Debunking the myth that the government built the iPhone

Recently, we covered a moderated discussion held at the Brookings Institution titled How Robotics Will Affect the Availability of Employment and Social Benefits. In a separate post on IPWatchdog, we noted a salient defense of the history of technological progress offered by venture capitalist Nick Hanauer. Playing the devil’s advocate to many of Hanauer’s views was Scott Santens of Basic Income Action.

Although most of the afternoon’s discussion focused on the effects of growing automation on the availability of jobs for the American worker, there was one particular comment made by Santens that probably didn’t raise many eyebrows, but it should have:

“In our current system, technology is actually, it’s privately owned. It’s something that is owned. So, when you invent something, let’s say, that is yours. So, when someone who’s an owner of capital replaces their labor with machines, then they own, their labor is now machines that they own. They’re not paying out wages to humans anymore and they get to keep all of that themselves, which grows inequality. Technology itself is something that, within our system, it drives towards inequality because we’re not saying that technology is publicly owned. There is no publicly owned technology. Which is interesting because if you look at, say, the technology behind the iPhone, for example, pretty much everything in that was funded at the government level from various departments and whatnot along the way. And so, this was publicly funded, that ended up in the hands of a private company, that became a multi-billion dollar company, but we didn’t see any of that. It was all paid for with tax dollars, the R&D was paid for with tax dollars. That’s actually more and more the case with all this technology that’s being built off of publicly funded research and we’re not seeing a return on any of that.”

Our sincere condolences to Scott Santens because if he hasn’t seen the benefits of government funding basic research, which is later commercialized by a private entity, he must be sending all of his messages by handwritten letter. He also must be rather unacquainted with the truth and wholly unfamiliar with the role of federal funding in the innovation landscape. Of course, Santens is also dead wrong about the government building the iPhone.

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Society Benefits from Basic Scientific Research

Just recently we published an article about NASA’s Mars budget hearing on Capitol Hill. Explaining just several of the benefits derived from NASA’s attempts to get to the moon we wrote:

[T]he agency’s space travel programs has led to incredible benefits to humans on Earth, which may never have otherwise been discovered. Light-emitting diode (LED) technologies used for plant growing facilities on NASA’s space shuttle plant growth environments have led to the development of LED technologies reducing side effects in cancer patients undergoing radiation and chemotherapy treatments. A material developed by NASA for Viking spacecraft launched in the 1970s led to the development of rubber tires by Goodyear Tire & Rubber Company which added 10,000 to the life of conventional tread tires. Heat shields developed for Apollo spacecraft led to fire-resistant reinforcement technologies for steel structures, insulating the steel for hours of additional fire protection. According to NASA, nine out of ten infant formula products sold in the U.S. today contain a nutritional enrichment ingredient developed by NASA during its efforts to use algae as a recycling agent during long-duration space travel.

In recently rebutting a similarly moronic comment made in Fortune Magazine about how there are no more medical miracles thanks to scientific research we wrote about numerous groundbreaking medical miracles announced on a single day — September 10, 2015 — all of which are the result of basic scientific research at American Universities:

While we could write an entire treatise about medical miracles, allow us to point out a few. At the University of Iowa researchers recently discovered compounds in apple peels and tomatoes that can counteract some of the effects of aging, especially where muscle wasting is involved. Scientists at the University of Michigan have just pioneered a sponge-like implantable device that attracts cancer cells that might cause a cancer relapse. A study produced by Midwestern University of Downers Grove, IL, identified a new compound for interacting with ETB receptors and slowing the progression of Alzheimer’s disease. Another study authored by scientists at Johns Hopkins University shows a link between the migraines a woman suffers and the levels of fat in her blood.

There can be no doubt that the American public has benefited from the private commercialization of government-funded research and the proof goes much further than the fact that two-thirds of all Americans own a smartphone. Universities are working on technologies to help firefighters, researching groundbreaking cancer therapies, treatments for Parkinson’s disease, treatments for autism, treatments for Alzheimer’s disease, new biofuels and much more.

Only someone who is completely indifferent to the truth, and who has intentionally put on blinders so they don’t see the truth, could ever say that the public does not benefit from federally funded research. It is sad that this even needs to be pointed out, but critics of the patent system and federal research funding can take intellectual dishonesty to bizarre heights. In other words, they are not beyond making outright false statements, which all too frequently go unchecked.

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Setting the Record Straight on the iPhone

First and foremost we need to point out that Apple Inc. (NASDAQ:AAPL) invests most of the R&D into the technology behind the iPhone. Anyone who has followed our coverage of that corporation in our Companies We Follow series would know that Apple has recently been developing mobile device antennas and digital wallet technologies without any funding from the federal government. And they don’t get government funding because those funds are earmarked solely for basic research conducted at universities and research facilities across the country. So, no, the government didn’t build your iPhone, Scott. You are simply wrong.

The argument that the federal government should somehow take ownership over the technology that it helped to develop is an easy sell to those who might think that it would somehow lead to free cell phones or greater innovation for society, but it misunderstands some very basic points about the role of the United States federal government in funding basic scientific research. It also fails to grasp the differences between basic research funded by the government and commercialization research produced by private entities.

There are many technologies that every private, individual American consumer would not be enjoying today if the initial, most basic research behind them were not paid for with public funds. This is a point that was noted in a May 2011 speech by then-chairman of the U.S. Federal Reserve, Ben Bernanke, speaking at a conference in Washington, D.C., on jobs and economic growth. “The primary economic rationale for a government role in R&D is that, absent such intervention, the private market would not adequately supply certain types of research,” Bernanke said. He would go on to argue that, despite some disappointments, federal funding of basic research had led to a very high social rate of return overall.

