comment 0

Challenging Silicon Valley’s Innovation Hegemony

For several decades, Silicon Valley has had a near-monopoly on innovation. The Valley emerged out of America’s deep commitment to higher education and scientific research, combined with the American will to maintain leadership in defence technology. Through the second half of the 20th century, China was disastrously experimenting with Maoism, India was embracing Socialism, a fragmented Europe was rebuilding after the Second World War and the other superpower, Soviet Russia, was persisting with its Communist economic model. The Americans invested public and private capital in fundamental research and development, allowing private enterprise to drive economic growth and entrepreneurial small businesses to commercialize publicly-funded scientific research. America invented the venture capital model to commercialize such research.

It stood out as an oasis in a world where central planning and a state control of the economy was the norm. Owing to a liberal immigration policy, it became a magnet for talent from around the world. Scores of scientists migrated from Europe to America in the throes of the Second World War, including titans like Enrico Fermi and Albert Einstein. Nobel laureates Hargobind Khorana and Subramanyan Chandrasekhar, both of whom completed their college education in India, also made America their home.

The migration of talent from other parts of the world to America continued through the 1960s and 1970s, with the best talent from China and India making the move, thanks to the economic havoc caused by the destructive ideas of Chairman Mao and Prime Minister Indira Gandhi.

In this way, America managed to consolidate the world’s best scientific talent. It then gave them a platform and funding to invent and create. The scientists and engineers who went to America might not all have founded technology companies, but through their work at private research labs, government research institutions, universities and startups, laid the foundations for America’s technological prowess that underpins its military and economic might to this day.

It is important to recognize that this was a historical aberration and cannot be sustained by design — America positioned itself to benefit from the poor choices that the rest of the world made. A reversion to the mean is underway, and the tide has started turning over the last two decades. Besides increased economic and financial integration worldwide permitting capital flows on a global scale, economic reforms catalyzing sustained growth in Asia and the creation of a common market in Europe have fostered economic blocks that can compete with America.

Sector after sector has become more globalized. Venture capital investing, long the exclusive preserve of a clutch of firms on Silicon Valley’s famed Sand Hill Road and till recently heavily concentrated in the United States, is now unmistakably global. Risk capital flows to places that have talented people pursuing breakthrough business ideas — and sustained global growth over the last two decades has set the stage for a need for technological innovation across economies and geographies. The rise of the Asian consumer is creating opportunities for innovation in all kinds of consumer products. Transplanting ideas from elsewhere doesn’t always cut it with the taste and sensibility of consumers in Asian countries. With increasing consumption, there is a glaring need for efficiency in resource utilization and energy use.

Challenging economic conditions combined with more stringent immigration policies in developed nations have made it appealing for accomplished scientists and engineers from developing nations to return home, where in many cases there is stronger economic growth alongside a new focus on nurturing and financing science and technology. This has set the stage for venture capital investing in emerging markets.

America has a long lead, but the rest of the world is catching up. It will continue to maintain primacy in Internet innovation in particular because of the spending capacity of the American consumer. The Internet is a platform for consumption, be it consuming information which allows for digital advertising to flourish or purchasing products through Internet-based retailers. America’s consumption power allows it be the breeding ground for global Internet giants such as Google, Amazon and Facebook, and it will dominate in web innovation as long as the American consumer has clout.

New York-based venture capitalist¬†Fred Wilson recently wrote¬†about how the Valley’s dominance could be upended if there was a new wave of technological disruption, far separated from the computing and Internet industry on which the Valley has been built. Wilson said that should Silicon Valley miss such a new wave, it could look like Detroit in a few decades.

Just as a consumer-centric economy allows it to dominate Internet innovation, it also creates an insulation from innovation in non-consumer industries. The world has become a dramatically different place in the last few decades, and such innovations that define the next wave of technological disruption can come from any nation that has a sufficiently large pool of talented people working to solve the big challenges in energy, health care, clean technology and other sectors. That would weaken Silicon Valley’s grip on driving innovation — and further undermine America’s standing as a global power.

Originally Published: