President Obama last night had dinner at John Doerr’s house in Silicon Valley and for some reason I wasn’t invited. I wish I had been. Can you imagine Obama making small talk with Steve Jobs? This is an instance where Steve’s lack of an internal censor probably served the event well, or at least I hope it did, because when it comes to the dinner’s goal of stimulating innovation in America every Administration from any political party needs all the help it can get. I should know, because I’ve been working a bit with those White House would-be innovators, trying to get them in the right groove.
Remember Startup America is the name of the TV series on tech startups I’ve been making for most of the last year. Startup America is also the name of the recently-announced White House initiative on entrepreneurship. Interesting coincidence or brand hijacking?
It was, of course, just an interesting coincidence but I used it as an excuse to accuse them of brand hijacking. Wouldn’t you? So we’re literally moving toward the White House getting an IP license from me. I am not making this up. And it also means they are listening ever so slightly to my advice, because my Startup America is 14 months older than their Startup America and we’ve learned many lessons along the way.
So if you’ve been wondering what’s up with the Startup Tour and Startup America, this is the first of at least three announcements coming this week and next that will explain the next phases for both. Today’s announcement is that I am advising the Obama Administration on this topic. Weird, eh?
Here’s the sort of advice I am giving. There’s a great temptation if you have dinner at John Doerr’s very nice house to buy-in to the Silicon Valley innovation model — to attempt to replicate that in other parts of the country possibly with government assistance. But having visited tech startups in 20 states last year I can say with some conviction that it often won’t work, because the Silicon Valley startup ecosystem isn’t the American startup ecosystem.
This is the Silicon Valley innovation model: 1) get a bunch of really smart people and think up ideas for technology startups; 2) choose a dozen of the best ideas and throw some significant money at them for 6-12 months, and; 3) at the end of a year throw even more money at the two surviving ideas knowing that one of those will also be dead before its second birthday. Brainstorming–seed funding–A-round–success, and of course bloodshed along the way — simple as that.
This model works well in Silicon Valley, where everyone knows people who have worked for eight different companies in the last eight years. But for most of America the model doesn’t work well at all. That’s for three reasons:
1) There often isn’t enough technical talent or if there is, that talent is more risk-averse (or less cocky) than the Silicon Valley crowd.
2) There definitely isn’t enough risk capital outside hotspots like Silicon Valley, Boston or Austin or a few other places that are comfortable with a 90+ percent failure rate. Try that argument down at the bank.
3) The strongest difference between Silicon Valley and real America when it comes to tech startups is how the original idea comes to be. In Silicon Valley you decide to start a company then look for ideas. In real America you have an idea that eventually becomes a company.
That third difference may not sound like much but it is critical. Silicon Valley is a boomtown where everyone is looking for the next vein of gold. In the real America founders more often come up simply with ideas they love that morph over time into products. But since no accelerated, laser-zapped, steroid-boosted in vitro fertilization is involved, these ideas take longer to mature than they would be allowed in Silicon Valley, where success is measured in months, not years.
This doesn’t make provincial ideas any worse than Silicon Valley ideas; in fact they are often better. Nor does it mean those ideas go through more or less evolutionary steps on their way to eventual product maturity. Ideas are ideas. But not all ideas are also dreams, and most startup founders outside Silicon Valley are living the dream that is their technology, not the dream that is their startup.
The result is that companies outside of Silicon Valley start slower and grow both slower and more cheaply. Our Startup America companies were an average of six years old and had gone through in those six years an average of $40,000. Time is money, think about it. To do the same job in one year would have cost $240,000. To do it in six months would have cost $480,000. That’s Silicon Valley kind of money, but six-year, $40,000 money is Uncle Phil money.
So here’s the advice President Obama definitely didn’t get last night at John Doerr’s house. Replicating Silicon Valley in other places usually won’t work. Accelerating innovation isn’t the same as nurturing innovation. Debt financing is close to useless for startups (only ONE Startup America company used debt financing that wasn’t a home equity loan or credit cards). Friends-and-family money is key so find ways to encourage it, though that may not really make a difference. Slow nurturing builds good products, too, so don’t assume that a five year-old startup is a failure or penalize it simply for being five years old.
People who are doing what they love are generally doing good work.
First!
Question: has Obama appointed a secret Czar of Innovation To Save America? Is that whom you are “guiding?”
Two problems here — secret and Czar. It would be really hard (and likely illegal) to stimulate innovation in secret. And even if you could do that, I doubt that the activity would be very Czar-like. Innovation by edict doesn’t work. You can throw money at them but you can’t make people innovate. So the actual programs tend to be more subtle, attempting primarily to take friction out of the system.
Agreed. When people throw money at a company, its more often for the known quantity, the “me, too” projects that are clones of existing successes that can themselves only be successful if the market is sufficiently large, or the original products monopolization of the field can be painted as a bad thing (which is how the various other companies are attacking Apple these days).
With exception of fraud, any U.S. investment in companies for “innovation” needs to be with the very same no-strings-attached policy* that NEA grants have (and is why so many anti-government types hate the NEA). You can’t predict what it is that clever people can come up with when they don’t have to worry about selling something right away just to eat.
*excepting instances of fraud, of course.
Although there is plenty of innovation in the work produced by government contracts for the military, but more and more those contracts are such that the smaller companies that produced work can’t survive on them, then they get swallowed up by the larger companies that tend to throw the innovative work away (wanting just the people, not the ideas) or patent it with such protections and high costs that it might as well not exist outside.
A good point is: Opportunity is the mother of invention.
Problems create opportunities for those who solve them. The bigger the problem the bigger the opportunity for some one who can cook up a solution. In a sense X-prize competitions try to manipulate this phenomena.
The cost of petroleum and its import from foreign lands, many very unstable, is a problem. One solution is the Chevy Volt. If gas goes up to $5 a gallon, GM gets a big payoff for have a solution.
Electricity storage is a big problem. Super capacitors are a solution. Create a massive X-prize for the creation of a practical super capacitor to draw attention to the opportunities such a solution would provide.
This is for moon-shot types of things.
Counter example: in the 1940’s and early 1950’s GM bought up intra- and inter-city railway companies, tore up the tracks and put their buses on the streets and highways. GM took the opportunity to subsume the public good to its private profit. Capital doesn’t, despite blathering about NPV, have a time horizon beyond the current accounting period. And if it does, it demands that government guarantee its profit. Read today’s NY Times about QRM; you’ll vomit.
Electric transport is independent of the fuel used to generate the electricity; Europe, Japan understand this. Part, if not most, of the reason for this understanding is historic: Europeans and Japanese have been living on their land for millennia and understand, even if they don’t know why, that gun slinger-ism doesn’t work once the land is occupied. Too many Americans, Bob included at times, meme the USofA in 18th and 19th century imagery. Tea Baggers, all.
You an I know that, but why do so many CEOs think that they can cut staff, increase workload, cut salaries/cut benefits, off shore US jobs and ‘innovate’..
Thanks for spending time on the cmopeutr (writing) so others don’t have to.
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Hi Bob,
It’s my opinion that the top dogs in politics prefer working with the top dogs in business. Maybe they should appoint a czar for small business development that could do things that the SBA doesn’t want to take on. Just my opinion.
Looking forward to your future announcements about the Startup Tour.
I’m sure their plans are varied and have some depth. I just hope they listen first. I remember a zillion years ago when I wrote about energy being in an oil policy meeting with Henry Kissinger, who had no apparent need for outside advice. He gave this interminable lecture about Middle East oil that was, frankly, filled with inaccuracies. It’s my hope that the Obamanites are smarter than that. We’ll see.
For all the talk of FDR being a champion for the little guy and the common man, he was all about consolidation of industry, and having as few key players as possible to dicker with.
Corporatism at its finest! (Which also means at its most oligarchical, inefficient and oppressive.)
— Corporatism at its finest! (Which also means at its most oligarchical, inefficient and oppressive.)
So, the rule is: when corporations decide to merge/consolidate it’s efficient, wonderful, and in society’s best interest; but when those elected to look out for all of our interests find the need to consolidate, it’s bad? In case you hadn’t noticed what’s happened in the last few years, private capitalists’ decision making isn’t even in the corporation’s best interest, never mind the society as a whole. A. Smith fantasized about an England that never was; the USofA isn’t like that fantasy either.
for any organization, there is an optimal size. In Business, it is a biggish mid-sized firm. This will mean different sizes for different businesses.
Large firms are created by merger. Big Business usually shrinks over time, as it it over the optimal size. Big Businesses merge/buy out smaller businesses to remain Big Businesses. Look at the HP-Compac merger for instance. The combined business is now about the size that either half was at it’s peak.
As the size of a manufacturing organization increases, the opportunities for reducing cost increase, up to a point, beyond which, returns of continuing size increase become smaller with increase. Increase of management and other overhead costs however, continue to increase. So, as a firm becomes larger, it first grows more efficient, then less efficient. This can be seen in numerous industries.
It is also true in Government. There is a maximum amount of control, above which level, the efficiency of Government declines. Exactly where that point is is a hard problem, but we are above that point in the US.
Downsizing is painful, but necessary, and will happen no matter what. it is a simple matter of matching effectiveness and efficiency with resources. It will happen slowly in both Government and industry. I hope it happens peacefully and slowly in Government, as the alternative is for the problems to get worse, and then have a quick and damaging change (read revolution, whether violent or political).
Decentralizing appears to be needed in both business and government.
Thats some good advice, lots of places seem to look at Silicon Valley and try to copy it as that must be the formula for success. This has led to the ridiculous sounding ‘Silicon Roundabout’ in London.
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Glad to hear the White House is getting some good advice. Will there be an opportunity to remind them of Teledesic 2.0 [https://www.cringely.com/2009/10/what-goes-around-teledesic-2-0/]
I never bypass an opportunity to promote my ideas.
If you could trade places with anyone attending Doerr’s get together where would Obama rank on the list? 5th?
BET founder Robert Johnson had a good suggestion (CNBC interview), he said there should be some tax break for investing in small businesses– much like the incentives used to attract investors to minority businesses in the past. Obviously there would have to be constraints on what qualified, but if you could invest some limited amount of money in a small business and have the pain of the potential loss mitigated by a tax break it might induce more people to start their own businesses or be an “UNCLE PHIL” (I always liked Uncle Phil!)
One of the great things about entrepreneurism as practiced in America is that it is acyclical — tech startups are founded as often in down economies as up economies. This is great, but it also means there are limits to how much government can affect the process, too. Yes, there are some policy changes that might help, like the tax changes you mention. The Kauffman Foundation has been thining about this for a long time and has some very concrete ideas here: https://www.kauffman.org/research-and-policy/rules-for-growth.aspx
The real numbers would be good to have. A few weeks ago David Leonhardt at the NY Times wrote an article dealing with, among other things, capital gains taxes. I wrote suggesting that he do another column delineating where capital gains actually come from, and whether said gains should receive preferential treatment, tax wise. Would the economy, and job creation specifically, benefit? He hasn’t yet replied (he does when he finds something useful).
The point being that, my SWAG tells me, 99.44% of capital gains come from gambling in the stock markets, and as such, do not add to productive capacity or production or, in terms now relevant, employment. It’s no different from hitting 24 Red in Monte Carlo. Historically, giving money to capitalists has little effect beyond the bank accounts of the receivers. Look at how well states and municipalities have done funding sports stadia, for example. Massachusetts just lost hundreds of jobs it partially funded when a solar energy company decided to maximize profits in China ( https://www.npr.org/2011/01/28/133249970/loss-of-solar-jobs-has-mass-rethinking-state-aid ). Reports of capitalists taking tax breaks (which have lifetimes), then pulling up stakes when the term expires go on forever. Like it or not, Keynes is right.
A capital gains preference which is tied explicitly (and with dire criminal penalties if fudged) to increasing productive capacity in the economy might induce some to start “innovative” businesses. But, again, will this be any different from Reagan’s Supply Theory? No. Supply does not, and never has, and never will, create it’s own demand. Better mouse traps sometimes do (note that Apple did not invent the MP3 player); but again, not always.
Whether an idea is “innovative” is a technical question; is this widget really a better mousetrap. Whether it will make money is a marketing question. Recent “innovation” in the USofA has been all about marketing, not about creating better mouse traps. The country, as Japan has for nearly 2 decades, limp along with 15% of the adults unemployed. It just isn’t such a hot place to live, after all. Remember why Egypt happened. It isn’t about politics; it’s about jobs.
If you’ve got the ear of the White House you could see if they want to spend some of that money they’ll save on retiring the Space Shuttle on a little moon landing project!
Obama already made a statement on that — leave the moon to the capitalists as that problem was already solved — that mission already done — and is of limited interest. The next spaceflight project of interest is going to Mars, and eventually sending colonists and supporting colonization because there is oxygen, water, minerals and metals on Mars, which can be colonized because it can be made to support human, animal, and vegetable life. WE DO BIG THINGS. Not We Do Things We Have Already Done.
1) We’ve had numerous “czars” in Republican and Democratic administrations. They’re only “bad” when Obama has them. (Real czars aren’t communists, since the communists deposed the real czars. Czar is a derivative of “Caesar” for what it’s worth.)
2) More to the point, the best thing they could do to allow innovation to continue is make it so that going off on your own doesn’t mean risking your family’s future if you happen to get sick enough for a hospital visit. “Small businesses” as defined by politicians usually start at 20 people. That one guy starting something new gets very little support and if he gets a mild cancer or some other problem, God help him. That’s why so many people stick with medium or big companies — they need the security of health insurance.
Want to stimulate small business creation? Get universal health care going. Medical benefits weigh most heavily in most working Americans minds. Other countries manage to deliver healthcare for less dollars per head than we do here with a single payer system. People scream “communism!” when I pitch this, but really it would cause more capitalism if folks didn’t have to worry about that when starting up a business. It is a huge point of leverage that employers have, and they know it. They and the insurance companies would be the losers in this scenario, but many thousands of would-be entrepreneurs would be the winners, along with the people who would get the new jobs created in the process.
Ain’t that a fact. Say what you want about oppressive Canadian taxes – and you’d be right – but up here by the north pole, when I quit my job to start building my own company from scratch, concerns about unexpectedly needing healthcare did not even cross my mind. If I were still living in the USA, that would quite possibly be a good enough reason to not even bother starting a company at all, just keep on grinding away doing non-innovative work for suits with delusions of competence.
I think the negative side effects of this are enormous. It means that only kids who are young enough to mooch off their well-to-do parents can start new companies.
Absolutely. I’d love to quit my reasonably stable job to work full-time on my LLC, but finding affordable health care for our three kids has me hesitating.. I may find a way to do it before 2014, but I would definitely have started last year if it weren’t for the health care issue.
If this is true then it should follow that countries that have the most startups/innovation should be ones with universal health care…right?
I don’t think that this is true.
correlation is not causation. repeat as many times as required.
Innovation depends on many variables.
My own experience has been the local health system has meant both I and family members have been hospitalised without having our finances damaged.
Basic health care does remove a lot of uncertainty. Enough for someone to try running an idea from Uncle Phil perhaps.
“Correlation is not causation” is what the tocacco companies said for many years, yet that is the way science sometimes has to operate until full understanding is achieved.
We’re talking about mostly multi-million dollar startups here. Trying to attract the best talents with great benefits, healthcare bill is not an issue with VC money. Try to start your own little diner or specialty shop today without franchise money is near suicide. Yet those small businesses form the bread and butter of a society. There are lots of places innovating, but I think culturally the fierce competition in SV produce shining examples that makes headlines.
There’s another alternative to government-run healthcare: divorce employers from healthcare. This is a historic anomaly, and should be eliminated. Why can’t health insurance be like auto insurance, marketed to consumers directly? Why should I have to worry about rearranging my health care just to change jobs?
That might work, but I doubt if you can point to any nation that has implemented such a system successfully. On the other hand, I can point out dozens of nations with national health care that spend less per capita, cover all their population, and have better results. So which is the smarter bet?
California. Have we all forgotten? Just a couple of months ago, the health insurers there raised rates for individuals by 59% ( https://www.mcclatchydc.com/2011/01/07/106327/delay-health-insurance-rate-increase.html ). The titular reason is that individuals can’t be rated the way groups can. Bogus, of course; individuals don’t have the bargaining power that large employers do. Another reason to allow “countervailing” power.
