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Why Startups Condense in America

[Why Startups Condense in America]

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| May 2006(This essay is derived from a keynote at Xtech.)Startups happen in clusters. There are a lot of them in Silicon
Valley and Boston, and few in Chicago or Miami. A country that
wants startups will probably also have to reproduce whatever makes
these clusters form.I've claimed that the recipe is a
great university near a town smart
people like. If you set up those conditions within the US, startups
will form as inevitably as water droplets condense on a cold piece
of metal. But when I consider what it would take to reproduce
Silicon Valley in another country, it's clear the US is a particularly
humid environment. Startups condense more easily here.It is by no means a lost cause to try to create a silicon valley
in another country. There's room not merely to equal Silicon Valley,
but to surpass it. But if you want to do that, you have to
understand the advantages startups get from being in America.1. The US Allows Immigration.For example, I doubt it would be possible to reproduce Silicon
Valley in Japan, because one of Silicon Valley's most distinctive
features is immigration. Half the people there speak with accents.
And the Japanese don't like immigration. When they think about how
to make a Japanese silicon valley, I suspect they unconsciously
frame it as how to make one consisting only of Japanese people.
This way of framing the question probably guarantees failure.A silicon valley has to be a mecca for the smart and the ambitious,
and you can't have a mecca if you don't let people into it.Of course, it's not saying much that America is more open to
immigration than Japan. Immigration policy is one area where a
competitor could do better.2. The US Is a Rich Country.I could see India one day producing a rival to Silicon Valley.
Obviously they have the right people: you can tell that by the
number of Indians in the current Silicon Valley. The problem with
India itself is that it's still so poor.In poor countries, things we take for granted are missing. A friend
of mine visiting India sprained her ankle falling down the steps
in a railway station. When she turned to see what had happened,
she found the steps were all different heights. In industrialized
countries we walk down steps our whole lives and never think about
this, because there's an infrastructure that prevents such a staircase
from being built.The US has never been so poor as some countries are now. There
have never been swarms of beggars in the streets of American cities.
So we have no data about what it takes to get from the swarms-of-beggars
stage to the silicon-valley stage. Could you have both at once,
or does there have to be some baseline prosperity before you get a
silicon valley?I suspect there is some speed limit to the evolution
of an economy. Economies are made out of people, and attitudes can
only change a certain amount per generation.
[1]3. The US Is Not (Yet) a Police State.Another country I could see wanting to have a silicon valley is
China. But I doubt they could do it yet either. China still seems
to be a police state, and although present rulers seem enlightened
compared to the last, even enlightened despotism can probably only
get you part way toward being a great economic power.It can get you factories for building things designed elsewhere.
Can it get you the designers, though? Can imagination flourish
where people can't criticize the government? Imagination means
having odd ideas, and it's hard to have odd ideas about technology
without also having odd ideas about politics. And in any case,
many technical ideas do have political implications. So if you
squash dissent, the back pressure will propagate into technical
fields.
[2]Singapore would face a similar problem. Singapore seems very aware
of the importance of encouraging startups. But while energetic
government intervention may be able to make a port run efficiently,
it can't coax startups into existence. A state that bans chewing
gum has a long way to go before it could create a San Francisco.Do you need a San Francisco? Might there not be an alternate route
to innovation that goes through obedience and cooperation instead
of individualism? Possibly, but I'd bet not. Most imaginative
people seem to share a certain prickly independence,
whenever and wherever they lived. You see it in Diogenes telling
Alexander to get out of his light and two thousand years later in
Feynman breaking into safes at Los Alamos.
[3]
Imaginative people
don't want to follow or lead. They're most productive when everyone
gets to do what they want.Ironically, of all rich countries the US has lost the most civil
liberties recently. But I'm not too worried yet. I'm hoping once
the present administration is out, the natural openness of American
culture will reassert itself.4. American Universities Are Better.You need a great university to seed a silicon valley, and so far
there are few outside the US. I asked a handful of American computer
science professors which universities in Europe were most admired,
and they all basically said "Cambridge" followed by a long pause
while they tried to think of others. There don't seem to be many
universities elsewhere that compare with the best in America, at
least in technology.In some countries this is the result of a deliberate policy. The
German and Dutch governments, perhaps from fear of elitism, try to
ensure that all universities are roughly equal in quality. The
downside is that none are especially good. The best professors
are spread out, instead of being concentrated as they are in the
US. This probably makes them less productive, because they don't
have good colleagues to inspire them. It also means no one university
will be good enough to act as a mecca, attracting talent from abroad
and causing startups to form around it.The case of Germany is a strange one. The Germans invented the
modern university, and up till the 1930s theirs were the best in
the world. Now they have none that stand out. As I was mulling
this over, I found myself thinking: "I can understand why German
universities declined in the 1930s, after they excluded Jews. But
surely they should have bounced back by now." Then I realized:
maybe not. There are few Jews left in Germany and most Jews I know
would not want to move there. And if you took any great American
university and removed the Jews, you'd have some pretty big gaps.
So maybe it would be a lost cause trying to create a silicon valley
in Germany, because you couldn't establish the level of university
you'd need as a seed.
[4]It's natural for US universities to compete with one another because
so many are private. To reproduce the quality of American universities
you probably also have to reproduce this. If universities are
controlled by the central government, log-rolling will pull them
all toward the mean: the new Institute of X will end up at the
university in the district of a powerful politician, instead of
where it should be.5. You Can Fire People in America.I think one of the biggest obstacles to creating startups in Europe
is the attitude toward employment. The famously rigid labor laws
hurt every company, but startups especially, because startups have
the least time to spare for bureaucratic hassles.The difficulty of firing people is a particular problem for startups
because they have no redundancy. Every person has to do their
job well.But the problem is more than just that some startup might have a
problem firing someone they needed to. Across industries and
countries, there's a strong inverse correlation between performance
and job security. Actors and directors are fired at the end of
each film, so they have to deliver every time. Junior professors
are fired by default after a few years unless the university chooses

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