At the end of an interesting post about the changes in the American economy during the latter half of the 20th century, Dane Stangler has an interesting aside about the role of the military in the early development of Silicon Valley. He notes that the Silicon Valley started out as a hub for defense contractors and only later became a center for the private semiconductor industry and (still later) for the software and Internet industries. Stangler suggests that a city looking to become the next Silicon Valley might want to view military spending as a key driver for regional growth. He’s right that the military was crucial to Silicon Valley’s early growth, and of course it never hurts to have the military creating jobs in your city, but I’m not sure a city today could repeat Silicon Valley’s route to high-tech prominence. A big reason the military was so important to Silicon Valley’s early development was that a lot of the technologies pioneered there were so expensive that only the military could afford them. Silicon Valley firms were building radars, guidance systems, communications systems, and other stuff that was totally out of reach for ordinary consumers. And the Internet, of course, started its life as a military research network because each connection cost tens of thousands of dollars. But prices dropped steadily, and eventually, Silicon Valley firms created commercial spin-offs that became cheap enough that ordinary consumers could afford them, and the rest is history.
Today, private capital markets are a lot deeper and the consumer market for high-tech products is a lot larger than it was 50 years ago. As a consequence, the military just isn’t as important to the semiconductor and communications industries as it was a few decades ago. The military still spends a ton of money on high-tech toys, but private firms also spend billions of dollars on R&D, and their spending is more squarely focused on consumer and business markets. Smart technologists don’t have to chase military contracts, they can raise capital and go straight for the consumer market. Of course, it’s entirely possible that the military is currently incubating some other category of technology that will become an important private industry in the coming decades. But if you want your city to become an important center for the IT sector, luring military contractors to your area is probably not going to do it.
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