[… I doubt if you can point to any nation that has implemented such a system successfully…]
Switzerland.
There’s a mandatory tier 1 health insurance which individuals take out. I think you can also get a family policy, from memory. It’s community-rated — the insurers are only allowed to ask your name and address and a few other basic things like that.
Then they have (optional) tier 2 health insurance which gets you additional cover, various other add-ons, etc where the insurers are allowed to ask you anything and can give you a premium based on your level of risk.
Details in Wikipedia: http://en.wikipedia.org/wiki/Healthcare_in_Switzerland
If my healthcare bill per month costs the same as my auto insurance, I will be jumping with joy. But it’s usually 3, 4, 5X that. We all know folks who fork our nearly half their family income for healthcare, especially if you get older but not old enough for Medicare, or have had a major illness or surgery or existing condition. And this is with “bargaining power” and supposedly government “regulation.”
If the average person’s car insurance is $350, 400, 500+ a month, how many people do you think will be driving, or actually carrying auto insurance?
Universal Health Care is not necessarily Single Payer, Nationalized Health Care, nor is it necessarily Socialized Medecine.
However, I would support Single Payer (Medicare for All) as a great stimulus to the economy. It would have all of the benefits of Universal Healthcare (including universal participation) which would lower the per-person expense for those already participating because even the young and healthy would be participating – it would lower the overhead costs because there would be a single system for submitting provider payment requests, and it would still provide healthcare without pre-existing condition exclusions and all of the other benefits of the Health Care Reform Act without the profit motive.
I felt, and I feel, that my body should not be a profit center.
I like the idea of the Silicon Valley world and the Real America as differentiations. I would guess too that the investers are different for SV and RA, tuned to different processes and cycles.
Maybe it’s the arrogance of SV that wins, or maybe – like the old Apple Misfits poem, a certain quirkiness in the environment and attitudes. The air even.
When reading about the anit-laser elsewhere recently it made me realise what I love most about innovation – not the boring money but the posibilities. Possiblilities which open up the work space for SV and the like. After all you need a seed of some sort to develop ideas around.
If America is to export it’s way out of this economic hole, home grow ideas won’t be enough. The new model is we need to go out into the rest of the world, for ideas on what other people need and will buy from us, build those things, and sell them abroad.
Let’s think about this a bit.
1) “Ideas” which become products. The first incubator, post WWII, was Rte-128/Boston. The nature of those products were physical computer widgets, with more or less software attached. More recently, bio widgets.
2) Recent “ideas” which become products tend toward the ephemeral: MySpace/Facebook/et al. These are, arguably, as wasteful of capital as the crap done by the Financial Services Banksters.
3) The prime issue to be addressed by considering 1) and 2): what is the point of “innovation”? The Banksters merely took an increasing skim of the funds which flowed through the system, adding no value. One might answer that the Facebook genre does no more; it’s just entertainment.
If “innovation” is to build new, widely useful widgets, then technical questions trump marketing questions. The “innovation” of the Banksters was all about simply extracting cash from the flow of funds. Again, the Facebook model can be accused of the same.
Are we “innovating” to create jobs? This is a contradiction in terms; certainly in the last 3 decades. Innovations have been about dis-employing large numbers of Americans. It’s no coincidence that these 3 decades of “innovation” have seen the top 1% go from taking 8% of national income to taking 24%. Is the point of “innovation” to move that up toward 30%?
Take note of Tunisia and Egypt. Both “revolutions” were driven by young-ish folks with good educations, and no employment. They were “innovated” into poverty on graduation.
Be careful what you wish for, you just might get it.
While I’m not Facebook’s biggest fan, I wouldn’t lump them in with the Banksters. Facebook leveraged existing infrastructure to create a new communications medium that is valued by millions people. I think that’s a few notches above skimming from the cash flow.
Consider a macro-economy in a more stressed way. Which would you rather live in during a period of resource scarcity (which is where we do live these days): an economy which produces food, clothing and shelter (A. Smith’s basics) sufficient to its needs, or one which produces Facebook(s)? The post-industrial meme is just that, vaporware. There is a specific example today: Bermuda. I’ve visited there, and it’s a very fragile economy, utterly dependent on imports for virtually every commodity needed for survival. For that matter, most any isolated island economy would serve as example. The USofA is turning itself into just such a mega-island, incapable of supporting the basic needs of its citizens, depending on selling tchotchkes in order to gain access to such basics.
