232. Why Governments Are Tech's Most Powerful (and Overlooked) Innovators
Dec 11, 2024
Think Silicon Valley was built by brilliant founders and venture capital? Think again.
Governments have been the secret force behind every major tech breakthrough - and understanding this could be crucial for your success, whether you are an innovator or an investor.
Economist Mariana Mazzucato 's groundbreaking book "The Entrepreneurial State" shows an often ignored truth: from the iPhone to GPS, the biggest innovations in tech came from government funding, because early stage innovation is too risky for venture capital.
Listen to this episode to learn:
- Why every technology in your iPhone started with government funding
- What a "regulatory sandbox" is and why it matters for innovation
- Why the "lone genius founder" myth is dangerous for investors
- How to spot government support that could give your company an edge
- Case studies from Silicon Valley, Singapore and Bahrain
Whether you're a policymaker, founder, or investor, this episode will change how you think about innovation - and might just change where you choose to build your next venture.
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Transcript
Sophia Matveeva (00:00.45)
Did you know that almost every technology in the iPhone was created with government funding? Today, I'll show you why understanding the hidden role of governments in tech innovation could be the key to your success, whether you're a founder, an investor, or a policymaker.
Sophia Matveeva (00:23.406)
I'm your host, tech entrepreneur, executive coach and Chicago Booth MBA, Sophia Matilda. My aim here is to help you have a great career in the digital age. In a time when even your coffee shop has an app, you simply have to speak tech. On this podcast, I share core technology concepts, help you relate them to business outcomes, and most importantly, share practical advice on what you can do to become a digital leader today.
If you want to have a great career in the digital age, this podcast is for you. Hello smart people. How are you today? I am still living by the beach in Bahrain and I walk past people drinking cocktails in sun lounges every day and it feels very odd and wonderful because it is December and you know the shops here are selling Christmas sweaters with snowmen on them, which looks really weird because the malls are literally surrounded by palm trees.
And today we are going to have a sophisticated strategic episode. But you know, if you are a long time listener, you can handle it. You're a smart person. Because today I want to talk to you about a book that has really influenced my work and my thinking. It's called The Entrepreneurial State by economist Mariana Mazzucato. I've added a link to the book in the show notes. So Mariana Mazzucato is an economist and she's a professor at University College London.
where she founded the Institute for Innovation and Public Purpose. Professor Mazzucato is the author of several books on innovation, but it was her book, The Entrepreneurial State, that really shook up established thinking on entrepreneurship and the success of Silicon Valley. So it's basically just something you really need to know about if you are in this kind of ecosystem world, because people do talk about it. In this book, The Entrepreneurial State,
Professor Muzikata shows that governments are the big investor in tech innovation and that governments go in with long-term funding way before the private sector. And I bet that's a surprise for many of you. And in fact, she actually shows that almost all of the innovations in the iPhone were government funded in the first place. And that Steve Jobs basically put together existing technologies
Sophia Matveeva (02:49.812)
into a new innovative design. Now, isn't that interesting? And I will show you the details of that later on in this episode. And as many of you know, my company is currently working on a big tech education initiative with the government of Bahrain. And I've also previously advised a UK government department on tech investment strategy. So I have...
a view that is both very practical and hands-on because that's how I started my career and also that's kind of what I like. So I have created programs that teach non-technical founders how to make their app. And also I have big picture and strategic experience like on how to build a thriving tech ecosystem that is going to keep on working and feeding and growing in the long term. And today we're going to focus on the latter because I want to show you
how smart government funding has created sustainable success and how it has created entirely new sectors. And also I'm going to show you how to use this information to your advantage because I never want to just give you theory and kind of leave you alone with it. We are practical here. Today's episode is going to change how you think about innovation and success in tech, whether you're making policy, building a company or investing in tech.
And for the policy makers listening, I'll show you what successful government innovation programs look like with real examples from Singapore and Bahrain. So you'll learn what actually works, not just what sounds good in policy papers. And obviously if you want more of this, then get in touch. And for the founders, you are my first love. You'll learn how to spot the signs of a supportive government ecosystem and also, you know, what to lobby your governments for. And trust me,
This really matters because you might think that government support is all about tax rates. That's only a small part of it. And I'm also going to show you how companies are working with forward thinking government to accelerate their growth so you can do the same. And for the investors here, you are going to learn to avoid a massive blind spot in your due diligence because you will learn why some of the most successful tech companies
Sophia Matveeva (05:10.572)
choose to build in specific locations and how government support, which is often invisible to outsiders, can make a huge difference between success and failure. Because I want you to stop falling for this lone founder just innovating in a garage without any help myth. Because that, well, it's a myth, it doesn't work. Anyway, so my goal today is to give you practical insights on what you can do today with your crafting policy, choosing where or how to build your company.
or if you're making investment decisions. So let us begin with the story of the iPhone. You might even remember when Steve Jobs unveiled the iPhone back in 2007. And I'm sure that you know it was a revolutionary product when it came out and it changed everything. And yes, that is true. But let's go beyond the surface. So here's what most people don't know and what Professor Mazzucato teaches us.
Every major technology in the iPhone, literally every single one, came from government funded research. So that touchscreen that we all love, that came from government funded research at Delaware University. The internet, that was based on research at DARPA and DARPA is the Defense Advanced Research Projects Agency. Quite a mouthful, so let's just say DARPA. So DARPA is a research and development agency of the US Department of Defense.
This agency was founded in 1958 and its primary mission is to develop emerging technologies for military use. So now I use their research to watch cat videos on TikTok. I bet they did not see that coming. Anyway, I digress. GPS, another brilliant technology that we all use and that is part of the iPhone, that also came from the Department of Defense project. And even Siri
whom I regularly talk to, even Siri started as a DARPA project at Stanford. So I am not taking away from Jobs' creative genius because that is definitely there. Because what Jobs and Apple did brilliantly was design innovation. They took these fundamental technologies and turned them into something that we love to use. And that is creative genius. But
Sophia Matveeva (07:35.938)
They did not create the core technologies to begin with. These came from decades of government investment in basic research, the kind of long-term risky investment that private companies rarely make because it is basically too risky and too long-term. So by the time the private sector gets involved, the public sector, as in the government, has basically laid the foundations. So the private sector...
is usually actually the second to come in. Isn't that interesting? That's really contrary to basically what you're going to hear tech innovators say and what you'll hear in the opposite of what VCs say. And I wonder why. Let's look at their incentives. Anyway, so this matters because we often hear that governments should just get out of the way and let private companies innovate.
But the reality is that without government investment in basic research and in new technologies, private companies would not have the building blocks they need to create commercial products. And here I'm talking about investment in research and investment in education. This is different to picking winners. Governments are usually pretty bad at picking winners. So I do not think that this is what governments should be doing, but governments should definitely be investing in
long-term innovation projects like education, like infrastructure. And now let us step away from Silicon Valley and go to Renaissance Florence. Isn't that fabulous? So I'm currently reading a book about Lorenzo di Medici, who ruled Florence in the late 1400s. And Lorenzo di Medici, he was a fascinating man and living in a fascinating time. And he was the patron of Leonardo da Vinci and Michelangelo.
So Italian Renaissance rulers like Lorenzo di Medici and Ludovico Sforza, the Duke of Milan, they were also state actors who funded innovation and creativity. So these Renaissance rulers who were at times very violent and really fearsome, they were the financial power behind the ecosystems that Europe's most talented artists flocked to.
Sophia Matveeva (09:56.95)
These people, these rulers, these state actors, they literally created the Renaissance because they funded it. And without their money, the artists wouldn't have been able to do their work and were still benefiting from their investments in creativity today. So if you went to France or Italy this summer, you are still benefiting from the investment that they made 600 years ago. So this whole thing of government funded innovation for the long term, it is not a new concept.
Yes, Leonardo da Vinci was certainly a genius, but he needed a government created ecosystem in order to thrive. So when we focus only on founders and their genius ideas, we do miss the bigger story. So let's look at Singapore, a tiny island that transformed itself into one of the world's leading tech hubs. No natural resources, just clear long-term thinking. So let's go back to the 1960s.
When Lee Kuan Yew, the founding prime minister of Singapore, looked at his country's future and he made a bold bet on education and technological advancements. And this is at the time when most leaders were just focused on traditional industry. So this is really, really interesting, innovative thinking.
He basically laid the foundations for a knowledge-based economy that Singapore has today. So today, Singapore hosts the regional headquarters for most major tech companies, has a thriving startup scene, and consistently ranks as one of the world's most innovative nations. And this is the result of work that began in the 60s. And you know, I'm actually seeing a similar path here in Bahrain because the government is systematically building up a tech ecosystem
in order to go from oil dependence to a knowledge-based economy. So let's look at what good government tech investment actually delivers, because if we know what good looks like, we know what to strive for. And if you know what good looks like, you can build it either as a policymaker or a founder. In Singapore today, you can open a new business in 15 minutes completely online, and you can pay for any government service
Sophia Matveeva (12:14.616)
through a single app called SingPass. Now imagine how much easier life would be if we all had that. I am dreaming. Anyway, let's look at healthcare in Singapore. In Singapore, doctors can access your complete medical history instantly through the National Electronic Health Record System. And this is something that the US is still struggling with. And I actually have two clients who are health tech innovators in the US. And you heard one of them on this podcast a few episodes ago.
Her name is Dr. Marilyn Sandor. And so these two clients, they're really held back by how hard it is to get patient records all in one place. So literally, if there was this government innovation to just have all the national health records in one place, it would make the lives of health check innovators much easier. And so let's look at Bahrain. I am seeing a very different approach to regulation here than I see in the UK.
So there's something called Bahrain Fintech Bay, which is both a physical location on an actual waterfront, which is lovely. And it's also a regulatory sandbox where companies can test new financial technologies under the central bank supervision. And I think this is a really interesting thing that actually a lot of countries could experiment with too. So a regulatory sandbox means that instead of waiting ages for regulatory approval,
Fintech companies can test their new product with real customers in a controlled environment. And then if these experiments go well, then basically they can scale. And so as a result, Bahrain is now basically the Fintech leader across the GCC. And the GCC stands for the Gulf Cooperation Council, and Dubai and Abu Dhabi are also part of that. But kind of the Fintech hub where the best Fintech innovations come from is often Bahrain.
