You don’t have to work in Silicon Valley or at the US Chamber of Commerce to think entrepreneurship is key to a nation’s economic growth and rising living standards. The Chinese government is a big fan, too. As a recent New York Times piece, “Venture Communism,” notes, “Premier Li Keqiang frequently calls for ‘mass entrepreneurship.’ In March at the National People’s Congress, he bragged that 12,000 new companies were founded each day in 2015.”
But of course Beijing isn’t going to leave everything up to the invisible hand and foot of free enterprise and competition and creative destruction. Government will be there to nudge things along. The piece highlights how the provincial capital of Hangzhou has started its own tech startup hub — with the on-the-nose same of Dream Town — where “businesses … get a slate of benefits like subsidized rent, cash handouts and special training, all courtesy of the city.”
Now this doesn’t sound a whole lot different from what a lot of American government officials think is needed to create their own mini-Silicon Valleys or innovation centers. In a 2014 Politico piece, venture capitalist Marc Andreessen describes the American flavor of the recipe this way:
- Build a big, beautiful, fully equipped technology park;
- Mix in R&D labs and university centers;
- Provide incentives to attract scientists, firms and users;
- Interconnect the industry through consortia and specialized suppliers;
- Protect intellectual property and tech transfer; and,
- Establish a favorable business environment and regulations.
But these planned, top-down approaches have a problematic history. As economist Enrico Moretti, author of “The Geography of Jobs,” has put it:
If you look at the history of America’s great innovation hubs, they haven’t found one that was directly, explicitly engineered by an explicit policy on the part of the government. It’s really hard. This is not how innovation hubs and clusters get developed. They often get developed because of idiosyncratic factors like a local firm succeeds and it starts attracting more firms like that. And this creates a cluster that then becomes stronger and stronger, and that feeds on itself.
There might be another way, however, one that involves an element of planning, but more in terms of barrier reduction than subsidies. Andreessen:
But policymakers shouldn’t be trying to copy Silicon Valley. Instead, they should be figuring out what domain is (or could be) specific to their region—and then removing the regulatory hurdles for that particular domain. Because we don’t want 50 Silicon Valleys; we want 50 different variations of Silicon Valley, all unique from each other and all focusing on different domains. Imagine a Bitcoin Valley, for instance, where some country fully legalizes cryptocurrencies for all financial functions. Or a Drone Valley, where a particular region removes all legal barriers to flying unmanned aerial vehicles locally. A Driverless Car Valley in a city that allows experimentation with different autonomous car designs, redesigned roadways and safety laws. A Stem Cell Valley. And so on.
There’s a key difference from the if-you-build-it-they-will-come argument of yore. Here, the focus is more on driving regulatory competition between city, state and national governments. There are many new categories of innovation out there and entrepreneurs eager to go after opportunities within each of them. Rethinking the regulatory barriers in specific industries would better draw the startups, researchers and divisions of big companies that want to innovate in the vanguard of a particular domain—while also exploring and addressing many of the difficult regulatory issues along the way. Why this approach? Compared with previous innovation-cluster efforts where governments contrived to do something unnatural, this proposal flows from what governments naturally do best: create, or rather, relax laws.
And it seems the city of Pittsburgh is following the Andreessen, regulatory arbitrage template as its becomes a Driverless Car Valley. The NYT documents how the Steel City became a testing ground for Uber autonomous vehicle efforts, one that currently involves 500 workers with perhaps many more to come.
There have been no public service announcements or demonstrations of the technology. Except for the mayor and one police official, no other top city leader has seen a self-driving Uber vehicle operate up close. Fire and emergency services don’t know where the Uber cars will travel. It is precisely this hands-off approach that has made Pittsburgh ideal grounds for one of Silicon Valley’s boldest experiments — and it has ignited criticism that the city is giving away its keys to Uber, which is testing a nascent technology and has a reputation for running roughshod over regulators and municipalities. “It’s not our role to throw up regulations or limit companies like Uber,” said Bill Peduto, Pittsburgh’s mayor, who said that Uber planned to use about 100 modified Volvo sport utility vehicles for the passenger trials. The vehicles will also have a human monitor behind the wheel. “You can either put up red tape or roll out the red carpet. If you want to be a 21st-century laboratory for technology, you put out the carpet.”
The mayor’s mantra highlights what it takes these days as cities seek to shed their Rust Belt pasts and transform themselves into technology hubs — essentially, give the tech companies lots of free rein. The approach, described as greenlight governing, is one that Pittsburgh and the state of Pennsylvania have nurtured over the last few years. When Uber wanted to expand its research around autonomous vehicles, Pittsburgh helped the company lease a large plot near the city’s riverfront for a testing track. When state regulators tried to ban ride-sharing services in 2014, Pittsburgh’s mayor and the state’s governor helped bat those hurdles down. Otherwise, Pittsburgh’s politicians stay out of the way. … For driverless car tests, Pennsylvania also held a legal advantage. Specifically, the state’s transportation rules did not explicitly ban driverless cars, as long as someone was behind the wheel to take over if needed. Officials from Pennsylvania’s transportation agency said they interpreted that silence on driverless technology as a green light.
Clearly, the city has other advantages, most notably Carnegie Mellon University and its expertise in robotics. Both Uber and Google have done much hiring from there. The point, though, is that Pittsburgh was able to leverage a natural competitive advantage through smart and aware government that was encouraging of innovation and jobs it can create.