and all to incomplete list of the many government backed scientific and market breakthroughs you can start by clicking here. If you want to understand the intertwined and necessary relationship between states and markets click here

What follows below is a small part of an earlier post, and is an example of what President Trump is either ignoring or - and more likely - simply does not understand.

While many like to believe otherwise, the era of the microchip and the Third Industrial Revolution isn't just about entrepreneurialism and investment capital magically gravitating to the right place at the right time. The technological leaps that were made in the 1950s and 1960s were a direct result of the cold war, the space race, and government investments. Without these intertwined developments the groundwork for the Third Industrial Revolution would have been delayed, or never happened.

More specifically, after the Soviet Union launched Sputnik into space in 1957 it was suddenly clear that in spite of developing the atomic bomb first the U.S. was not the technological leader of the world.

A scale model of Sputnik.
This was a shock to America's free market psyche. The U.S. would have to act fast if it was going to catch up to the Soviets. Only it wasn't going to be America's much touted capitalists leading the charge.

President Eisenhower understood the ramifications of Sputnik immediately and established the National Aeronautics and Space Administration (NASA). For their part the U.S. military focused on building intercontinental missiles. Suddenly, the U.S. needed equipment that could leave the earth's atmosphere and come back without bursting or melting during re-entry.

The standard vacuum tube transistors used by the private sector in the 1950s - which were little more than "glorified lightbulbs" - suddenly became obsolete in a cold war context. What was needed were advanced and high quality energy transmitters. While the price of these new transmitters were too expensive for the private sector, the cold war and defense needs of the U.S. created an entirely new "market."

Newly founded Fairchild Semiconductor would reap the benefits of the Sputnik induced space race.

Under the leadership of Robert Noyce, Fairchild Semiconductor became the first company to demonstrate that it had the ability to mass produce silicon transistors that met the quality levels demanded by the U.S. Air Force (who had orders through IBM). Founded in Mountain View, California - now the heart of the Silicon Valley - Fairchild Semiconductor produced 100 silicon transistors in 1958.

Each semiconductor unit cost $150 each (about $1,500 today). While this was about 30 times more expensive than transistors then in use, the U.S. government didn't flinch. The U.S. was engaged in a global ideological battle, where the world had to see that whatever the Soviets did the U.S. could do better.

Private sector cost models held no weight when it came to national security needs during the cold war. This was the genesis of the Third Industrial Revolution.

Fairchilds next big breakthrough would be the integrated circuit, or the microchip. At $120 per unit the integrated circuit (or microchip) was still too expensive for everyday use by private industry. But, once again, with the cold war in full bloom and the Apollo program on the horizon, the U.S. government was there to provide the market demand necessary for Fairchild to sell its wares, and make money.

One of the numerous types of integrated circuits.
To be sure, Texas Instruments was the first to produce an integrated circuit. But it was Fairchild who used a different design and process to create a product that actually worked according to NASA's specifications. While a lawsuit would be filed by Texas Instruments against Fairchild, the industry continued to progress. Ultimately both TI and Fairchild would share licensing arrangements (52:00), and the needs of the NASA and the U.S. military would be met.

With NASA purchasing 60 percent of the expensive integrated circuits produced in the United States (57:45), Fairchild became a major supplier. In 1964 alone it supplied at least 100,000 circuits to the Apollo mission (58:00), while "the federal government bought virtually every microchip firms could produce."

After 1964 mass production and competition for government "market" share continued to lower costs, which allowed the private sector to embrace the silicon era as they began using microchips in their products. According to one source:
... NASA bought so many [microchips] that manufacturers were able to achieve huge improvements in the production process - so much so, in fact, that the price of the Apollo microchip fell from $1000 per unit to between $20 and $30 per unit in the span of a couple years.
At the same time this was happening Fairchild's original founders began leaving the company. Surrounded by numerous public and private universities, a developed infrastructure, and a vibrant economy, the Fairchild founders stayed in the region and built their own companies. Funded by government contracts, Fairchild was able to become a technological seedpod that spawned hundreds of new firms (often referred to as "Fairchildren") that built what we know today as the Silicon Valley.

Because of the educational and infrastructure investments made by successive California governors beforehand, and because of the successes of home grown genius like Apples' Steve Jobs, the Silicon Valley became a global Mecca for people with both creative minds and money.

People with real talent and lots of cash flocked to the Silicon Valley, hoping to participate in, and to build off of, the "social structure of innovation" (created by high tech firms, research universities, infrastructure, an open culture, numerous venture capital sources, and specialized support services) that is unique to the region.

Today, at any given time the Silicon Valley regularly attracts between 40 to 50 percent of all venture capital invested in the United States.

You would think President Trump, or someone on his team, understands this success story. If the Trump administration's policy proposals are any indication, it's clear they don't. Donald Trump has no clue about the relationship between government funded science, innovation, and markets.

So, yeah, when America begins to lose its competitive edge, we won't have to look far to find where it started. 

Sigh ...

- Mark

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