How Startups Have Changed the Way American Business Thinks

While other countries and regions may create superior products, America generates startups that forever shift the nation's economic structure

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What would things look like today if the great start-up companies of the past three or four decades had not come into existence? What would life be like without Apple or Microsoft? How about no Google or Facebook? No Intel and its offshoots, developing ever-faster semiconductors? No Amazon.com to change the way we shop. No Starbucks. No Genentech, powering the biotech revolution. I could go on. Maybe large companies would have stepped in to pioneer some of these changes in the ways we work and play and consume, in the efficiency of our economy, and the development of new computer hardware and software and drugs. But even so, it would have taken much longer for those changes to be fully realized.

Start-Up NationAmerica is a Start-Up Nation: a living example of the process that Joseph Schumpeter memorably dubbed "creative destruction." Other nations may create superior products and even build world-dominating industries, but the very essence of America's economic and cultural DNA is its ability to generate ever-new generations of startups, spearheading new technologies and business models, creating and transforming whole industries, powering job generation, and raising living standards. While other nations deepen and expand their existing industries and technologies -- Germany turns out more and better cars; Japan and Korea stamp out bigger and higher-definition TVs -- America generates startups that forever shift the nation's whole economic structure.

Our start-up economy has its problems, of course. Nearly two decades ago, I worried that we were being beguiled by something I called the "breakthrough illusion." In a book of the same name that I co-authored with my friend and colleague Martin Kenney, I argued that our relentless focus on startups was hampering our ability to follow through -- that we were ceding too many of the high-paying manufacturing jobs and technical expertise that flow from actually making things to other nations. Many of my fears have been borne out. Our start-up-fueled breakthrough bias has helped create an economy that is more adaptable but also more disruptive: It generates new industries while sacrificing old ones. The process of economic development becomes more uneven; innovation and growth are highly concentrated in certain places. Communities, regions, and whole classes of Americans endure periods of pain and hardship as the locus of innovation shifts from one place to another, and more and more production work is off-shored.

Still you have to ask yourself: On balance, what kind of economy would you rather have -- a dynamic, innovative, self-revolutionizing one, or a staid and static one, built around older and potentially more vulnerable industries?

What makes some places more fertile ground for startups than others? Some believe there's a simple, almost magical formula. "Take one great research university, add venture capital, and shake vigorously" is the way a Silicon Valley wag once put it. The past several decades have seen no shortage of efforts in the United States and around the world to build the next Silicon Valley. It should come as no surprise that very few of these efforts have succeeded.

America's Start-Up Economy emerged out of a half-century or more of painstaking and deliberate effort. During the Great Depression and its aftermath, American thinkers, business leaders and entrepreneurs worried about our economy's ability to recover its former vitality. Harvard's Alvin Hansen argued that the country had exhausted its productive force and fallen victim to "secular stagnation" -- a story that has a familiar ring today. Schumpeter bemoaned the ways that large corporations were smothering the kinds of entrepreneurial impulses that had formerly propelled innovation and economic development. John Kenneth Galbraith wrote scathingly of the onset of a sclerotic, self-interested bureaucracy. The marxist Paul Sweezy excoriated the shift to Monopoly Capital. And William Whyte depicted the rise of the non-descript, ever-conformist, risk averse, go-along-get along type he dubbed simply the Organization Man.

Presented by

Richard Florida is Co-founder and Editor at Large of CityLab.com and Senior Editor at The Atlantic. He is director of the Martin Prosperity Institute at the University of Toronto and Global Research Professor at NYU. More

Florida is author of The Rise of the Creative ClassWho's Your City?, and The Great Reset. He's also the founder of the Creative Class Group, and a list of his current clients can be found here

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