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Silicon Valley doesn’t seem too popular these days in Washington. Yet government planners in just about every place that has a government would love to replicate Silicon Valley. Since 2011, California has grown twice as fast as the rest of the nation, helped by white-hot 6% annual growth in the San Jose area — home to the actual Silicon Valley, according to JPMorgan. But what’s the secret sauce? What’s the right recipe? No one seems to know, exactly. But policymakers seem to have settled on what economist Ian Hathaway calls the More of Everything theory (which I would like to believe is a Seinfeld reference). It works like this, Hathaway explains in a blog post:
More of Everything thinking goes something like this: if we just get more of everything, we can create a vibrant startup community . . . more capital, more innovation centers, more accelerators, more incubators, more university programs, more startup events . . . more, more, more. It follows linear systems thinking whereby an increase in critical inputs (resources like capital and talent) results in an increase in desired outputs (startups, value creation), and by how much.
Except, as Hathaway adds, there is research suggesting the MoE theory doesn’t actually work. It’s not that all that stuff doesn’t matter at all, it just isn’t what really matters most. Hathway:
Overall, what appears to matter most is a density of smart people of prime entrepreneurship age (mid-career) with an orientation towards entrepreneurship and the pursuit of enterprise in knowledge-intensive activities — plus a bunch of other stuff that we aren’t measuring very well in a systematic way (namely, network and culture).
Yeah, I am long on culture and networks. As to the first, whenever I chat with someone about why Europe seems to have less entrepreneurial dynamism than the US, “culture” almost always quickly enters the conversation. As Frenchman Nicolas Brusson, co-founder of BlaBlaCar, wrote in the Financial Times awhile back explaining America’s edge, “The confluence of a large pool of capital, world-class talent, vibrant support infrastructure and a risk-loving culture has bred a self-fulfilling cycle of innovation and entrepreneurship.” Then there are networks. As I wrote Friday in a book review of “Why Information Grows: The Evolution of Order, from Atoms to Economies” by MIT’s Cesar Hidalgo:
Countries with less computational capacity might only be able to produce commodities or simple products. They are less able to create the physical objects that embody and accumulate information, what Hidalgo calls “crystals of imagination.” Hidalgo argues that what separates national economies that possess high computational capacity from the ones that don’t are the size of social networks, themselves partially dependent on the level of trust in a society. Hidalgo: “So the social and economic problem that we are truly trying to solve is that of embodying knowledge and knowhow in networks of humans.”And by doing that, we can distribute and expand our computational capacity and help information grow — and our economies, too….
As I see it, then, pro-growth policies are pro-connection policies that help more humans more easily acquire and communicate knowledge over large networks. (Markets are good at encouraging this.) Bridges good, barriers bad. Supply chains good, tariffs bad. Also good: Policies that make it easier to move to and live in high productivity cities and regions. Also bad: non-compete agreements and overly burdensome occupational licensing rules.
Silicon Valley offers a big, deep, and dense network that you can’t quickly conjure up with a subsidy here or tax tweak there. It’s generally more organic than that. Unless, perhaps, Amazon drops its second HQ right in your neighborhood. Anyway, let me end with Hathaway:
Many people look to the example of Silicon Valley as something to be re-engineered at home, failing to adopt the right lessons. To begin with, the individuals responsible for the creation of Silicon Valley didn’t set out to build the world’s most innovative region — it emerged because of what they were doing, or more to the point, how they were doing things. What differentiated Silicon Valley from everywhere else at the time was a bottom-up culture of openness, collaboration, and a commitment to the region over individual people, companies, or institutions. In other words, what made Silicon Valley was behavior, mindset, and seeding the environment for an innovative system to emerge — (most) everything else came later, and there was no central plan to make it all happen.