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. icon
    PaulT (profile), 11 Jan 2012 @ 1:48am

    Re:

    "Some of the biggest names in the techonology sector only employee a few thousand employees."

    Only if you consider the direct employment and not the knock-on effect across the economy.

    Facebook, for instance, have proven to be a very valuable services for advertisers and other services - such as Zynga, an employer of 3000 people who have very much been a success due to Facebook. Its success has been mirrored by other services like LinkedIn, which while having under 2000 employees is used extensively for business in the non-tech sector.

    Google have also been a great help to other companies in many ways - not only search and other marketing services, but also providing inexpensive mail, document apps and other services that help even non-tech sector companies grow. All of these services are in turn dependent on companies like AT&T and Verizon for people to access them, and other companies are dependent on their mobile services to do business. The effects of these companies on employment and GDP stretch well beyond what they directly produce or employ.

    Also, "Rovio the makers of Angry Birds"... are based in Finland, so they're not really relevant to a discussion of US job creation - though their success is definitely an example of foreign startups being competitive against the US.

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