Recent Read: “It’s Time to Reboot the Startup Economy”

Don’t miss Columbia professor Tim Wu’s post on OneZero about the need to reboot the innovation economy in the U.S. It’s well worth a read. Some highlights below:

 

Being the place companies get their start has given the United States an extraordinary advantage over the last century, and helped make it the world’s preeminent economic power.

But this advantage, which we sometimes take for granted, is now threatened by excessive consolidation in the U.S. economy. The most obvious symptom is the decline of the American startup. As a recent Brooking study shows, startup rates have declined dramatically across the economy. In an extraordinary development, the number of companies shutting down has grown to match the number that are starting up. The Department of Labor shows a declining number of people working for startups, while the Center for American Entrepreneurship documents a relative decline in American VC funding relative to the rest of the world. We may, in short, be entering a “startup winter.” This is a problem that affects many industries, but is particularly obvious in the Internet economy.

The solution, I believe, should be a broad effort to reboot the startup economy. That can be done not through one policy or passing any single law. It requires a thoughtful yet forceful reassertion of the bundle of pro-innovative laws and policies which have made up the best of American innovation policy over the last century. I see three essential elements in that policy:

  • Pro-competitive laws and regulations (also known as “competition catalysts”);
  • The reassertion of antitrust, including retroactive merger review; and
  • The funding of visionary research projects, in the spirit of the ARPANET, both basic and applied.

I don’t think “rely on the giants” is a good innovation policy for this country. We’ve tried it before: in telecommunications for almost 70 years, in the car industry for many decades, and in many other industries as well. It is not as if giant firms don’t innovate, but they do so incrementally, carefully, and in a way designed to protect their existing revenue streams. Over the last century, competitive, open sectors — ecosystems — have proved themselves superior to those monopolized or dominated by a “big three” or “big four.”

Fortunately, it is not too late to act. The United States has faced excessive consolidation before, and found ways to encourage innovation and entrepreneurship in cycles where dominance is the pattern. Looking back at the 20th century, three major tools were employed.

Carlos Alvarenga

Founder and CEO at KatalystNet and Adjunct Professor in the Logistics, Business and Public Policy Department at the University of Maryland’s Robert E. Smith School of Business.

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