How U.S. Military Spending Built Silicon Valley — and Drives Business Innovation

Defense spending has been a key driver of technology and innovation in the United States since the beginning of the Cold War, according to Yale Insights.

“Silicon Valley’s early growth in the 1950s and ’60s came largely through Cold War defense spending, well before venture capital developed as an industry, Bracken noted. Nuclear arms are the iconic weapons of the Cold War, but, Bracken emphasized, it was the need for electronic intelligence that drove much of the R&D work. That led to a range of technologies including the integrated circuit, which opened the way for computers, satellites, and effectively every piece of electronics in use, whether military or civilian.”

“The end of the Cold War coincided with the information technology boom. As the big defense contractors consolidated, the Pentagon grew concerned about reduced competition and reduced innovation. As Bracken explained, a new focus on channeling some spending through startups and smaller firms coincided with a realization that neither the large defense firms nor the Department of Defense had the full range of in-house skills and expertise required to do the R&D and testing of the complex, interlocking systems moving through the pipeline.”

“That change accelerated after the attacks of September 11, 2001, when both the funding and sense of urgency grew tremendously. Thousands of small defense-funded firms popped up, many of them clustered in a new hub.”

Yale professor Paul Bracken explains the link in a fascinating lecture.

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