This point is echoed in a May 2010 report by the U.S. Congress Joint Economic Committee. The report delineates the three different areas of research and development: basic research, which is conducted to gain knowledge without knowing the applications for the knowledge; applied research, or systemic study of the to gain an understanding of how the basic research can be applied; and development, which builds upon the foundation of basic and applied research to create an actual product. “If society were to rely on the private sector alone to fund R&D, many socially beneficial research projects would not be undertaken. This is especially true for basic research projects,” the report claimed. Just over one-quarter of all R&D funding in 2008 came from the federal government versus the 67 percent contributed by private business; the other seven percent was split between funding from nonprofits and universities. When looking at the splits for basic research included in the report, however, the 2008 results show that the federal government contributed 57 percent of basic research funding while only 18 percent came from the private sector.

The second misguided aspect of the “U.S. government built your iPhone” argument is that it fails to comprehend the forces of capitalism, which guide economic development in our country and abroad. The profit motive becomes a much stronger force for a company once much of the basic and applied research has been completed and, at that point, it becomes a much better idea to let the private sector take over and create a product that consumers want to purchase. You don’t want the government manufacturing iPhones because that’s not government’s business. Government’s business is instead to serve the public good, which it does in part through basic research funding.

Take, for example, the global positioning system (GPS) which is supported by a network of 24 satellites launched and set into orbit by the Department of Defense. The DoD handles most of the funding, although some of that responsibility does fall to the Department of Transportation. Federal government costs for 2015 budget areas related to GPS are just over $1 billion. The government’s official policy on GPS indicates that it will remain free for civilian access far into the future. Any attempt to recoup its investment on GPS would amount to an innovation tax on all U.S. consumers or lead to the privatization of GPS. Either of those would be undesirable but it seems to be the logical conclusion of the argument that the government should profit from the smartphone infrastructure it helped to establish. Furthermore, the fact that government funding exists for GPS hardly means that the federal government built or paid for the tens of thousands of GPS related devices and follow-on innovations.

To critique the “U.S. government built your iPhone” argument more closely, we need only to look at how Apple utilizes the GPS infrastructure, which is sometimes cited as proof that Apple owes a larger share of its profits to the federal government than it currently gives. The government cannot enforce a licensing fee for GPS use on Apple, or other smartphone developers, and then leave it free for individual American consumers; all are consumers of the technology, just on different levels. As we’ve already stated, the federal government never gave Apple any grants to develop the iPhone directly, government funding is never used to develop a product for commercial sale. The economic boon that Apple is reaping from the iPhone is leading to tremendous upticks in R&D expenditures at that company which spent almost $2 billion on R&D in the first quarter of 2015 alone, a year-over-year increase of 42 percent more than 2014’s first quarter figures. It’s clear that government funding of basic research and private commercialization of product development is a virtuous partnership that has led to the vast majority of Americans owning handheld computing devices that were the stuff of dreams just a little more than a decade ago. But to pretend that Apple doesn’t invest significant funds into R&D is simply false.

Consumers do not want to have government in charge of business. That’s been tried before and it ended with the fall of Communism as a dominant world ideology. With very few notable exceptions, companies will not get involved with the basic research end of things because it is not profitable. No entity is going to do a better job at producing a product for a general population than the entity that can make the most money doing so. And yet if the government is going to help society become innovative, funding basic research becomes pivotal in that quest. So the whole “U.S. government built your iPhone” falls apart. The fact that the government invested in basic science doesn’t mean that all follow-on innovation that utilizes the discoveries was built and paid for by the government. Such an argument is completely disingenuous.

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Understanding Public-Private Partnerships

Even given the role of government-funded basic research in developing the Internet or advanced prosthetics, among many other things, it’s incredible to consider how much basic research languishes in the commercialization track because of difficulties in tech transfer. In a May 2010 interview with Linda Katehi, Chancellor of the University of California, Davis, the many obstacles facing university tech transfer were discussed. Katehi explained that the role of a University is to engage in basic research first, then hopefully moving on into translational research before ultimately turning the innovation over to the private sector. It is in this hand-off period that there is much risk and uncertainty, which is explained by the chart below, taken from a PowerPoint presentation given by Katehi at the 2010 BIO annual meeting.

There is this myth that those engaging in basic scientific research, such as Universities and others who receive federal funding, are capable of taking that basic research to the marketplace. Such an understanding is naive in the extreme, simply failing to understand the role of basic research and scientific realities. Just because it works on a small scale in a laboratory doesn’t mean that it will ramp up as predicted and become useful in the marketplace. Research that begins to translate the basic science into usable technology is an essential step, but even then there will be more commercialization research that must take place before anything could ever dream to hit the market.

Furthermore, those that engage in basic scientific research are as incapable of doing translational and commercialization research as private companies are incapable of doing basic scientific research. This means that both the public sector and private sector play different but equally critical roles in taking a dream from the idea stage to a product or service that benefits society by making it to the market.

In short, those who believe as Santens does simply are scientifically ignorant. It is foolish in the extreme to believe that just because a discovery has been made that it will neatly and easily be taken to market. Federal funding is essential for pursuing scientific breakthroughs and discoveries that otherwise would be too speculative to pursue. Pretending that a breakthrough or discovery funded by the federal government somehow means that the federal government made all after developed innovations that build on the discovery is ridiculous. Indeed, as ridiculous as the government telling business owners that they didn’t build their businesses themselves.