An Israeli investor in the medical devices industry recently complained “Israel has too many start-ups. Israeli companies are great at taking an innovative idea through the alpha stage, but then the start-up goes under because we lack companies with the expertise to fund through beta and scale to manufacturing”. “Aagh”, as my Jewish grandmother would say, “we should only have such problems”.
With the jobless rate for newly minted college graduates at historical highs of 7.5%, Thomas Friedman bemoans policy makers’ lack of focus on what the U.S. needs to create good jobs for the future. “We need three things: start-ups, start-ups and more start-ups,” recommends Mr. Friedman.
To create a dynamic economy, I question if a country needs to excel at every link in the innovation value chain. If Adam Smith could speak to me from my Economics 101 textbook, he would ask, “Why can’t my economic theory of the “invisible hand “be applied to create a free trade approach to global innovation?”
Here’s a free trade innovation model to consider: American industry jointly funds technology incubators that sponsor foreign-grown start-ups. By nurturing and co-investing in early stage technologies, American companies gain two advantages. First, they share the risk of failure (which should be high! That’s what makes these start-ups), and second, they nurture technologies that match their applications and needs.
Adam Smith could not have known in 1776 how “innovative” his theory could be in 2010…