I do not fully agree with that testimony, but I completely agree with the point that if taxing the private sector to raise money to fund startups only works if the public sector is better at predicting success than the private sector. And I think the public sector is worse at that.
How should this affect government policy? Let's take green energy for my example.
First I accept the proposition that basic research benefits from government funding. Why? Because commercialization timelines from are long, research benefits from sharing knowledge, and free sharing of knowledge causes economic benefits to accrue to different people than the ones who did the research. Therefore capitalistic incentives don't work so well. So I'm behind NSF grants into basic science.
Second I accept that carbon fuels have significant externalities and cause global warming. By all means have some kind of carbon tax, or a cap and trade system to make oil more expensive to use. Economic theory is solidly behind this method of making private companies properly account for externalities.
And that is where the government should stop. If the price of gas is high enough, consumers will demand that companies meet strict fuel standards. Additional fuel standards regulations are an admission that the incentives are wrong. If the economic returns are guaranteed to be there, then the free market will throw up solutions. Direct investment in green technologies is an admission that the economic incentives are not there for alternative energy, and breeds companies that are dependent on that direct investment.
"I completely agree with the point that if taxing the private sector to raise money to fund startups only works if the public sector is better at predicting success than the private sector. And I think the public sector is worse at that."
I can think of a number of flaws in this logic - for one, the public sector may not be as good at predicting winners and losers, but public investment can still be valuable if the overall level of investment is too low. The comparison is not strictly with the same amount of money being invested by the private sector - it is also the same amount of money being used in non-startup investment ways in either the public or private sector. Additionally, while the private sector will exclusively target companies with the greatest potential return on investment in cash terms, opportunities will be lost where the social benefit of the startup does not translate directly in to revenue, cash and profit.
That's assuming that the private sector is in fact better at picking winners, and as I allude to in my last point, that their definition of a "winner" is the most beneficial, neither of which are proven.
If you're measuring success by GNP, then it is trivial that the government taxing then spending on something is only worthwhile if the government is making more effective decisions on that something than the taxed people would have through the free market.
You're right that that reasoning ignores social benefits other than GNP. However my experience suggests that it is easier to claim social benefits than measure them. And when you can't reliably measure a benefit, delivery tends to be very inefficient.
That isn't to say that government can't meet that bar. Economic theory says that private enterprise deals poorly with externalities. It is hard for a private enterprise to recoup the value provided by national defense, police, clean water supplies, public health inspectors, etc. For that reason it is economically efficient for us to be taxed so that the government will supply us those services.
However startups are a case where a person who is good at picking then nurturing entrepreneurs recoups the value from doing it well. Therefore there is every reason to believe that free enterprise does that job well, and so no reason to believe that the government is likely to do it better.
In that situation underinvestment is a signal that the market doesn't believe that the returns are there. Artificially improving those returns therefore should stimulate investment. And I believe would do it more efficiently than attempting to directly pick winners and losers.
Do we really think that the Commerce Department can run a venture slush fund without political influence and outright corruption? This is not the responsibility of the U.S. government, it is another avenue for the political class to expand their control of the economy.
I don't think the announcement of a new govt. office is something to be proud of in and of itself. But as a counterpoint to your argument, the SBIR program, also run by the govt. seems to be working really well for startups I personally know without political influence or corruption. I wouldn't say it's the most efficient funding source but it is definitely a net positive.
It is not a net positive because they tax successful parts of the economy and, through a political process, redistribute that money to favored businesses and connected insiders.
Anyway, the U.S. government already operates SBA ($28 billion) and SBIR ($2 billion) among other programs...
And those startups blessed by govt subsidy get an advantage over all other startups...these programs should properly be viewed as hostile to the HN community, because they disadvantage the majority of startups with higher taxes and an unlevel playing field.
And those startups blessed by govt subsidy get an advantage over all other startups
Not that I disagree with your overall premise, but this is true of any kind of investment, and getting an advantage over your competitors is kind of the whole point of business.
Also, I don't understand why the HN community should view this as hostile; what's to stop them from applying? Couldn't one argue that all external investment disadvantages the majority of startups since they don't get any of that investment, which results in an unlevel playing field?
> Also, I don't understand why the HN community should view this as hostile
We view it as hostile because they're taking our money to do it.
You want my money for your biz? Ask me. Don't take it from thugs who took it from me at the point of a gun.
Yes, I've heard all of the "but taxes go for good things". Maybe some do, but ...
Here's my test. If I'm not willing to fund something by pointing a gun at my mother and saying "give me money", it shouldn't be paid for with tax money. Why? Because taxes come from pointing a gun at folks, including my mother.
Is your biz so worthy that I should point a gun at my mother?
It is okay for the government to do that, yes, because they're spending it on stuff that everyone needs in order to have a functional society that allows you to consider making money in the first place.
Some govt spending might meet that description, but do you really think that it all does? If not, what fraction does?
And, even for the money that is spent that way, how do you get from "everyone needs" to "should be funded by govt". For example, everyone needs shoes. Should govt provide shoes?
Well, going by your comment above, do you consider the small business Administration a slush fund beset by corruption? I await further details on this new initiative, but noticed they spoke of reducing red tape; it's not easy for a brand new business straight out of the gate to get SBA funding ('small' businesses can have up to several hundred employees in the US), so personally I like the idea of a 'micro business administration' that could offer bootstrapping assistance and possibly small amounts of seed capital to garage/loft sized outfits.
The SBA has a reasonable good reputation for both utility and probity, so why not use that as a comparison rather than some speculative stereotype of waste and corruption?
Every adult U.S. citizen is a part of the "political class". The greater the involvement, the more you reduce corruption and even out influence. There is no other way for a Democracy to work properly. This is not limited to the paltry amounts being thrown at entrepreneur programs, but to the larger amounts in things like Social Security, Defense spending, etc...
Although I'm not a fan of excess Defense spending, you would be well advised to remember that the Internet would not exist without it.
So, you're saying it's good for the gov't to give a lot of handouts, but to ensure fairness all citizens will have to get involved, follow politics, lobby their congressperson, to ensure the pork is divided fairly.
How about just making the government hand out less pork. Wouldn't that be more efficient? As pork approaches zero, it's not only fair, but founders won't waste all their time writing grant proposals and we all won't have to waste our time getting involved in politics.
I agree with the first part of your response although its not really a goal of this form of stimulus to hand out "fairly". The goal is to provide for macro-economic stimulus.
The second part of your reply depends on many factors. Not every form of stimulus ends up being a "handout" or "pork". Most stimulus can be debated ad nauseam as to if it had the intended effects and most likely if you can measure the effects, you have to do so in longer stretches than 2/4/6 year election cycles.
I completely disagree that people should not "waste" their time in politics. Government is an investment. Its foolish to not oversea and provide/demand input to what you have invested in. This is a core problem with the U.S.: people think they can just pay taxes (preferably low) maybe even be so bothered as to vote once every few years, and government and the economy will run smoothly.
To put it as bluntly as possible: "Democracy belongs to those that show up". If you do not get involved you will most likely find yourself eternally dissatisfied with the results.
> The greater the involvement, the more you reduce corruption and even out influence.
I think you have a naive view of how the United States is run. The majority of the people in this country simply do not have the time/money/inclination to participate meaningfully in the political process beyond (possibly) going to the ballot box. