Is America Losing Its Startup Edge?

from the not-good dept

We've talked, in the past, about the paradox of job creation by the government. Too often the government acts as if "job creation" is about propping up or subsidizing big companies, hoping that they'll hire lots of people. And, intuitively, you can see the appeal there for two reasons. First, it's much easier to think that Giant Telco A will likely hire another 5,000 workers to dig ditches if the government gives them a bunch of money, than it is to think that random startup A will hire 5,000 people. Second, often the disruptive innovations that actually do create economic growth and jobs comes at the expense of legacy companies in older industries. And the fear there is always job losses. So, some new startup comes along with a technology that makes life more efficient and makes stodgy old legacy company obsolete... and upfront you're going to see job cuts at the legacy company, even if the end result is many more jobs (and greater economic efficiency).

But the truth is that if the government wants to really create new jobs, it needs to support the startup ecosystem. Research from the National Bureau of Economic Research (NBER) and the US Census Bureau last year found that startups really are the key to both gross and net job growth. So if the government really wants to encourage economic growth and new jobs it should be focused on making sure the startup ecosystem is strong and vibrant. Unfortunately, that doesn't appear to be the case. When we see proposals like SOPA, which will hinder startups by placing tremendous liability on them and scaring off investors, we get worried.

Already, the situation isn't great. While the US certainly has the reputation for being friendly to startups, Aaron DeOliveira, points us to a report that shows that the US is actually 23rd on a list of startups per working-age population within countries that are members of the OECD. Even France is ahead of us.

This does not bode well for the US economy or for job growth. For innovation to thrive, we need the creative destruction and economic and job growth brought about by startups and entrepreneurs. We don't get that when the government is "captured" by the large legacy players who are only focused on "protecting" and defending their turf, rather than fostering innovation, growing the economy and creating jobs.

Filed Under: america, innovation, jobs, startups

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  1. identicon
    Anonymous Coward, 10 Jan 2012 @ 6:05pm


    Short Answer: No.

    Long Answer:

    I was a player in the Silicon Valley Start-up Game for over a decade. The last "boom" decade. Have been living abroad for some years since then. America, more specifically California, still crushes the world when it comes to "start-ups". Much of it has to do with cultural issues that would take generations to change, elsewhere. If they could. And those cultural issues feed right into the start-up mentality and it's matching VC environment.

    Other countries are considerably "risk adverse" and over-regulated compared to the US.

    I used to think that the over abundance of law suits was a bad indicator. After living and working abroad (still in the start-up space - tech, energy, etc.) I see those lawsuits as a positive indicator. My reasoning goes like this:

    Innovation takes place in the grey areas. The gaps. Basically, market space that has not been defined, staked out, and/or regulated into the ground. Lawsuits will natural play heavily in that space, due to a lack of regulations and legal precedence, which is such an important aspect (perhaps too much) in British derived legal systems. DOn't get me wrong. It's the best system in the world, so far. But a lot of lawsuits tells you that the "wild west" innovation stage is coming up to an end. It tells you that the market space *matters* and the major players are attacking each other and shoring up their defenses.

    In most countries, the governments immediately stamp out those lawsuits through regulation. Mostly to save the court costs with the claim that it's about making the playing field level. Its not. It's heavily skewed to the first to market companies. However, that reaction also prematurely ends the innovation stage. That "premature" regulation essentially freezes the market in it's current conditions, which almost certainly are not as optimal as if they had been allowed to progress a few more years.

    The US, with it's very laissez-faire attitude manages to let innovation markets continue longer than other countries, before they're locked down. Which allows those markets to mature into more optimal setups. It's a matter of small degrees having very large results. The difference between the US and other countries doesn't seem like much. But, given the size of the US, it translates into huge returns.

    The fact that markets mature quicker than before seems like the trend is more lawsuits sooner in the market cycle. But it's not. it's an illusion caused by the fact that modern market cycles are just a lot shorter than they used to be.

    Which probably says that the length of copyright and patents needs to be tuned a bit downward, in order to spur innovation. Possibly, they need to be turned back to about post WWII standards, which spurred a multi-decade boom.

    Bottom line: I'd put the California start-up environment several orders of magnitude ahead of any other country. Sure, you can always find exceptions. But embed yourself for a few years in the respective start-up environments and you'll see: cali still crushes the world. Add to that a liberal social environment. Most truly creative people are outside of the norm. Sometimes, substantially. Pretty much by definition. Finally, the weather. It never really sucks in cali. And the occasional earthquake keeps things lively and every few hundred years clears the slate. :)

    I miss it. VC money is *so* easy to come by there...

    The "US is 23rd" is, I suspect, a kind of statistical misdirection. US start-ups account for vastly more money, which is what the economy needs. How many other countries have start-ups the size of Google? Or Facebook (once they go public and the company has an actual market value)? Why are companies like that started in the US? Because they *can* be. Facebook would have been squashed by the EU, upon the first privacy complaint. Google as well.

    Seriously. Live the start-up life in multiple countries and you'll see.

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