Can Government Cook Up Another Silicon Valley?

 

Apple campus, Cupertino, CA. | Shutterstock.com

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.

Published in Culture, Economics, Technology
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  1. RushBabe49 Thatcher
    RushBabe49
    @RushBabe49

    No.  Government cannot create anything.  Government just taxes and slows things down.  Want more entrepreneurship?  Get less government.

    • #1
  2. TBA Coolidge
    TBA
    @RobtGilsdorf

    Oh, for [CoC]’s sake, what a [Redact]ing pile of steaming [Inoperative]. 

    If companies want to get together, and pick an affluent area and make it even more affluent in hopes that someone there will invent the next ‘age’ then they are welcome to do so, but it’s not likely to have any affect except the affluent part. 

    Government is is already busy pumping money into low-income areas and failing to make them more affluent; they only have so many trillions of dollars to waste at one time. 

    • #2
  3. Stephen Bishop Inactive
    Stephen Bishop
    @StephenBishop

    RushBabe49 (View Comment):

    No. Government cannot create anything. Government just taxes and slows things down. Want more entrepreneurship? Get less government.

    Are you saying China has less government?

    • #3
  4. genferei Member
    genferei
    @genferei

    Stephen Bishop (View Comment): Are you saying China has less government?

    Certainly it has ‘less’ than it had before.

    • #4
  5. Seawriter Contributor
    Seawriter
    @Seawriter

    Years ago, in the 1990s,  I did some economic development work. What we found was that for a community to “create”  a Silicon Valley, it should:

    • Have a computer-literate population
    • Be reasonably close to transportation (Interstates, railroads, airport, and information transfer – read high speed data connections for the last, relatively rare in the 1990s)
    • Possess a nearby institute of higher education with good technology departments
    • Have a reasonable regulatory and tax structure (read business-friendly)
    • Have reasonable housing prices
    • Be reasonably near recreation facilities (tech people have disposable time and money to spend on leisure activities)
    • Have an attractive landscape. 

    Not all of these were necessary, although the first four were the most important, and the more you had the better off you were. Pro-growth policies proved mainly common sense and getting out of the way of businesses – not providing tax incentives or set-asides.

    • #5
  6. Eridemus Coolidge
    Eridemus
    @Eridemus

    It’s hard for me to imagine that this ever crossed anyone’s mind at the start:

    a commitment to the region over individual people, companies, or institutions

    That sounds more like a government vs. competitive enterprise type of angle.

    • #6
  7. Travis McKee Inactive
    Travis McKee
    @Typewriterking

    Folks are being too doctrinaire to admit that the Morrill Acts kind of did succeed at this, as most towns with a land-grant college are pretty vibrant. 

    And, will his War on Poverty was largely counter-productive, we are again being too doctrinaire not to recognize some good in LBJ-era NASA institutions setting up shop in Houston and Huntsville. Towns like Oak Ridge and several New Mexican towns doubtlessly experience a glow from the Manhattan Project. 

    Now, we’d see a lot more dynamism in these towns if researchers were launching their own products, I reckon. Entrepreneurship is integral to fueling the dynamism we’re talking about. 

    • #7
  8. David Foster Member
    David Foster
    @DavidFoster

    Future ‘Silicon Valleys’ are unlikely to happen as a result of government or ‘community’ planning.  Instead, they will happen because entrepreneurs, Angels, and VCs will establish new businesses in places with less-ridiculous cost structures and perhaps less intellectual group-think as well

    Steve Case has a seed fund focus on investments which are *not* in Silicon Vally (or NYC, or Boston)

    https://venturebeat.com/2018/02/14/steve-cases-rise-of-the-rest-fund-makes-first-investments-adds-investors-reid-hoffman-megan-smith/

     

    • #8
  9. Theodoric of Freiberg Member
    Theodoric of Freiberg
    @TheodoricofFreiberg

    James Pethokoukis: ….there was no central plan to make it all happen.

    This, the last part of the last sentence, is all you need to know. You can throw out everything else.

    When are people finally going to figure out that economic central planning has never worked, won’t work now and will not work in the future? It just doesn’t work. End of story.

    • #9
  10. Unsk Member
    Unsk
    @Unsk

    James, the present Silicon Valley should not be the model for growth in innovation or industry. It is not what it once was. 

    There are three prerequisites for developing areas that innovate and create jobs:

    1.  One needs a reasonable regulatory regime that allows growth and industry  to happen in a timely and inexpensive way.  
    2. One needs a capitalistic free market economy and banking system where capital flows easily and promptly to  promising start-up companies seeking to grow, innovate and create jobs.  
    3. One needs inexpensive land  generally on the periphery on our great cities with  developed scientific and manufacturing  capabilities that are easily accessible to all parts of that urban area  and where  there will be ample, affordable industrial  buildings and housing units to  support  growth with room to grow. 

    Silicon Valley once met all three criteria. Now it meets none.  The LA Metro area which led the nation in job creation, manufacturing base and innovation before Silicon Valley once met all three criteria.  Now it too meets none. 

    Central to all three prerequisites is money.  The ability to start a business and operate with very little money. The ability to attract investment monies  and to gets loans. The ability to rent or buy operating facilities  with very little money and too attract well qualified people in areas where the cost of living is low enough so companies are not required to pay too much to keep them. 

    Many  of our industrial and innovation giants were started on a shoe-string budget. Apple and Hewlett Packard in Silicon Valley come to mind, but there are oodles of others.  It is questionable if todays economic conditions were in place decades ago when those companies were forming whether those  companies would exist today.  It is probable that much of America’s innovations we take for granted now might not have happened at all if we had allowed our government to run amok as it does now then.

    • #10
  11. RushBabe49 Thatcher
    RushBabe49
    @RushBabe49

    Money, brains, and Liberty are all you need.

    • #11
  12. I Walton Member
    I Walton
    @IWalton

    Good article, interesting subject.  It just emerged because of circumstances that existed then and still has inertia, but even it’s powerful momentum can be quashed and ultimately the quashers are likely to win.

    • #12
  13. SecondBite Member
    SecondBite
    @SecondBite

    Unsk (View Comment):

    There are three prerequisites for developing areas that innovate and create jobs:

    1.  One needs a reasonable regulatory regime that allows growth and industry to happen in a timely and inexpensive way.
    2. One needs a capitalistic free market economy and banking system where capital flows easily and promptly to promising start-up companies seeking to grow, innovate and create jobs.
    3. One needs inexpensive land generally on the periphery on our great cities with developed scientific and manufacturing capabilities that are easily accessible to all parts of that urban area and where there will be ample, affordable industrial buildings and housing units to support growth with room to grow. 

    These exist in dozens of places right now.  The critical requirement is an idea or set of ideas that receive positive economic reinforcement, generating a self sustaining cycle.  The genesis of Silicon Valley was the idea of putting computing power in the hands of the general public and there were enough corporate refugees and collegiate rebels to make it happen.  The enormous wealth that has been generated is almost a side effect.  You can’t make that happen.

    • #13
  14. TBA Coolidge
    TBA
    @RobtGilsdorf

    It comes down to this; stop eating the seed-corn. 

    • #14
  15. Unsk Member
    Unsk
    @Unsk

    “These exist in dozens of places right now.”

    Two of the three perhaps- in a few Red States but the specter  of the Federal Regulatory monster still looms very large.   Access to capital for start -ups- one big fat NOT!

    Typically banks will only loan now to companies with a minimum of two years of profitability.  Start-ups are SOL. Thanks Dodd Frank! and Dodd Frank jr! , plus all the nuances the FED, Congress and the SEC have imposed.  Also, other investments and sources of capital like commercial real estate have often unreasonably had their loans pulled, so as to limit capital from other sources. Investment money too has become very difficult to get  except for some trendy app.  There are many entrepreneurs in Silicon Valley, not just elsewhere, looking desperately for capital.  America is no longer really a capitalist nation; we now have a wonderful managed economy where other politically correct and politically connected factors mean so much more.  Capital in America no longer flows to where it will do the most good; it flows to those connected to the right people with the right political affiliations, in the right endowed places now . The corrupt Crony Capitalists and Socialists of DC have made sure of that. Pay to Play Baby!

    Unfortunately, Capital is all too available overseas with the price of setting up shop there.

    • #15
  16. OccupantCDN Coolidge
    OccupantCDN
    @OccupantCDN

    No.

    The government can not regulate spontaneous innovation into existence. It does the exact opposite. Its regulations destroy innovation.

    Every time some government tries to build a innovation incubator, it fails the moment that subsidies are withdrawn. Western governments cant master state capitalism – and is even worse at venture capitalism. (how well does China do at state capitalism? We dont know – because there is no criticism of failures of the government)

    • #16
  17. TBA Coolidge
    TBA
    @RobtGilsdorf

    The best thing government can do is excuse itself completely from any aspect of the process. 

    • #17
  18. Duane Oyen Member
    Duane Oyen
    @DuaneOyen

    Sure, government can create the circumstances that make a Silicon Valley possible, in effect “create a Silicon Valley”.  It takes a pile of cash invested over a long time, and willingness to remove regulatory barriers that get in the way.  In the case of North Carolina’s RTP, it took aboput 30 years and uncountable amounts of investment.  In Boston and Palo Alto, it occurred more organically (and with regard to medical devices in Minneapolis, it took mostly luck).

    The problem is that most of the time, a) it takes too long for a particular politician to benefit, plus they try to steer investment to the connected rather than the competent (see Cuomo and upstate NY), b) the piles of cash investment require too much time for the payoff to be visible so the cash flow stops early, and c) it isn’t worth it; the cost-benefit ratio is a loser.

    But given enough time and cash, you can do almost anything as long as government doesn’t get too involved in picking the winners. 

    • #18
  19. Matthew Singer Member
    Matthew Singer
    @MatthewSinger

    There are plenty of cities that have excellent colleges.  What they don’t have is the CA lifestyle and landscape that people in their 20’s seems to want.  I’ve been in computing for 35 years.  You couldn’t pay me enough to move to Silicon Valley even though I almost did a couple of times in the early 90’s.

     

    • #19
  20. Unsk Member
    Unsk
    @Unsk

    “What they don’t have is the CA lifestyle and landscape that people in their 20’s seems to want.”

    Actually what is hard to duplicate is  the California Dreamer or the belief  in California that anything is possible.

    We  Californians have always been into what others might consider crazy ideas – and that goes back even to the Indians that were here first.  The Indians around LA only were hunter gatherers for about half a year – that was more than enough to survive – and they then  played around the rest of the time dreaming up crazy stuff.  They were protected by high mountains and hundreds of miles of desert from outside Indian attacks that were so prevalent and threatening in the rest of the country.  But it was the easy climate that allowed  what others might call slough that cultivated the crazy ideas, and it is still does today.  The fact is crazy ideas lead to innovative ideas. In design  there are no crazy ideas.

    • #20
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