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BRINGING INNOVATION TO MARKET

Do Start-Ups Create Jobs?

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Inc. has a cover story this month that offers a plan to revitalize the American economy by creating lots of new start-ups. Some of the proposals, such as a offering visas to foreign-born founders, are already generating controversy. (One reader says that foreign entrepreneurs will simply be "filling their staffs with their own countrymen.")

Surprisingly, there seems to be controversy over the premise itself: That more start-ups would be good for America. In a Bloomberg Businessweek cover story, former Intel CEO Andy Grove attempts to challenge this widely accepted idea. "The underlying problem," Grove writes. "[Is] our own misplaced faith in the power of startups to create U.S. jobs."

Grove offers what amounts to a long-winded argument for protectionism. In brief, he wants the U.S. to slap tariffs on foreign-made computers, and, one assumes, all sorts of other imports. "Such a system would be a daily reminder that while pursuing our company goals, all of us in business have a responsibility to maintain the industrial base on which we depend and the society whose adaptability—and stability—we may have taken for granted," he writes.

Leaving aside the obvious conflict of interest--Grove fails to note that a subsidy for American-made computer components would probably be a boon for his old company--there's something strange, maybe even a little dangerous, about his argument. 

Grove focuses on a single industry, computer manufacturing, which has undoubtedly moved overseas. That's a shame, but it doesn't mean that entrepreneurs have been simply sitting on their hands. Outsourced computer manufacturing has driven prices for electronics way down, allowing some of the world's poorest people access to advanced technologies like cell phones and the Web. That, in turn, has created a growing market for American entrepreneurs to make software and web services. Fred Wilson calls the Internet, "one of the primary export industries in the U.S.," and it's hard to imagine the existence of successful American companies like Google without the widespread availability of dirt-cheap Chinese-made computers.

But Grove's argument, like all protectionist plans, is essentially-backward looking, a bet on existing industries and institutions--in this case, large computer manufacturers. But what of the industries that haven't been created yet? Why should we be content with shoring up Intel's balance sheet when we could be helping the founders of the next Intel? Don't we want to next great companies and the next great industries to be based in the U.S. rather than somewhere else?

Read the Inc. story and the Businessweek story, and let me know what you think.

Last updated: Jul 6, 2010




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