Remarks at the CSIS Innovation Forum on the Role of Innovation Ecosystems
Special Representative for Commercial and Business Affairs, Bureau of Economic and Business Affairs
Thank you Sanjay Bhatnagar for your kind introduction and for giving me the opportunity to be a part of this very important forum. Allow me also to extend warm thanks to both the Center for Strategic and International Studies (CSIS) and the Federation of Indian Chambers of Commerce and Industry (FICCI).
Rick Rossow at CSIS is an old friend and deserves a big thanks not only for organizing this important gathering today, but also for his leadership on the U.S.-India Innovation Forum. I know that Assistant Secretary Rivkin, who sits on the steering committee of the Forum, would second my regards.
When I was here in India just a few months ago, in my role as Special Representative for Commercial and Business Affairs, FICCI and Narendra Sabharwal, the IPR Committee Chair at FICCI, were very kind to host a productive roundtable discussion focused on the IP ecosystem and the ways that our two countries can better partner in that space.
But today I want to talk about entrepreneurship and innovation ecosystems more broadly. IPR protections are one necessary ingredient, but there are others. One of the questions I often field from entrepreneurs as well as government officials working on entrepreneurship and innovation is: What’s the key to Silicon Valley? How can we replicate its success?
There’s no one single formula. I don’t need to tell anyone here that the United States doesn’t have a monopoly on entrepreneurial talent. In fact, if you look at the number of new businesses per capita, the Organization for Economic Cooperation and Development’s (OECD) numbers put the United States behind a number of other countries.
If you look at those OECD numbers a little closer, though, you’ll find that the United States does produce proportionately more large start-ups and that new businesses have a better than average chance of surviving for two years. The reason for this, I think, has to do with five key factors:
(1) human resources,
(2) risk tolerance,
(3) access to capital,
(4) a supportive regulatory environment,
(5) and cooperation among all stakeholders.
Allow me to say just a few words about each:
Human resources: Talented, smart, educated, and energetic people
In June of this year President Obama hosted the seventh annual Global Entrepreneurship Summit or GES in Silicon Valley California. GES brings together entrepreneurs and investors from around the world to shine a spotlight on the impact that innovative entrepreneurs can have around the world. This year one of our partners, Silicon Valley Bank, came to me to create a $100 million fund to invest in global entrepreneurs. They also wanted to provide a certain subset of those entrepreneurs attending GES with immediate seed capital. I asked how they would go about selecting that subset since they, after all, are the experts. The number one predictor for success, they told me, was educational attainment.
Both India and the United States share a rich tradition of higher education. Our universities are some of the best in the world. But I have to say that while an educated workforce is undoubtedly important, it’s not the only way for a country to meet with entrepreneurial success. Anyone with a good idea and the drive to see it to fruition can be a successful entrepreneur, especially if there exists a cultural support system that’s conducive to success. And that brings me to the second point.
Risk tolerance: A culture that embraces failure as a key mode of learning
No matter where you go in the world, people are averse to failure. That’s as true in the United States as it is in India. But something culturally interesting has happened in the United States in the last generation or two. Failure, at least among a certain subset of American entrepreneurs, has become a badge of honor.
If every one of the 700 entrepreneurs at GES 2016 would have given up after meeting failure for the first time, I’m fairly certain that President Obama would have been speaking to a lot of empty seats. The reality is that we learn as much from our failures as we do from our successes. And governments, for our part, when celebrating successes, shouldn’t shy away from talking about the failures that made those successes possible.
Access to capital: Public and private policies that value diversity
The next key factor is access to capital; specifically early stage, start-up capital. This is one of the biggest challenges for nearly every entrepreneur I’ve talked to in the course of my own travels. One of the most important sources of capital in developed economies is angel investors and networks. Angel capital networks are not prominent in emerging markets but have the potential to unlock new resources for emerging entrepreneurs.
From a governmental perspective, though, one thing that we in the United States understand very clearly is the importance of making sure access to capital is widespread; that it reaches female entrepreneurs, young entrepreneurs, and entrepreneurs from diverse parts of the country. We’re proud to say that half of all the entrepreneurs at GES 2016 were women, 75 percent were youth, and we made a concerted effort to select entrepreneurs from outside of national capital regions.
We understand it, but even we can do better. While we had American entrepreneurs from 42 of our 50 states at GES 2016, the reality is that there’s still a concentration of capital in a small number of places in the United States. According to the Economic Innovation Group, fully half of all the growth in new businesses came from just 20 counties. And for those of you here who are not familiar with counties, there are more than three thousand of them in the United States.
A supportive regulatory environment: Ease of doing business/Protecting IPR
When we speak of counties—which are like districts in India—we speak to one of the many layers of government bureaucracy. And as we all know, the more layers of government, the greater potential there is for government to stifle entrepreneurship and innovation. It will be critical for the Government of India, state governments, and union territories to continue to reduce these potential barriers to innovation. This will require, as Ambassador Verma said earlier today, “radical thinking, dissenting visions, experimentation, breaking away from past traditions, celebrating diversity, and taking risks.” He said it, of course, about the business culture writ large, but I think it applies equally the way governments think about the promotion of entrepreneurship.
There are of course many policies that contribute to a supportive regulatory environment for entrepreneurship and innovation, but I think the protection of intellectual property lies at the very top of that list. IPR protections encourage investment and innovation, both of which are necessary for continued productivity gains in agriculture, media, public health, and others areas. In short, strong IPR protections are absolutely critical to every major Indian industry from bananas to Bollywood to biotech.
Cooperation among all stakeholders: An inclusive web
Finally, the last of the five key factors that I want to highlight is cooperation. Earlier I met with senior officials at NITI Aayog to discuss the modalities involved in hosting GES. Together our governments identified the next steps and, I’m proud to say, will sign a Statement of Intent to Co-Host GES 2017. GES—in the sense of it being a shared, collaborative model of cooperation—is a perfect example of how we go about creating an inclusive web of stakeholders.
Why do we need governmental cooperation? Recently I was in Tunisia and I met a group of Norwegian entrepreneurs who were developing a mobile app to assist Syrian refugees learn Norwegian in order for them to find jobs in Norway. Norwegians in Tunisia helping Syrians, perhaps even financed with capital from an altogether different country. To me that’s the kind of network that can both spark and sustain new ideas and business growth. That’s why governments have a responsibility to work together on these issues.
If these are the keys to Silicon Valley, the next logical question for someone in my capacity is: How can my government best design a foreign policy that helps cultivate those five factors globally. President Obama, during his 2009 speech in Cairo, addressed that question. He said that we as a government needed to:
“create a new corps of business volunteers to partner with counterparts…to identify how we can deepen ties between business leaders, foundations and social entrepreneurs in the United States and…around the world.”
I’m proud to tell you that we, as a government, have risen to the challenge. The U.S. Department of Commerce has started the Presidential Ambassadors for Global Entrepreneurship (PAGE) initiative and it’s been so successful that later today, as Ambassador Verma mentioned in his remarks, there will be a roundtable discussion focused on the possibility of replicating the model in India.
My office at the Department of State, besides our work on commercial advocacy and IPR protection, has focused on the second part of President Obama’s challenge. As I mentioned earlier, since 2010, there have been seven Global Entrepreneurship Summits. More than 17,000 entrepreneurs, investors, and other ecosystem supporters have come together, once every year, in Washington DC, Istanbul, Dubai, Kuala Lumpur, Marrakesh, Nairobi, and Silicon Valley to deepen the ties that make for successful entrepreneurship ecosystems.
We couldn’t be more excited to be partnering with the Government of India to co-host GES 2017 in India. When I visited India with Assistant Secretary Rivkin and a delegation of U.S. businesses and investors in March as part of our American Innovation Roadshow, it was clear to me that India has a generation of innovative risk-takers ready to address this country’s most intractable challenges.
Ambassador Verma already mentioned all the great strides India has made, whether measured through the Global Innovation Index, or the Ease of Doing Business Index. It’s clear also that Prime Minister Modi cares deeply about entrepreneurship and innovation; Start-up India, Digital India, and the U.S.-India Innovation Council are just a few examples.
It’s also clear that India has some of the most talented innovators in the world. In Gurgaon, I recently met six brilliant social entrepreneurs working on clean technology solutions that will help deliver reliable power to millions of families. One of their companies, ReMaterials, in particular stands out. They are making low-cost roof panels, from agricultural and packaging waste, like cardboard.
ReMaterials is a good example of the talent available in India. It exemplifies social entrepreneurship by identifying eco-friendly techniques for waste disposal and affordable construction materials for low income families. And the solutions are not applicable to any particular country or region: their solutions can help families anywhere on the planet. At the most recent GES, 85 percent of the entrepreneurs on hand were, like those at ReMaterials, self-described social entrepreneurs.
GES, as the preeminent global forum on entrepreneurship, is a shining example of how governments, educational institutions, and private sector stakeholders can work together to foster the kind of entrepreneurial ecosystems that encourage economic growth, business-friendly environments, job creation, and secure communities.
We all know, though, that a single event alone will not bring about overnight change. The United States is committed to President Obama’s vision for Global Entrepreneurship Summits, which he said will serve as a platform “to spark and capture the creativity and imagination [of hundreds of thousands] of people.”
It’s clear that GES represents a spark that inspires innovation and can create opportunities for investment, job growth, and enhanced stability. To turn that spark into a shining torch, the promotion of entrepreneurship and innovation needs to be at the forefront of government thinking. Every government official, from Washington DC to New Delhi and everywhere in between must daily ask themselves this:
What can I do to cultivate human talent, to encourage positive and responsible risk taking, to widen and deepen access to capital even to marginalized groups, to lighten the burden of regulation, and to productively stitch together stronger webs of interdependence among all stakeholders, including entrepreneurs, investors, institutions, academics, policy-makers, and other ecosystem supporters?
If they do, then we will have successfully learned the necessary lessons of healthy and robust ecosystem creation. Thank you.