The hypocrisy in Silicon Valley's big talk on innovation - SFGate

In the fall of 2011, Max Levchin took the stage at a TechCrunch conference to lament the sad state of U.S. innovation.

"Technology innovation in this country is somewhere between dire straits and dead," said the PayPal co-founder, later adding: "The solution is actually very simple: You have to aim almost ridiculously high."

Late last month, Levchin began his latest venture, Affirm, which lets consumers buy things online using their Facebook profile. That follows his previous business, Slide, a photo-sharing service that also allowed people to take care of their virtual "SuperPoke! Pets."

Neither, it's fair to say, is exactly the moon shot of our age.

But Levchin's example illustrates a larger truth. Silicon Valley loves to talk big about innovation; it's just not as good at following through.

In fact, "innovation" is something of a magic word around here, shape-shifting to fit the speaker's immediate needs. So long as semiconductors and coding are involved, people will staple it to anything from flying cars to the iFart app.

Other times it's just code for "jobs," used to justify asking for government favors one day and scolding them for meddling in the free market the next.

"Lower our payroll taxes because ... innovation."

"Drop that antitrust inquiry because ... innovation."

But for all the funding announcements, product launches, media attention and wealth creation, most of Silicon Valley doesn't concern itself with aiming "almost ridiculously high." It concerns itself primarily with getting people to click on ads or buy slightly better gadgets than the ones they got last year.

Time to drop the pretense

That's fine, that's capitalism - and these incremental improvements lead to slow productivity gains that at least quicken the pulse of economists. But maybe let's drop the pretense that we're curing cancer unless, you know, we're curing cancer.

Levchin specifically took the stage that day to discuss his forthcoming book on the subject, "The Blueprint: Reviving Innovation, Rediscovering Risk and Rescuing the Free Market." One of his co-authors was venture capitalist Peter Thiel, who joined him in the appearance.

The description for the (now very delayed) title notes: "We have become a risk-averse society, hobbled by tort laws and government regulations, short-term financial thinking, and mind-numbing complacency."

That all sounds about right, but based on other public comments - particularly from Thiel, an outspoken libertarian - the weight of their blame seems to land on government while the grand hopes lie in "Rescuing the Free Market." That conforms to a growing view in Silicon Valley that government is the archenemy of innovation.

But when we stick to the definition of solving the really hard problems of science and technology, the scale just as easily tips the other way.

Rewarding profits, not risk

It's fairly obvious the region's business culture and investing philosophy - that is to say, the free market - often doesn't reward the kind of "deep innovation" Levchin and Thiel trumpet.

The media attention doesn't go to pasty scientists working tirelessly on something that maybe, might, someday change the world, it goes to the fresh-faced entrepreneur with the game trending in the App Store.

Venture capitalists are eager to cash out on their investments in as few years as possible, which requires products ready to ship and stable financial track records. And the public markets don't reward big risks; they applaud predictable growth.

Long-term thinking

But these aren't free market aberrations brought on by regulations. They're the invisible hand of capitalism itself: reaching out for quick gains while avoiding as much downside risk as possible.

Private markets are loath to put up the billions of dollars and patiently wait a decade or more, yet that's precisely what's needed to develop breakthrough drugs, disruptive clean energy technologies or that new, new thing you and I can't yet imagine.

In fact, it's increasingly what's required for real advances.

An Economist article this year exploring the state of innovation noted that centuries of scientific progress means it takes ever longer for people to reach to the frontier of any field, much less push past it. It also stressed that much of the technological low-hanging fruit is long gone.

"Turning terabytes of genomic knowledge into medical benefit is a lot harder than discovering and mass producing antibiotics," the magazine said.

That's not to say there aren't some local individuals and enterprises reaching ridiculously high. Elon Musk's efforts to commercialize space travel with SpaceX comes to mind. So do Google's self-driving cars and Autodesk's efforts to develop design software for printing human tissues - and perhaps one day organs.

Government's role

Thiel is at least putting his money where his mouth is at Founders Fund, his venture capital firm making investments into robotics, artificial intelligence and biotechnology (alongside a lineup of dot-coms).

But these are the exceptions in a market still obsessed with social networks, apps and smartphones, and it remains to be seen whether the market will ever reward their efforts.

None of this argues for government keeping its nose out of the business of innovation, it makes the case for it taking a leading role - for leveraging its unique position to address these obvious market failures. Only governments had the long view and available cash to fund things like supercolliders, deep space programs and - oh yeah - the development of the Internet.

The tragedy is the United States has defunded many such ambitious research efforts in recent years, amid a climate of deficit paranoia, antitax rhetoric and general government bashing - sometimes by the very people who made fortunes off its creations.