This is a good point, Robert. I actually LIVE in an island nation (actually, a US Territory), and I see this problem every single day. Every. Single. Day.
It seems to me that one of the things the US most needs is the same thing my Territory (American Samoa) needs: a series of micro-economies. The US would not have to become isolationist to pull this off, though there would be a decrease in imports, undoubtedly.
I think one of the biggest problems facing the US in the long term is continually producing a workforce that has been educated, but a job market that undervalues the production of goods (and some services). Your comparison to Egypt’s uprising, while a bit extreme perhaps, is a very apt one. What the hell are all our college (and graduate school) graduates going to DO?
That’s not a good metaphor. I’ve worked in Micronesia enough to see a gross difference between the Pacific Island economy, and the US economy. A western lifestyle is not sustainable there without funds continually flowing in as foreign aid and repatriated workers earnings. That inflow circulates and flows out again, mainly for petroleum and western style wants. Virtually nothing is produced locally, except traditional goods. It’s relatively steady state, but the price of oil determines how long the money circulates, that is, how many hands it passes through, before it’s been spent directly or indirectly for oil. Isolation would mean drastic changes in lifestye.
Complete isolation from the rest of the world economy would be near as drastic for North America as it would be for any island economy. We don’t buy clothes, tools, energy, electronics and other stuff from China and other countries bacause we can’t produce all the necessities here. We do so because other people will willlingly work hard for way less than the minimum wage in the US, and millions of individuals make hundered of small choices to purchase the cheaper products.
In a couple more generations, wages will have equalized as Europeans and N Americans scale back a small amount and the rest of the world scales up a large amount. We don’t import that basics necessities of life – housing, health care and food. Everything else is luxury, and Facebook, literature, music, boats, fast cars, skiing etc are equally valid ways to earn and spend money – it just a metter of personal taste (and budget).
alternate reality to (1): the navy seeded the first incubator in the twin cities with ERA, Engineering Research Associates, from which sprang Univac, Cray, Control Data, all starting with a little seed outfit to keep some of the secret mojo engineers from WWII working productively. some of the information has started finally coming out about ERA. this was 48-49 into the early 50s.
then the Lynn/Boston axis started up.
then the Palo Alto axis started up from the spinoffs of Shockley Semiconductor.
Lets hope funding doesn’t have to go through iTunes or El Jobso will cream off 30%.
++!
Sound like someone is insecure about his diet ; )
Isn’t the model the WPA? there is hardly a town in the US without some legacy from it, be it a building, bridge, mural, or park created by government salaried laborers, designers, craftsmen and artists. Those salaries contributed to the tax pool, people that had been unemployed, skilled and unskilled, had dignity and a collective sense that things were improving. Morale counts for something, and I can’t think of anything more positive than creating and improving a nations infrastructure, including it’s communications and technology.
Bob, thanks for an encouraging article. I want to start my own business (I’m a software developer), but I didn’t want to dive into it Silicon Valley style, with rounds of venture capital, etc. I wanted to start it small, on the side, with minimal capital, and grow it before I quit my day job. It’s nice to know that there are others outside of Silicon Valley, who also are doing it the “slow” way.
Bob, The best companies in the Valley start with the idea then build a company. Those are the companies worth starting. Google, Facebook, Apple.
“Remember Startup America is the name of the TV series on tech startups I’ve been making for most of the last year.” I’m afraid I don’t remember. What I do remember is the “Not in Silicon Valley Startup tour”. Today’s post is the first time I recall seeing the phrase “Startup America”. I’m not sure many Americans would appreciate separating Silicon Valley from the rest of America but I do get your point about distinguishing between VC funding and “normal” funding.
Perhaps Startup America is the TV side of the Startup Tour. Perhaps Bob has been working on getting air time and sponsors for the TV series on his interviews with the selected startup companies. Just a guess.
