Guest Opinion: Roger Stough

'Twas Uncle Sam That Spurred Beltway Boom

By Roger Stough

With each announced merger or initial public offering involving technology firms, praise is heaped upon the entrepreneurs who, in less than a decade, turned the Washington region into a world-class technology center. But what the celebrants tend to overlook is the debt this transformation owes to historically close bonds between the region's private sector and its silent partner, Uncle Sam.

The seeds of Washington's new technology economy did not sprout in isolation. They were planted and nurtured in the early days by federal employees and funds to achieve strictly public goals. Only later did these technologies drive the commercial development we see around us today.

This change took place in three acts as the region evolved from a one-industry town in the 1950s to a leading information technology center in the 1990s.

Act One: Building new infrastructure ? As the Cold War intensified, military leaders worried about the survivability of their command and control links with far-flung strategic forces in time of nuclear war.

To fill this gap, the Army Research Programs Administration and the National Science Foundation developed a number of electronic networks, including the Advanced Research Project Agency Network, better known as Arpanet. Initially a 17-node network, Arpanet broke messages between military bases into small pieces and sent them independently along various telephone lines to their destinations. If one route was blocked, they would be rerouted automatically until reaching their destinations.

These military networks were the incubators for today's Internet, and by the 1970s, the Washington area served as their epicenter. As the Internet spread beyond the Defense Department, the telecommunications infrastructure linking government offices, local federal laboratories along the Interstate 95 and I-270 corridors and local contractors grew more and more robust.

Act Two: Outsourcing of defense technologies ? Starting with the Reagan administration's defense buildup in the early 1980s, federal spending in the region's technology sector increased dramatically. Defense spending in the region focused on military technology, especially electronics, software design and systems management.

Many have forgotten, however, that another Reagan-era policy ? farming out government work to private companies ? contributed even more to the growth of the region's technology sector. Through outsourcing, Washington area technology companies won large defense and non-defense contracts for the design and management of complex systems.

In the late 1980s, as the region became a leading systems design and integration center, government vendors expanded into the commercial arena. In 1980, technology jobs accounted for only 11 percent of private-sector employment in Northern Virginia. Today, that figure is 22 percent.

Act Three: Private-sector Internet growth ? In the late 1980s and early 1990s, emergence of the Internet triggered additional telecommunications infrastructure investments throughout the capital region, and this, in turn, accelerated the development of private firms, such as Network Solutions Inc., a leading Internet address registration authority.

By the 1990s, Washington enjoyed a competitive advantage over other technology regions. Homegrown companies, such as America Online Inc., began to attract other firms selling Internet-related products and services. Established telecommunications firms, such as MCI WorldCom Inc., expanded. Today, more than half of global Internet traffic is handled or managed by companies in this region.

The takeoff of Internet-related businesses has evolved as a largely commercial activity, unlike the government-dominated systems integration boom of the 1980s.

More importantly, in the 1990s an entrepreneurial culture took root in Washington, a culture that will sustain our continued growth. Until about 1990, too many start-up companies were chasing too little investment capital. Today, the reverse may be true. Some observers report available investment capital in the region now exceeds the opportunities.

Regionwide, government spending still is high, accounting for about 50 percent of our economic activity. But alongside this we find a healthy entrepreneurial community clustered around the Internet and e-commerce applications.

The region's ability to diversify beyond government services would not have happened without government decisions to expand defense communications capabilities and to outsource the technologies and services that evolved into today's Internet. While these decisions may have been made independently, their combined effect permanently changed our region.

Public policies will continue to play an important role in the developing e-economy. And the Microsoft case is a reminder that even high-tech entrepreneurs who ignore Uncle Sam do so at their own peril.

Roger Stough is the NOVA Endowed Professor of Public Policy and director of the Mason Enterprise Center at George Mason University, Fairfax, Va.

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