And know what? I recently met a founder of a New York based fintech company who came to Burein to explore setting up their regional office here. And I asked him why he was considering this place in particular. And he told me something really interesting. So he literally said that people from the central bank had invited him over to ask what his companies would need to thrive in the country. So he literally told me that this has never happened to him before. And to be fair, it's really rare for regulators to be that proactive.
Sophia Matveeva (14:38.7)
And it doesn't mean that regulators do everything that founders ask, right? But it just means that the door is open, that the conversation is happening and that they're listening. Okay. And now let's talk about the foundation of any tech ecosystem and that is education. And this is what me and my company, this is what we specialize in. So Singapore did not just create one of coding boot camps, which really just don't make much of a difference. In Singapore, they built a comprehensive system that starts at
primary school and continues throughout people's careers. And this is important for you to think about if you're a founder or an investor, because you need to look at how skilled the labor force is when you are setting up shop or if you're expanding internationally. And even if your business is based in the US, you will either set up a regional office at some point or you will outsource some of your work internationally. So this is why this is important. So again, let's go deeper and look at Singapore.
Let's look at their Skills Future program. Every Singaporean, aged 25 and above, gets credits from the government to spend on approved courses. And so for tech specifically, they subsidize everything from basic digital literacy to advanced programming. And this is basically like saying we are going to fund your learning journey for life. And this is not just for individuals. So companies get to upskill their workers too. And in Bahrain, Tamkeen, and that's the
government funded organization that we work with, they play a similar role and they cover up to 70 % of training costs and they fund certifications like they're funding some of the techful and techie certifications here and that really helps companies transform their workforces for the digital age. And we can already see results. So because Singapore has been doing it for a longer time, let's look at their results. So Singapore is
the number one on the IMD World Digital Competitiveness ranking in 2024, and IMD is a fancy business school in Switzerland. Also, about 80 of the world's top 100 multinational tech companies have their offices in Singapore, and many of these offices are actually regional headquarters. And you know, these results have been decades in the making. So yes, we look at these results, but we need to look at
Sophia Matveeva (17:00.566)
the foundation of why did they get these results? What did they do to get these results? So what does this all mean for you, my dear smart person? So let's break it down for the policymakers, the innovators and the investors here. So if you're a policymaker, you need to think in decades and not in election cycles. And I totally sympathize. I know it's easier to say than to do. But the success stories I've seen, whether in Singapore or Silicon Valley or Bahrain, they come from sustained long
term investment. So look at your tech ecosystem and ask, are you providing the basic research, education and infrastructure that innovation needs to thrive in the long term? Are your regulations enabling or blocking new technologies? Are your regulations enabling or blocking investment?
I think that's one of the key issues with the FTSE 100 today, where tech companies are just leaving or never even listing on the London Stock Exchange. Okay, but that's another story. Anyway, for founders, this changes how you should think about your location. So as I mentioned earlier, don't just look at tax rates and don't just look at office costs. You need to go beyond that. Look at the entire ecosystem. Is there government support for R &D? What kind of grants are available?
Are regulators open to new ideas? You don't have to be invited to the central bank, right? Like not right at the beginning, but essentially are you seeing that other founders are being invited? Are you seeing that there is this conversation happening? Is there a pipeline of tech talent? Does the education system actually offer the appropriate education or is it still kind of stuck in the 1960s?
Are digital education providers working in that country or not? Or have they kind of left it alone? That's also a sign. Sometimes setting up in a smaller but more supportive jurisdiction might be smarter than fighting for attention in a bigger market. And for investors, my dears, please stop falling for the lone juniors founder myth because just stop it. It is not a thing. You need to make understanding government support as
Sophia Matveeva (19:20.014)
part of your due diligence. You need to have a sober view of the ecosystem in which you're investing. Leave patriotism aside, you can totally love your country and you can also understand that it is not a thriving tech ecosystem. Companies in well-supported ecosystems often have advantages that their competitors just don't. And this is the cold hard truth. Because access to talent, good education,
and regulatory support, they honestly do make a difference. So look for places where government investment is creating new opportunities. Because government support is often the difference between success and failure in tech, and that support is usually invisible to the naked eye. So you have to be smarter than the average, and you have to go beyond what's obvious. And this is why I made this episode for you. I know this is not kind of the usual thing that we talk about here.
but it's really important that you understand this because there are these big seismic changes that are happening and you need to be aware of them if you want long-term success. But you know, I'm assuming that if you're a Techwood on Techies listener and you're still here, then going beyond the surface is your thing. Anyway, I've given you a lot to think about today. So well done for listening. Well done for expanding your mind with me. And if you have found this episode useful, which I assume you did,
then please leave the show a rating and a review. It really does make a difference to me and my team, and it helps us to keep on creating this very high-quality education content for you. And if you have friends who work in government roles, then send them this episode because it's really going to help them. And now, my dear smart person, I wish you a terrific day, and I shall be back in your delightful smart ears next week. Ciao!
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