Silicon Valley feeds a lot on the incredibly rapid changes in technology and on the pool of talent that can apply that technology. Developments in steel, concrete and polymers and agriculture are very important, but you won’t see steel doubling in strength every two years or so. Developments in these areas are more evolutionary than revolutionary.
In a sense this is like working with oil. Oil has such fantastic energy density you can do things with it that are very inefficient that still accomplish great things and make money at it. The driver for the valley is the rapid change in the scale of control of electronics and materials science. The 1990 Cray supercomputer now comes from Apple in an iMac using an LCD of unimaginable specifications just a few years ago. Around 1992 at the Tokyo Electronics Show I saw one of the first, large, color LCD panels. Might have been Sharp had one engineering prototype on display. It was about a 10 inch display, 512 x 512, solid colors only. There was a press of engineers oohing and aahing over it.
20 years from now when you build your home theater your display will come in a spray can. You spray it on a wall and as it dries it self assembles. You won’t need any wiring. There will be some way to individually address each display element wirelessly. Could happen.
20 years from now pictures of people using laptops will remind us of those old pictures of girls in puffy skirts rolling hoops down a street with stick or boys riding those old bicycles with giant front wheels. However, cars will still be made of iron. Maybe they’ll find a way to shave off a few hundred pounds. But they won’t see the changes we’ll see in electronics and materials.
There is somewhat a difference between SV and elsewhere as you pointed out, Bob. Lumping West Coast in the same category, I remember Amazon operated in the red for years before they finally crushed all local, small-time bookstores and video stores and began to turn a profit for its investors. ITunes pretty much did the same to your record stores, with help from the inept music industry and a decade of non-existent “music innovation”. In those cases the money flowed and concentrated to fewer people and fewer places. Can that model still be duplicated? (enough local small businesses to kill still?) I would love to read some research into whether more “jobs” overall were created this way.
Innovation must also be met with with cultural changes for small, local (macro) innovators to succeed. That is the hardest part. Our value system will have to be challenged. If imported bananas from America costs substantially less than bananas grown locally in a Banana Republic, even after the tons of costly chemical fertilizers dumped on it, hundred thousand dollar farm equipment worked on it, thousands of miles trucked, shipped, and flown it, then that 3rd world country is fckd.
Yea, cut the capital gains tax instead of raising it. Encourages more investment, more capital gains. In the short term, people will cash in their long held gains so you get some more money.
Not if those capital gains come from stock market gambling. There is no economic advantage in that. Capital gains from buying physical capital is another issue. Doesn’t happen all that much.
The justification of the lower tax for secondary investors is that people would be reluctant to invest in the first place unless they knew there was a market to sell. Besides, if you give a tax reduction to the initial owners if and when they make a profit, it’s only fair to do that for the current owners who may be at greater risk since they just took over the early investors’ risk at a higher price. It’s not about rewarding risk itself but about subsidizing a specific type of risk.
No. The money of initial investors goes to the corporation. Secondary sales are private gambles, of no benefit to the corporation. As to the argument that not providing tax benefits to secondary owners reduces salability of shares; well, that’s a Good Thing. It’s called Skin in The Game. Remember, secondary sales are explicitly a bet by the buyer that the seller is an idiot and vice-versa. There is no increased productive capacity created in the macro-economy.
A rational tax policy rewards productive allocation of capital, if it makes any preference. Stock market gambling is lousy allocation of capital. The Great Recession should be sufficient evidence of the rot in the macro-economy when financial manipulation becomes the principal target of capital rather than physical investment. Priorities matter.
If your capital gains really are gains due to physical investment, rather than a consequence of a rising market (Galbraith: “Genius is a rising market”), you’ll pay much closer attention to the running of your companies. In any case, your argument simply rewards non-productive allocation of capital: gambling gains should be treated as wage income, regardless where the gambling is done, Foxwoods or NYSE. Again, providing a tax benefit to gambling merely encourages gambling. Gambling is not investing. To the extent that gambling is given preference, more gambling will be done. Corporations, banks in particular, are sitting on trillions of dollars, much of which is being used to further the gambling.
