Don’t Give the Arnon Kohavis Your Money warns Sarah Lacy in her cautionary tale of what happens when an economic messiah comes to town promising to create the next Silicon Valley.
“Hopefully this story finds a way to circulate out to the wider audience of government officials and old money elites who have good intentions of wanting to make their city a beacon for entrepreneurship.” Writes Sarah. “Hopefully it reaches them before they get bamboozled into giving the wrong people money to make it happen.”
Bamboozled Bureaucrats
For 19 months I was one of those government officials and saw those good intentions up close while developing what became the Digital Sydney project, that bamboozlement is real and a lot of money does go to the wrong people.
Sarah’s points are well made, Silicon Valley wasn’t built quickly with its roots based in the 1930s electronic industry and the 1960s developments in semiconductors – all underpinned by massive US defence spending from World War II onwards.
In many ways Silicon Valley was a happy and prosperous accident where various economic, political and technological forces came together without any planning. Neither the Californian or US Governments decreed they would make the region an entrepreneurial hotbed and sent out legions of public servants armed with subsidies and incentives to build a global business centre.
This is the mistake governments – and a lot of entrepreneurs or business leaders – make when they talk about “building the next Silicon Valley”; they assume that tax free zones, incentive schemes and subsidies are going to attract the investors and inventors necessary to build the next entrepreneurial hotspot.
For governments, the results are discouraging; usually ending in failed incubators and accelerator programs all conceived by public servants who, with the best will in the world, don’t have the skills, incentives or decades long timelines to make these schemes work.
New England’s failure
At worst, we end up with the corporate welfare model that sees governments and communities exploited like the tragic story of New London, Connecticut, where the local government spent $160 million and cleared an entire suburb for drug company Pfizer to establish their research headquarters, which they closed a few years later and left a waste dump behind.
While the New London story is one of the worst examples, this sort of corporate welfare is the standard role for most government economic agencies. The department I worked for gave subsidies to supermarket chains to open distribution centres and stores that they were going to build anyway.
One of the notable things with development agencies and the provincial politicians who oversee them is how they are easy victims for the economic messiah – it could be a pharmaceutical giant like in New London, a property developer promising Sydney will become a financial hub or a US venture capital guru flying in and promising Santiago will be the next San Francisco.
The truth is there are no short cuts; building a technology centre like Silicon Valley, a financial hub like London or a manufacturing cluster like Italy’s Leather Triangle take decades, some luck and little intervention by government agencies or outside messiahs.
Silicon Valley and most other successful industry centres are the result of a happy intersection of economics and history. The best governments can do is create the stable financial, tax and legal frameworks that let inventors, innovators and entrepreneurs build new industries.
All government support isn’t bad as well thought out, long term programs that help new businesses and technologies grow being the very effective – we should keep in mind though taht Silicon Valley couldn’t have happened without massive US military and space program spending.
Like a parent with a baby, the best governments can do is create the right environment and hope for the best. Interfering rarely works well.
