Since my book Boulevard of Broken Dreams was published in 2009, the issues it discussed have become more relevant. Concerns about lagging global growth rates and job creation have not abated, and the perceived importance of entrepreneurship in stimulating entrepreneurship and growth is as high as ever. Both developed and developing nations have undertaken a variety of experiments along these lines. The experiences have served to underscore some of the lessons in this book.
One dramatic change in the past five years has been that the promotion of venture clusters has moved increasingly beyond major industrialised nations, becoming a global phenomenon. Many emerging nations have made huge investments in development venture capital (VC) and high-potential entrepreneurship. For instance, we have seen extensive initiatives in countries as diverse as Colombia and Saudi Arabia.
With the broadening of geographic scope has come the emergence of a variety of creative initiatives pursuing familiar goals in new ways. A terrific example is Start-Up Chile, a programme the Latin American government began in 2010. It tempts foreign entrepreneurs with a stipend of $40,000 a year, a one-year residency visa, and a dedicated team of seven people to provide guidance in navigating the country’s business culture.
This effort was part of a pledge by President Sebastián Piñera to add 100,000 new businesses to the Chilean economy by 2014, which, he argued, would require the nation to look outside its borders “to regain its entrepreneurial and innovative culture”. While many of the businesses lured to Start-Up Chile will move on to Silicon Valley or elsewhere after the programme, the hope is that they will have lasting spillovers for local entrepreneurs and the venture culture more generally.
At the same time, it is important to acknowledge that, like earlier efforts, the recent wave of governmental attempts to encourage innovation and VC around the globe has a mixed record. While some have been notable successes, such as Brazil’s Inovar, Israel’s Yozma, and Singapore’s numerous initiatives, others have largely wasted billions of taxpayer dollars. Nor are these disasters limited to efforts in emerging markets. Developed countries have also poorly designed and mismanaged funds intended to encourage innovation and create a VC ecosystem.
A well-publicised example in the US was the Department of Energy’s clean-energy initiative. It was created in 2005, but remained unfunded until 2009, when it received financing as part of the American Recovery and Reinvestment Act. The programme was to provide loan guarantees and direct grants to risky but potentially rewarding energy projects that might otherwise be too risky to attract private investment. More than $34bn was spent in less than four years, which was almost $2bn more than the total private VC investment in the field.
The enormous scale of public investment appears to have crowded out and replaced most private spending in this area, as VCs waited on the sideline to see where the public funds would fall. Moreover, the investment decisions of government administrators have led to a handful of embarrassing bankruptcies, such as Solyndra and A123 Systems. This experience illustrates the problems with “crowding out” discussed at considerable length in the book.
Funding innovation effectively is difficult. It often requires encouraging behaviour that has not been widely adopted in the past – innovation and entrepreneurship are high-risk pursuits. Moreover, most innovation programmes cannot be established and then left alone. They require regular review and revision, to ensure they are achieving their anticipated goals. Such reviews must address programmes that are not succeeding but they are also essential for successful efforts.
A programme that has achieved its goal of, for instance, encouraging private investment in a certain sector must change its target, lest it “crowd out” the very private investment it has attracted. Sometimes the approach must be refined. Sometimes the goals or measurements turn out to be sub-optimal. In the complicated world of politics, however, it is often risky to embark on these reviews.
In many of the new programmes, we can see both very positive and more challenging aspects. The importance of effective programme design, with careful attention to the incentives involved, cannot be understated. Thus, the issues raised in the volume when first published in 2009 remain timely and relevant today. It is my hope that policymakers and observers will continue to find this discussion helpful.
