Policy Environment Important in Shaping Entrepreneurship

nov stangler snsNear the end of the day at the Startup Nations Summit, Jonathan Ortmans asked me to make a couple of observations about startup policy. I did not use slides, but several people asked for some sort of synopsis of my talk. Here is roughly what I said.

It’s refreshing to be in a crowd of people interested in entrepreneurship as well as policy. Often, at entrepreneurship events, there is an attitude dismissive of the role of policy. Just as often, the crowds at policy events overemphasize the role of policy in entrepreneurship.

In Warsaw last week, I had the pleasure of meeting Deputy Mayor Michal Olszewski, who described the Virtual Warsaw program based on the installation of thousands of beacons (soon to be millions) around the city. These have become a key resource for startups to plug into city data for their businesses. (I wrote about this system the other day.) But, the beacons of Virtual Warsaw did not begin as something purposeful toward entrepreneurship—they originated as a way to help the visually impaired navigate buildings and public areas.

There is a difference between direct and indirect policy, and many times, indirect policy—something not specifically aimed at promoting entrepreneurship—can be more important than direct policy. A good example of this, interestingly, is Silicon Valley. Many different elements went into the making of today’s Silicon Valley, but two in particular highlight this distinction between direct and indirect policy. 

Silicon Valley really first blossomed in the 1960s, with a takeoff in semiconductor firms and rapid spinoff rate. Fairchild Semiconductor began in 1957; Intel, one of the many “Fairchildren,” was founded in 1968. Even in the late 1960s, though, the principal purchaser of semiconductors was the United States government, especially the Pentagon and NASA. The federal government poured millions of dollars into research and development in Silicon Valley in the 1960s, and one of the results was an entrepreneurial explosion out of Stanford and the big companies in the area. But, the creation of hundreds of new companies was not the purpose of research and development spending—getting better technology was. 

Another example from Silicon Valley is the role of non-compete agreements—famously, California does not enforce these restrictions on employment mobility. Research has shown this lack of enforcement to be a major contributor to the development of what became Silicon Valley. So, faced with a blizzard of entrepreneurial firms in the 1960s, did the enlightened leadership of California decree that non-compete agreements would no longer be enforceable?

No, actually—the policy of not enforcing these covenants not to compete dates back to … 1872. There were no semiconductor firms in the late 19th century.

The policy environment matters for shaping entrepreneurship and entrepreneurial behavior. But that environment is not always developed purposefully, with a direct aim of fostering entrepreneurship.

I visited five countries in 12 days for Global Entrepreneurship Week this year, and in every city I visited, without fail, someone said something like, “the people in my country aren’t entrepreneurial.” It’s a commonly-expressed sentiment in many places. It’s also baloney. Every country, in every era, has entrepreneurship. What determines the shape of that entrepreneurship is the policy environment—it can be “productive, unproductive, or destructive,” in William Baumol’s framework.

This means that policy matters for entrepreneurship, but not always in the way that policymakers and those that advise them think it does. Lists of suggested policy recommendations can be impossibly detailed, and often have a “just so” character to them. This is a theme I’ll explore in future work.

This also means that, in different places, it can be effective to tell a different story about a city or country’s heritage. When I was in Halifax in September, the same sentiment was expressed about the people of the city not being entrepreneurial. But, when you walk along the lovely harbor front, there is a statue of Samuel Cunard, a father of the city and, according to the plaque, an entrepreneur—it says it right on the plaque! Halifax has a deeply entrepreneurial history, and that history needs to be retold today so that the city sees itself as inheriting that entrepreneurial heritage.

These were just a few thoughts sparked by another terrific Global Entrepreneurship Week, capped by an outstanding Startup Nations Summit. I look forward to working further on these issues.

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