One of the recurring topics this site keeps returning to is how cities like San Francisco and London have seen an explosion of tech startups in recent years.
Probably the spectacular of all the cities that have shot to prominence is New York; a decade ago tech startups in the city were a rare thing, today there are thousands.
Today I had the opportunity to visit AlleyNYC, one of New York’s biggest tech accelerators. It’s impressive how a venture two years old can be so successful.
A question I asked was ‘what has driven the change in New York?’ The consensus was the combination of the Great Depression and the success of high profile companies like Facebook.
The success of high profile startups has validated the business model in the eyes of both investors and founders, people who would have been reluctant to leave their jobs and start a business now see the opportunities while investors can see there are returns to be made.
What’s notable about cities like New York, London and San Francisco is the depth of industry expertise, capital, networks, education institutions and diversity. These are key factors in attracting tech startups.
For other cities aspiring to be ‘the next Silicon Valley’, it would be worthwhile considering where their strengths lie compared to these giants.
It’s not a given that any of today’s global leaders will be the future centres of industry, but other cities and regions will need to have a very strong reason for businesses to choose them over the incumbents.
Last Friday the Global Innovation Index was released rating nations on their ability to adapt and compete in today’s global economy, the authors though believe the measure is more than just economics.
The Global Innovation Index is a joint venture between Cornell University, INSEAD, and the World Intellectual Property Organization which measures 81 economic factors that across 143 countries.
Its release in Sydney last week was part of the B20 conference – the business offshoot of the G20 Heads of Government meeting taking place in Cairns later this year.
European countries top the list with Switzerland, the United Kingdom, Finland and the Netherlands making up the leading five. The US and Singapore break the European monopoly at the sixth and seventh positions.
As the results indicate, rich countries have a natural advantage in the index with index scores tracking national GDP – the highest ranked middle income country is China at 29th and the leading low income nation is Kenya at 85.
Innovation index versus GDP
Kenya, and Sub Sahara Africa in general, is one of the highlights of this year’s report with with countries in the regions being nominated as ‘innovation learners’ with them performing above their expected level of GDP.
“What we find in Africa is growth rates are stabilising,” says Francis Gurry, the Director General of WIPO in discussing the report. “That creates the space for better policy and investments.”
Smaller is better
A key finding in the report is that smaller countries tend to perform better; “there’s a slight bias in the index,” says Gurry “as there’s more evenness across the economy.”
This works against larger countries like the United States while favouring countries such as Switzerland and Singapore.
Being affected by the 2008 financial crisis doesn’t help economies either; “the countries you see on top like Switzerland and the Nordic countries have been less affected than countries like Spain and Greece” says Bruno Lanvin, the Executive Director of the ISEAD Global Index.
Europe’s growing divergence
“Yet Europe remains a land of innovation,” continues Lanvin. “Europe has no choice, it is an aging economy and it has to innovate its way out.”
“A divide has been recreated within Europe, the whole European edifice has been a terrific machine for convergence. This has disappeared with the crisis where we see a new divergence.”
“We see countries like Spain and Italy, not to mention Greece, where the proportion of research and development has been decreasing which has not been compensated by private investment.”
This lack of private investment is a concern that constantly came up in the B20 discussions; despite the world being awash with capital, little is finding its way into infrastructure funding and business lending.
Falling R&D spending
Another area causing concern for the index compliers is the falling rates of research and development spending, noting that support for R&D efforts seems to have lost momentum in some countries with most growth in this area over the near future expected to take place mostly in China, the Republic of Korea, and India.
Innovation by Region
Rank in Region
GII 2013 Overall Rank
Country Name
Central and Southern Asia
1
76
India
2
79
Kazakhstan
3
86
Bhutan
Sub-Saharan Africa
1
40
Mauritius
2
51
Seychelles
3
53
South Africa
Southeast Asia and Oceania
1
7
Singapore
2
10
Hong Kong (China)
3
16
Korea, Rep.
Latin America and the Caribbean
1
41
Barbados
2
46
Chile
3
52
Panama
Northern Africa and Western Asia
1
15
Israel
2
30
Cyprus
3
36
United Arab Emirates
Europe
1
1
Switzerland
2
2
United Kingdom
3
3
Sweden
Northern America
1
6
United States of America
2
12
Canada
While the index was notable for its stability among the top ranking countries, there were stand out performers with the United Kingdom charging from tenth in 2011 to third in 2013 and second this year.
