Tuesday, April 1, 2014

The Entrepreneurial State -- Is Apple "dependent on the public purse"? Part 1

This post deals with The Entrepreneurial State, a book by Mariana Mazzucato. See this post for an introduction.

Apple computer is the primary corporate example used by The Entrepreneurial State so it seemed reasonable to examine Ms. Mazzucato's claims about Apple and state funding. In particular, page 11 states that Apple "requires the public purse". In this post I examine the claim that Apple was state supported early in its existence..

The claims about Apple and government funding early in Apple's existence as a corporation are on page 94, "From Apple I to the iPad: The State's very visible hand". This section begins with some general statements about Apple turning state financed technologies into products, then goes on to claim that personal computing was made possible by various "public-private partnerships established largely by government and military agencies". This essentially claims that all computer, integrated circuit, etc. technology was dependent on the government. I'll leave these claims to another post as they will take a fair amount of space and because they don't apply specifically to Apple, rather to all technology companies.

The first specific claim of government support for Apple is that Apple secured a $500,000 equity investment via the Federal government's SBIC program prior to its IPO in 1980. A bit of investigation finds that yes, Apple did secure this investment, though it isn't clear that Apple had any idea there was government involvement (see The Little Kingdom by Michael Moritz, p. 220). Let's look at this money in more detail.

First, what is the SBIC? It stands for Small Business Investment Companies, and as the name implies, SBIC funding is made available through private companies. These companies are licensed by the government and invest using a combination of their own money and money provided by the government through the Small Business Administration. Note that SBIC money is for any type of small business. Companies such as Federal Express and Costco received SBIC money, as have other technology companies. Note that the government doesn't choose the companies which receive SBIC investments, that's done by the SBIC licensed investment companies.

In the summer of 1978 Apple Continental Illinois investors asked about investing $500,000 in Apple. This is the SBIC money. So Apple did receive government money. But was it "dependent" on this money? In January of 1978 Apple raised over $500,000 from private sources, and later in the year received at least one other investment of $100,000 (The Little Kingdom p. 219-200). In the year ending September, 1978 Apple had sales of almost $8 million, a profit of almost $800,000, and total assets of over $4 million. While the SBIC money of $500,000 was certainly useful to Apple, this was not a company desperate for money. The company was profitable and had numerous big name private investors putting money in.

So in summary:

  • Private investors had been putting money into Apple all along.
  • Apple was profitable throughout this period.
  • Apple was growing rapidly (sales were about $800,000 in 1977, $8 million in 1978, $48 million in 1979), with profits each year.
  • One investor, partially government funded, put money into Apple, at most 40% of the money Apple raised in 1978.
So is this the Entrepreneurial State? Or did one group of private investors use government money and guarantees to reduce their risk and increase their profits by investing in Apple?

Personally, I think this is more an example of a government subsidy to private investors than the State being entrepreneurial.


No comments: