Condensation

2006-07-29

A few months ago, Internet entrepreneur and essayist Paul Graham published an essay entitled Why Startups Condense in America. He adduces ten reasons why America is so entrepreneurial (or, more specifically for his purposes, why America has Silicon Valley):

  1. It allows immigration
  2. It is rich
  3. It is not a police state
  4. Its universities are better
  5. It has less restrictive labor laws
  6. Work is not strictly identified with having a job
  7. It has fewer regulations
  8. It has a large domestic market
  9. It has venture capital funding
  10. Americans change careers more often

Graham argues that these factors lead to more examples of successful entrepreneurship in America (or in certain parts of America) and that attitude or "culture" doesn't have much to do it. (Inexplicably, he also associates startup-friendly environments with places that have lots of public transportation, which doesn't seem to have especially helped, say, Prague or Brussels.) And he says it doesn't hurt to have low (or no) taxes on capital gains.

How realistic is it that another will beat America at encouraging startups? The prospects don't look encouraging if you're not American...

First, very few countries in the world encourage immigration -- the short list is probably America, Canada, Australia, Argentina, Brazil, and to some extent Britain. It is unlikely that, say, China, Korea, Japan, Mexico, or Germany will suddenly welcome people from all over the world. It is even less likely that such countries will not only allow immigration but become a destination for immigrants in the way that the Anglosphere seedling countries (especially America) are.

Second, one reason America has traditionally been entrepreneurial is that labor costs have been much higher in America than they were in Europe or other parts of the world (i.e., America has been rich for a long time). This has driven the need to innovate in order to save costs. There is little incentive to save human labor in, say, India or China, since the costs are so low there.

Places like China don't come out so well on the "not a police state" score. Even democracies such as France, Spain, Germany, and Latin America have a long history of state regulation, centralized decision making, inflexible labor markets, and economic ossification (even corruption, in the case of China, India, and Latin America). It is extremely difficult to overcome that kind of history, especially since it's much easier for a would-be entrepreneur to leave for America or Canada or Australia than it is to reform one's home country.

Graham seems to think that the problem of creating a large domestic market will be overcome in Europe through the efforts of the European Union (and that national languages such as French and German will die out in favor of English), but those who have absorbed the point that there is no such thing as Europe know that this is more fantasy than reality. India and China perhaps have a better chance of creating large domestic markets, but they are still so poor that this will take many, many decades (if it ever happens).

Finally, I think Graham underestimates the importance of cultural attitudes. Why does America have a more flexible labor market, fewer regulations, and a more competitive educational market? Why do Americans have a greater propensity to welcome immigrants, invest time and money in risky ventures, devalue status in favor of accomplishments, and change careers or pick up stakes in pursuit of new opportunities? These phenomena do not exist in a vacuum and are expressions of the American culture of freedom, opportunity, flexibility, openness, rebelliousness, novelty, optimism, hard work, pragmatism, and all the rest. American attitudes provide a cultural medium for the organic growth of new organizations in many fields -- not just high tech companies (consider American entrepreneurship in, say, retailing and logistics) and not even just companies (consider American entrepeneurship in religion, philanthropy, education, and even government -- we have 50 state governments, over 3,000 county governments, countless town and city governments, and an ever-increasing number of special-purpose entities that cross jurisdictional boundaries). In a way, the first American settlers were entrepreneurs, and most subsequent immigrants were attracted by the entrepreneurial opportunities of the New World. Americans have thus by and large self-selected for entrepreneurship. It's difficult to see how any other nation could come close to building that kind of culture (especially nations outside the Anglosphere). Not that they shouldn't try -- but it would be unrealistic to expect strongly positive results anytime soon.

(Cross-posted at Albion's Seedlings.)


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