For most of its existence, the federal government has been the biggest angel investor in the world. For just as long, the generation that put up the early cash rarely appreciated what its descendants got in return.
From 1803, when Thomas Jefferson negotiated the Louisiana Purchase, to the creation of the Internet in our day, Washington has invested in ventures that at the time seemed folly. Instead, they ended up spawning businesses small and large. Many of these investments didn’t just re-engineer the economy; they transformed society.
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Today, the promise of a similarly sized game changer may be crushed if lawmakers respond too harshly to calls for deep cuts in federal spending. No doubt there are many good reasons to trim the government’s fiscal wings, but there can only be bad outcomes if the federal government abandons the angel’s role.
The Internet shows federal seed money can put innovation into motion. Hundreds of millions of dollars invested in the Internet’s precursors from the 1960s to the 1990s laid groundwork for e-commerce, which is forecast to reach more than $1 trillion by the end of this year.
Government agencies nurtured the Internet and the Web as a platform on which businesses could grow and make money. Startup companies based solely on the Internet have grown into global giants, with names like Amazon.com (AMZN:US), eBay (EBAY:US) and Google. (GOOG:US)
Some of us are old enough to remember life without e-mail, mobile phones and global search. Ask a 20-year-old to imagine that and you’ll get a look of total amazement. Picture what a 5- year-old will be able to do and learn as a result of the next new thing.
The reason the Internet became such a central part of people’s lives is because it’s a “generative technology,” in the words of Jonathan Zittrain, a professor of law and computer science at Harvard University. Anyone can now develop never- before-imagined products and applications that ride on the Internet.
The personal computer, GPS -- even duct tape -- are all examples of generative technologies. What makes them work are open standards, which mean any company can use them to invent new products and services that work with other companies’ innovations to create a competitive marketplace.
To understand why generative technologies are important, consider the French government’s investment 30 years ago in a national data network. Working with France Telecom (FTE), the national phone company, the government created the Minitel, a computer French citizens could use to do everything from checking the yellow pages to signing up for online dating.
Today, the U.S. government has two generative technology investment opportunities that promise even more economic growth than the Internet. The first is cloud computing, which provides cheaper, more flexible computing power and storage in data centers worldwide. Think Apple (AAPL:US)’s iTunes, Netflix (NFLX:US) and Google’s Gmail. Advances in cloud technology will enable thousands of new applications.
Second is the “cloud of things,” which combines cloud computing with hundreds of billions of appliances and inexpensive sensors that will collect a flood of new data and video. Companies and governments can use these ubiquitous sensors to improve just about everything we do, from quickly rerouting traffic from clogged highways to monitoring the health of patients and synchronizing every electronic function in our homes.
The federal government funds research in sensors as well as the education of computer scientists and engineers. If the next president and Congress choose to cut federal spending in the name of austerity, U.S. leadership in cloud computing and the cloud of things just may go with it -- as will the jobs. Companies are expected to create at least 7 million new cloud- related jobs globally by 2015, according to an IDC Corp. study sponsored by Microsoft Corp. (MSFT:US)
The next president should channel Thomas Jefferson. Faced in 1803 with stinging criticism and economic uncertainty, Jefferson raised $15 million, more than the federal budget at the time, to buy 820,000 square miles in the North American heartland. The deal doubled the size of the fledgling U.S. and gave farmers, and later companies, access to some of the world’s most fertile and resource-rich land, treasures that would later fuel the U.S. industrial boom.
Another boom awaits, driven by data and the cloud.
(Mike Nelson is a technology analyst with Bloomberg Government. The views expressed are his own.)
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