Leland Teschler's Editoral: We Don’t Know How to Recreate Silicon Valley

Aug. 21, 2008
Preseason football is on TV, the kids are getting ready for the school year, and theme parks are anticipating their final Labor Day crowds.

It can only mean one thing: That’s right, the election season will soon be here.

The top political issue facing the country these days is the economy. Many regions look with envy at hot-beds of innovation like California’s Silicon Valley and North Carolina’s Research Triangle, and at their propensity to create new industries and jobs. Politicians on the stump often play up to these hopes and dreams. Their message: Vote me into office and I can funnel enough tax dollars your way to make this place the next Cradle of High Tech.

There is only one problem with this scenario — the inconvenient truth that no one knows how to clone Silicon Valley or Research Triangle.

At least that is the conclusion of a recent study by the Ewing Marion Kauffman Foundation. The Foundation, which focuses on entrepreneurship and improving education, concludes there is no such thing as a silver bullet for creating clusters of entrepreneurial companies. In fact, most such clusters of fast-growing businesses have happened by accident. That was the case for the launch of the semiconductor industry around San Jose, say Foundation researchers. Ditto for the auto industry springing up around Detroit in the early 1900s.

More important for the election season, though, is the Foundation’s opinion about tax money meant to boost entrepreneurial activity. Much of it is wasted, they say. That goes particularly for targeted tax credits and for the funding of local agencies aimed at developing high-tech entrepreneurs. The people who staff these offices typically don’t have the intellectual horsepower to make good decisions about start-ups focused on new technology.

Another bad idea, they say, is to fund research out of political expediency rather than through a scientific-review process. Foundation researchers point to Massachusetts as an example of what not to do. The Bay State recently wrote a check for biotechnology clusters without evaluating whether their planned locales had scientific capabilities to support them.

Even ideas that sound logical may not sow the seeds for much new business. A case in point is the presence of strong research universities. They can be helpful but alone are not enough to breed the next Silicon Valley. What you generally get from a research university is a handful of spin-off companies, none of which rock the world.

There’s evidence a few factors do indeed promote entrepreneurial companies. But they are the kinds of things that anyone, entrepreneurs included, would like to have. Good schools are on the list, as are safe streets, low taxes, and an efficient transportation system.

Unfortunately for politicians, legal and social factors often have more to do with entrepreneurial activity than government initiatives. For example, Foundation researchers point out that California’s unwillingness to recognize noncompete clauses beyond a year or so was one force driving new Silicon Valley businesses. And the spin-off companies that fuel industries often arise because key employees can’t get along with their bosses rather than out of any incentives dreamed up by bureaucrats.

Of course, it’s hard to weave that sort of information into a campaign speech. Picture your local candidate for congress making an emotional oration about non-compete clauses. The crowd reaction probably wouldn’t make the evening news.

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