Welfare Queens By Scott Galloway
Recommendation
The US government is the largest venture capital firm – with enormous resources of money, time and patience – and one of the world’s most successful. Public grants and subsidies to start-ups like Tesla, Amazon, Apple and Microsoft jumpstarted what became behemoth successes. Yet, as professor Scott Galloway notes in this bracing commentary, many of the beneficiaries tend to disparage government investment in research and innovation. Galloway makes a bold case for the deep pockets and patient capital that has helped foster private sector development in the United States for decades, and he proposes that more of those rewards go to US taxpayers.
Take-Aways
- The US government is the oldest and largest venture capitalist in the world.
- Scientific research is capital- and time-intensive.
- The relationship between Big Tech and the American government is a fractious one.
Welfare Queens Article Summary
The US government is the oldest and largest venture capitalist in the world.
The 800-lb gorilla of venture capital firms has been in existence since the beginning of the American republic. US public investment in technologies has a long history. The government has underwritten the development of the computer, the internet, genome sequencing and fracking technologies. The American taxpayer acts as a limited partner in this grand-scale undertaking.
“Founded in 1776 by General Partners Washington, Jefferson and Madison, and headquartered today in a Beaux Arts corporate campus in the District of Columbia, the US government is the world’s premier funder of technological and commercial innovation.”
For example, a decades-long government investment in wind power research has totaled some $3 billion in R&D and tax credits that substantially lower the cost of wind power. The most recent example of government investment is 2022’s Inflation Reduction Act, whose purpose is to fund numerous clean-energy projects through tax credits.
Scientific research is capital- and time-intensive.
A venture capital firm of this size should expect to secure big wins and experience similarly large losses. Solyndra, a solar cell manufacturer, collapsed in 2011 to the tune of more than half a billion dollars. Yet the Department of Energy program that underwrote the loan to Solyndra ended up being profitable. Another beneficiary of this particular program was Tesla.
Investment in advanced technologies requires patience and money. The US government takes the long view. The Defense Advanced Research Projects Agency (DARPA) has been behind much of America’s technology infrastructure, including the internet, GPS and artificial intelligence. Indeed, state investment in computer and networking technology goes back to the 1960s.
“Early-stage, future-leaning research is riskier and requires large amounts of patient capital. Private industry struggles to justify long-term, mammoth investments in deep science. The most enduring societies have one thing in common: Their governments play the long game.”
From the mid-1990s to 2010, subsidized university development and private-sector licensing of various technologies generated more than $300 billion in GDP and some three million jobs. Notably, the Moderna COVID-19 vaccine was the result of a $25 million DARPA grant to the firm to develop RNA technology.
The relationship between Big Tech and the American government is a fractious one.
Sand Hill Road titans Peter Thiel and Elon Musk have benefited enormously from, and continue to depend on, government funding. Venture capitalist Marc Andreessen owes his success in web browser development to his attendance at the public University of Illinois and his work at the National Center for Supercomputing Applications. Yet all three criticize the US government for being “socialist” and inefficient. Big Tech are the new “welfare queens,” the ungrateful recipients of taxpayer largesse.
“Less heartening are the individuals who’ve registered the greatest benefit, are the least grateful and are often the most critical: VCs who relocate to Miami and, before buying sunblock, disparage (constantly) the state they built their wealth in. Also, mega-welfare queens who cash EV [electric vehicle] subsidy checks and sell carbon credits as they mock the elected leaders who passed those laws.”
US legislators have given enormous tax breaks, via the carried interest loophole, to private venture capitalists. Instead of officials further increasing those gains, they need to better compensate American taxpayers for their investment.
About the Author
Scott Galloway is a professor of marketing at the New York University Stern School of Business.
