The Rise of the High-tech South

November 8, 2011

The current issue of The Atlantic includes the feature Special Report: Start-Up Nation that documents the gradual but inexorable geographic spread of “the start-up ethos” throughout the country and includes a road-trip through the Southeast searching for the next Silicon Valley.

Senior Editor Richard Florida writes of places which “embrace an ethos that encourages rather than crushes startups and the broader mentality from which they grow.”  He quotes Paul Graham, founder of Y Combinator, who recently coined the term “startupicide” when describing cities or regions that might as well have been sprayed with something to suppress entrepreneurial activity:

I could see the average town was like a roach motel for startup ambitions,” he wrote. “Smart, ambitious people went in, but no startups came out…The problem is not that most towns kill startups. It’s that death is the default for startups, and most towns don’t save them.  Instead of thinking of most places as being sprayed with startupicide, it’s more accurate to think of startups as all being poisoned, and a few places being sprayed with the antidote.

Mr. Florida praises the Southeast’s entrepreneurial spirit and acknowledges its great universities, research centers, and industry clusters before citing detailed data on venture capital investments which indicate the region has now surpassed New York and is closing in on New England as #2.  (The same pattern can be seen in the latest version of the Milken Institute’s Tech-Pole Index, in which Southeastern metros account for one in five among the Top 50.)

Venture capital by region, per PWC’s 2010 Money Tree report:

  1. Silicon Valley $9.1B 40%
  2. New England $2.6B  11%
  3. Southeast $2.1B  9.2%
  4. New York $2.0B  8.6%

Mr. Florida applies Joseph Schumpeter‘s theory of creative destruction to Mancur Olson‘s theory for the rise and decline of nations and concludes that the Southeast would have a mercantile-like advantage but for the fact that employers can (and do!) simply move and join its attractive business climate:

Leading nations as well as leading regions, he (Olson) concluded, decline as a result of one overwhelming factor that he dubbed “organizational sclerosis” — a hardening of institutional, economic, and cultural arteries that leaves them incapable of dealing with a new and rapidly changing economic environment. Sound familiar? Practices, patterns, and norms of organizing and doing business that once worked so well become a constraint, a fetter, an obstacle to further progress. Decline sets in as once-dominant places get locked into the past and are unable to adapt to new circumstances, new technologies, and new conditions. A geographic analog to the process of creative destruction takes hold as new technologies, new business models, new values and norms, new industries and ultimately new institutions, and new ways of organizing economic activity shift to new places.

In Olson’s view the United States was fortunate, because it is a big country. While previous epochs of economic and geographic change tended to jump from country to country — moving, say, from Holland to England and later from England to the United States — America is so large that this process of rebirth and remaking can occur within its own boundaries.

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