Technological progress has widely been considered as one of the most essential engines for economic growth. In the past few years a new wave of technological innovation, driven mainly by startup entrepreneurs, has been under way across the globe as the worldwide economy slowly came out of the shadow of recession. In the United States, Silicon Valley is the original entrepreneurial hub, but in recently years such colonies have popped up all over the world. They are often born and bred in places where young people want to live: London, Berlin, Singapore and Shenzhen. Some people fear that another dotcom bubble will soon burst. But this time is different. Today’s entrepreneurial boom is built on more solid grounds than the 1990s Internet bubble that makes it more likely to continue for the foreseeable future.
Josh Lerner of Harvard Business School argues that the basic building blocks for digital services and products have become evolved, cheap and easily accessible. Many of these building blocks have been invented based on the platform of the Internet. For example, Paypal advanced the way people do transactions, dramatically increasing the efficiency of business activity. The prolonged economic crisis starting in 2007 gave rise to the course of emerging startup companies around the globe today. The crisis caused many young people to give up the idea of searching for a conventional job, forcing them to foster new ideas to strike out on their own or join a startup. According to the Telefonica Global Millennial Survey, of 12,000 people aged between 18 and 30 in 27 countries, more than two-thirds see opportunities in becoming an entrepreneur. Young people with energy are not only seeking something ambitious in being an entrepreneur, but also expect high return in the future.
The government’s employment report for December came out early this month, and only 77,000 jobs were added in December 2013. What is worse, is that about one third of the 2.2 million new jobs in 2013 were in retail. In accommodation and food services, two of the lowest-paying industries, according to the estimation of Matthew Slaughter, a professor of Dartmouth College. Only 3.5 percent of the new jobs last year were in higher-wage manufacturing industry and high-tech industry. The stagnant status of average income has triggered both governmental and economic concerns. The boom of startup companies may turn this dismal labor market around. But a successful startup hub cannot be a reality without a series of public policy in place.
In order for the entrepreneurial hubs to flourish, they need to include a well-educated labor force, an environment tolerant for failure, low corporate income tax and a well-developed financial market for venture capital. Government policy and institutions can make a huge difference in encouraging startups. Traditionally, Singaporeans do not particularly enjoy risky adventure and high-profile social status. They instead prefer to stay in secure jobs with multinational companies or even with the government. But Singapore’s government cares so much about startups, taking progressive steps to make life easier for entrepreneurs. Registering a company now takes only a few hours. Every year the National University of Singapore sends 120-150 students on a one-year internship to Silicon Valley, many of them going on to become leaders in the industry. The city-state has also enjoyed plenty of foreign direct investment for years. Without such institutional supports, Singapore could not keep a fast pace in terms of development of startups and innovations.
In their book Why Nations Fail, Acemoglu and Robinson point out that institutions are breeding ground for technological innovations that determine a country’s economic success. By far, most venture capitalists still see the United States as the most preferable place to invest startup companies. With its enormous market and intelligent labor force, it is still the first choice of destination for founders to start a tech business. But the increasing restrictive immigration policy has made it more difficult for them to settle, let alone afford the highest corporate tax rate among countries. China and other Asian emerging markets are matching out in this race. If the U.S. doesn’t reverse the institutions that hammer business, it will experience “reversing development”, as Acemoglu and Robinson phrase it.
