Silicon Valley Summit ponders: can government and big firms hinder innovation?

Silicon Valley Summit ponders: can government and big firms hinder innovation?

by Nishant Dahad

The 2012 Global Innovation Summit in San Jose, Calif. began yesterday afternoon, after attracting guests from 40 different countries, with a ‘Keynote Fireside Chat’ on entrepreneurship and innovation as engines of economic growth.

The discussion was held between Philip Auerswald, of the Kauffman foundation, Richard Samans, Executive Director of the Global Green Growth Initiative, and Gerardo Corrochano, Director of the World Bank division for Private and Financial Sector Development in Europe and Central Asia, and was moderated by Bill Reichert of Garage Technology Ventures.

During Philip Auerswald’s keynote, he took an interesting viewpoint, stating that political incumbency, along with other incumbents in the economy are going to be a hindrance to any growth fuelled by innovation and entrepreneurship, particularly at the SME level.  He argued that, in consistency with the Rainforest model created by two of the event organisers, Victor Hwang and Gregg Horowitt, the canopy of trees at the top, i.e. those incumbent economic and political actors who dominate the markets with their own self interests, are the only things visible from the top of the Rainforest and leave no scope for smaller actors to be viewed, or develop in the business sense.

Given the fact that SMEs contribute to nearly 50% of GDP in high income countries, this could provide an issue to those economies who are looking to rebalance themselves away from credit fuelled consumption to growth led by entrepreneurs and innovation.  Such incumbents include, for example, the Pakistani military who hold a lot of political power and are very reluctant to give away any of it at any cost, which may not always lead to the best solution for the economy.

These incumbents exist not only at the political level, but also among big companies who look to protect their own interests, such as cartels in the oil industry.  Auerswald argued that for entrepreneurship and innovation to thrive, the incumbents, holding back their progress should be removed, or their actions limited, which touched on the creative destruction that is covered in The Rainforest.

Although this may be true in some instances, it is not necessarily the case all the time. Certainly, to try and remove or restrict all of the near ‘monopolist’ incumbents would be hazardous – to use the rainforest metaphor, destroying the canopy is going to remove an important part of the ecosystem, or in this case would be a large setback to any economy, for whom these firms generate billions of dollars.

To say that the incumbents having so much power and doing anything to retain it is a hindrance to entrepreneurship and innovation is in some cases an overstatement as well.  They can in fact be a great stimulation for it. For example, IBM remains one of the top innovators, whilst Google runs projects, which include competitions, to encourage entrepreneurship.

Overall, this is an interesting debate, with support for both sides that stems from just an eight minute speech, but leaves policymakers with yet another difficult decision regarding innovation and has set the scene well for an interesting two days at the Global Innovation Summit 2012.

Nishant Dahad was writing for The Next Silicon Valley at the Global Innovation Summit 2012

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