Friday, July 2, 2010

Do you have a U.S. Strategy?

Seems like an appropriate question to ask as we enter the 4th of July Holiday weekend. My wife's boss, Andy Grove, penned the cover article on the current issue of Business Week, "How America Can Create Jobs". Andy argues against common wisdom here in Silicon Valley that start-ups are behind all new job creation. He points out that manufacturing employment in the U.S. computer industry is less than it was 35 years ago, while at the same time, a very effective manufacturing industry has emerged in Asia employing 1.5 million workers. A similar trend is happening in alternative energy, the industry that has greatly benefited from both venture capital and US government assistance over the past decade.

Never one to propose popular or easy plans, Andy suggests rebuilding our industrial infrastructure and employment through financial incentives and taxing products of offshore labor and using the proceeds to incent companies to scale their American operations. He believes that this transfer of manufacturing and engineering expertise out of the country will ultimately lead to less innovation.

When my wife first mentioned this Job Wars research project she was working on a few months ago, I responded with the traditional view that start-ups are the vehicle of job creation and government policy should be to not get in the way of this ecosystem, as New York Times Columnist Thomas Friedman argues in "Start-Ups, Not Bailouts." I sent her a bunch of data to refute these claims. According to the Venture Impact Study sponsored by the National Venture Capital Association ("NVCA"):
  • In 2008, Venture Backed companies employed more than 12 million people and generated nearly $3 trillion in revenue (11% of private sector employment and 21% of GDP)
  • Venture Backed Company Job Growth was 8x private sector job growth from 2006-08
  • In 2008, one U.S. job existed for every $37,702 of venture capital invested from 1970-2008
Let's assume these statistics are true (of course that may be a leap, as my wise father-in-law used to say, "Figures Lie and Liars figure"). This does show that venture backed companies have a huge impact on the US economy. However, it doesn't tell the rest of the story about how much larger these numbers might be without transferring a large portion of GDP overseas. As I think more about this, Andy may have a point.

Perhaps a discussion worth having at your beach parties and barbecues this weekend. Enjoy the fireworks!