Along with ethnic diversity, the advantages of having deep, varied economies and societies is emphasised by the report.
“When you’re measuring all of these, you’re measuring the ability of a country to compete;” says Gurry. “The intensity of competition will only increase between countries in respect to both regulatory regimes but also between enterprises.”
For all the talk about the importance of innovation Lanvin sees limits to what governments can do; “innovation is not a matter that can be decreed or implemented by governments alone, government can give the right signals and create an environment.”
Creating a mindset
“In the end it is the dynamics between business, government, academia and civil society that create the right mindset for a country to become an innovator,” continues Lanvin.
Lanvin also observes that innovation is about more than technology, “clearly technological innovation will remain a critical component, but you should expect to see social innovation and political innovation.”
“When we need to address the major challenges of this planet like the environment you need more than technological innovation; you need creativity, new mindset and new attitudes.”
Reservation Hop is a good example of many of the current breed of parasitic startups that want to create a new class of middleman.
The hospitality industry is tough work and something guaranteed to irritate restauranteurs are reservations that don’t show up.
One startup that seems almost certain to attract the ire of the restaurant industry is Reservation Hop – “We make reservations at the hottest restaurants in advance so you don’t have to.”
Reservation Hop makes table reservations at popular restaurants and then sells them through their website.
We book up restaurant reservations in advance. We only book prime-time restaurant reservations at the hottest local establishments, and we mostly list high-demand restaurants that are booked up on other platforms.
This is probably one of the worst examples of the middleman culture that dominates much of the current startup thinking.
Almost certainly there’s a market need for proxy queue jumpers – although one wonders how profitable it is when the transaction fees are under $10 – but this service will deeply irritate restaurant owners and diners who are crowded out by these ‘parasite’ services.
In many ways, Reservation Hop illustrates the problems with this phase of our current startup mania; the rise opportunistic businesses that are more akin to parasites than services that add value.
The Reservation Hop website assures patrons that there’s a 99% chance their booking will be honored by the restaurant on the night, we can expect establishments to start messing with that statistic as they wise up to the business.
Many in the startup sector speak about how new technology improves the world, services like Reservation hop illustrate that not every idea is a step forward.
Judging from the Computing UK article that description hasn’t impressed the rest of the British tech community as it confirms in their minds there is, as usual, too much focus on the capital and Livingston’s view also raises the question of whether London really wants to be another Silicon Valley.
Like all global industrial hubs Silicon Valley the result of a series of happy coincidences; massive defense spending, determined educators, clever inventors and savvy entrepreneurs all finding themselves in the same place at the same time.
Trying to replicate the factors that turned the region into the late Twentieth Century’s centre of technology is almost impossible – even the United States couldn’t afford the massive defense spending over the fifty years from 1941 that underpinned the Valley’s development.
Apart from the spending; the culture, economy, geography, markets and workforce of Silicon Valley are very different to that of London’s.
This not to say London doesn’t have advantages over Silicon Valley; access to Europe and relatively easy immigration policies make Britain a very attractive location for tech businesses. If the local startup community can tap The City’s banking resources then London could well be the next global hub.
If London is the next global tech centre – history will tell – it will almost certainly be very different to Silicon Valley.
Strangely, the event Lord Livingston was speaking at reflects how the Californian tech sector is evolving; Salesforce is a San Francisco company and represents a shift in the last five years from the suburbia of San Jose and Palo Alto to the quirky city life of SoMa and the Tenderloin.
At the same time Silicon Valley itself is evolving into something different, just as it did in the 1990s with the switch from microprocessor manufacturing to software development.
That shift illustrates the risks of trying to imitate one industrial hub; by the time you’ve build your replica, the original has moved on.
If you spent your life trying to knock on the door of heroes you want to imitate, it would be shame to finally make it only to find they’ve moved.
In a presentation at this year’s RSA conference Chang explains some of the underlying themes of his book, particularly the point that the various schools of economics theory are based on their own sets of cultural assumptions and that every group struggles to explain the world, especially when asked to fit Singapore into their models.
Chang’s five points are a call for the average person to understand economics and be prepared to challenge the orthodoxies being trundled out by business and political leaders.
You should be willing to challenge professional economists (and, yes, that includes me). They do not have a monopoly over the truth, even when it comes to economic matters.
As economists have been allowed to become the high priests of modern society — or possibly the court jesters of the corporatist world — it may well be time to challenge them.
