The Silent Partner in Silicon Valley's Success
From Silicon Valley to Finland: Lessons on funding and fairness
Inspired by an interesting challenge posed in a previous LinkedIn post, I decided to dive deeper into Silicon Valley’s history. My aim was to understand the government’s role in its boom and explore whether it would be fair for governments to have a share in the enormous profits generated by these innovations. More so, I wanted to examine whether it makes sense to design systems where governments are more actively involved in the innovation process.
In The Entrepreneurial State, Mariana Mazzucato argues that long-term, patient government funding is an absolute prerequisite for breakthrough innovation. She highlights a fundamental issue with a system that asks taxpayers to bear all the risk while allowing the private sector to take all the rewards.
Each of the iPhone’s core technologies—capacitive sensors, solid-state memory, the click wheel, GPS, the internet, cellular communications, Siri, microchips, and the touchscreen—originated from research efforts and funding support provided by the U.S. government and military. However, and to the credit of my challenger (in the Linkedin post), this funding was typically in return for specific projects and was not structured in a way that asked for financial returns.
From this, my conclusion is that we are both partly right: a significant part of Silicon Valley’s success stems from decentralized government programs that funded foundational technologies. However, this does not diminish the importance of other essential ingredients: universities fostering entrepreneurship, shared knowledge among peers (especially regarding the internet), and the famed environment of “stay foolish, stay hungry.” Furthermore, it’s true that the government’s funding mechanisms were designed so that profits were not expected.
Nevertheless, there are examples of governments investing in smarter ways—ways that allow private players to retain freedom and gains while enabling governments to share in the profits from high-risk investments.
“Imagine if the U.S. government had asked for just 0.5% equity from technologies like the internet. This could have created massive funding streams for reinvestment into public goods, enabling smart, green, and inclusive growth. Public schools in Silicon Valley, for instance, might have directly benefited from the tech boom instead of remaining underfunded.” - Mariana Mazzucato

A clear example is Finland’s SITRA, a state agency that retained equity from its investment in Nokia. This approach generated substantial returns, which were reinvested into other ventures. Interestingly, SITRA operates much like a future-focused venture capital fund—except it’s government-backed. Their website is worth exploring for insights into how such a model can function effectively.
The system in the US wasn’t designed this way, but should it be now and in the future?
This point raises other bigger questions about fairness in the distribution of wealth generated by innovation. For instance, Elon Musk has skillfully played within the existing rules, amassing immense wealth and power. While this is a testament to his strategic brilliance, is it time to rethink these rules to ensure a fairer distribution of wealth? Should governments play a larger role in shaping the rules of the game to ensure a balance between innovation, profit, and public benefit?
Governments, of course, collect taxes. But tax evasion and avoidance are rampant. In my country of origin, Mexico, those who pay full taxes are often the middle class—a class that is already struggling. (Mexico’s newly elect President is promising big projects without a clear source of funds for them, though we can leave this as topic for another article). Designing systems where governments have a stake in the economic gains they help create could potentially provide a more sustainable and equitable source of revenue.
Admittedly, giving governments more financial power or influence is a daunting proposition, especially given how poorly many governments manage resources. The current profile of global leaders, in many cases, doesn’t inspire confidence. (I wouldn’t let into my house most of the people leading countries). The most creative, innovative, and capable people often avoid entering politics, unless they have a hero or martyr complex. This systemic design flaw leads to a situation where both governments and private-sector leadership often feel unworthy of trust.
This should not discourage us, on the contrary: it must inspire us to look for different alternatives. It has been proven that governments can be catalysts for innovation. The challenge now is to rethink how we design systems to ensure they can participate in the rewards, and that these rewards are reinvested well for the benefit of society.
Governments have historically played a crucial role in fostering innovation, often taking on risks that private investors avoid. Yet, the existing system, where public funding lays the foundation for private profit, raises critical questions about fairness and societal benefit. Examples like Finland’s SITRA show that governments can design smarter funding models, balancing the need for private-sector freedom with mechanisms to reinvest public gains.
We have come far in the road of innovation, we already live in a world where technology seems part of sci-fi! We should not look to stop it, but we do need to structure our systems better so that these innovations results in a better life for all and not just a select few. We need to revisit the rules of the game: we all want to live in a fairer world, and this is our chance to create a more equitable and forward-thinking global economy.