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Startup myths and obsessions

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In a latest discussion on the special report “A Cambrian Moment” we’ve covered previously in The Economist on Tech Startups, The Economist invited Mariana Mazzucato, the author of the book The Entrepreneurial State: Debunking Private vs. Public Sector Myth, to discuss about startups’ boom. According to Mariana Mazzucato, the startup boom, she says, is partly a result of the lack of high quality jobs in the “old economy”. But it is also a result of policies based on myths around entrepreneurship and startups.

There are two obsessions mentioned by Mariana. One obsession is “the focus on entrepreneurial ecosystems is symptomatic of the misplaced obsession with SMEs and startups in terms of their ability to generate innovation and growth. ” She believes it is not the matter to put emphasis on startups or individual entrepreneurs, what matters should be the “innovation ecosystems within which they operate “.

Yet another obsession is venture capital and its role in nurturing innovation. By saying Silicon Valley didn’t start with venture capital industry but innovation itself, Mariana claims that “venture-capital funds are not providing the kind of patient long-term finance needed for radical innovations. They are too focused on a profitable “exit”—usually through an IPO or a sale to a bigger company—within 3-5 years. But innovation often takes 15-20 years. ” Listing China as a good example of whom with long term patience on innovation, a series of numbers are given in contrast to venture capital funds that may rush the portfolio companies they funded to exit.  “It is very likely that startups will be more successful in the few countries that have resisted pressures to cut publicly funded R&D, such as Germany, which has increased the amount since 2009 by 20%, or China that has increased R&D spending by 170% over the last 10 years. The sequester, which is already impacting US publicly funded R&D, will no doubt be bad news for future  startups in America.”

Therefore, the above problem requires “a public sector able and willing to spend large sums on education, research and those emerging areas that the private sector keeps out of (because of high capital intensity and high technological/market risk); large firms which reinvest their profits not in share-buybacks but in human capital and R&D; a financial system that lends to the real economy and not mainly to itself; tax policy that rewards long run investments over short run capital gains; immigration policy that attracts the best and the brightest from around the world; and rigorous competition policy that challenges lazy incumbents rather than letting them get away with high prices and parasitic  subsidies.”

To read more, please visit here, and to watch her inspiring TED talks, please visit here.

 

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