It is not a coincidence that the stock market continues to climb in the face of economic decline. The money has been funnelled to the gamblers, not to the citizens. Is that so difficult to understand? Inflation happens for three reasons, one of which is just: mo money, mo price. That’s what’s happening, and capital gains preference is one reason. The Great Recession happened in large measure because the USofA economy has largely devolved into a financial manipulation machine. Do you really defend that?
I agree with this. Keep going,RY!
[…] offers an interesting post on how Silicon Valley incubation is different than incubation elsewhere. Here is the link. His point is that slowing down the process doesn’t make it less valuable. Point taken. At […]
In these responses, and in many other on the same topic there is a huge bias towards a) making actual things and,b) making them in America. This leads also to a knee jerk antipathy towards “finance”,”ephemeral software”, manufacturing offshore” and so on.
The US,like all other developed economies has seen its manufacturing base decline but its employment, GDP and standard of living increase. The ability to provide for the things we need cheaply from overseas vastly outstrips the value of paying more to benefit one section of the workforce.
The things that are protected this way are probably damaging America more than helping it. Maintaining an import duty on steel forces manufacturers (who you want to help right?) to pay more than they should and the foreign steel companies trying to import have to look to higher quality. So the lower quality local steel costs more than it should, the foreign suppliers become more competitive and reach export markets that the US can no longer reach. And the benefit is a relatively small number of employees in the US.
The banks employee vastly more, compete in open international markets in the teeth of government abuse and bring fortunes into the US so lets be careful here.
(I am not a banker – I work in hardware)
Uh, didn’t Jobs sell his beat up VW Bus to start Apple Computer for a couple thousand $?
What? Too long ago? – Silicon Valley doesn’t work like that anymore? Then what about Zuckerberg (seated on the other side of Obama) starting up The Facebook with $1,000 from Saverin?
At the core, I don’t think these two startup stories are that different from what you’re talking about here; they just happen to be the ultimate success stories!
Evaluate this straw man as an alternative to the Silicon Valley Model. A National New Business & Job Creation Center operating in every county of the USofA with all of the special incentives of an economic enterprise zone. This is what startupamerica should become – http://bit.ly/h7iIEI
You miss the basics. That is a mistake.
Economics is really just about stuff. We all want stuff. So, we buy it. To get the money to buy it, we make other stuff, or we work for someone else who does. Banks,Governments, and stores are just ways to facilitate and regulate this flow of trade.
If we do not make enough stuff, we can’t buy the stuff we want.
All the rest, including money, inflation, balance of trade, and the so on is just a way of explaining this. These things represent the overhead of the economy. They don’t make us richer by themselves. Jobs are useless if nothing is made. Money only has value if something is made. Start ups are important, as they represent new businesses. Businesses hire people, they also find buyers. Established corporations sometimes grow, sometimes shrink. Big Business almost always shrinks. That is why start up businesses are important. Start ups replace the failures in the existing businesses.
As a side note, I worry that there is too much emphasis on “innovation”. Innovation means doing something differently than it is being done, or doing something that is not being done now. If everyone is innovating, then it is not innovation, It’s just normal business. Most innovations fail.
Normal business succeeds by doing things in an effective manor. Innovations are enabled by the surplus of society. We can afford to waste some effort in order to find a better way of doing something. Thomas Edison failed 10,000 times at making an acceptable light bulb. He did finally succeed, but the failures came first. He had to pay for the failures in order to find one that worked. The same thing is true on a society level. I think Bob X understands that. I am not sure that President Obama does. I am sure that most of Congress does not.
[…] I, Cringely » Let them eat veggies: Obama has dinner with Steve – interesting take on innovation that ‘hidden champions’ like many German medium-sized businesses would recognise […]
Action photos from last weeks silicon sit down:
https://www.flickr.com/photos/whitehouse/5455525432/
great article, thanks very much for keeping us posted.
Hi Bob,
Totally agree with you and we’ve been studying and working with entrepreneurs in the “US Startup Model,” (aka bootstrapping), for 7+ years. See: http://bootstrapaustin.org/map
Additionally, we’ve been working to nurture our Austin Entrepreneur “Scene” so entrepreneurs have resources and help as they progress through the various stages of the journey: http://ow.ly/3UUGd and the map: http://budurl.com/maw6
Let us know how we can help!
bijoy
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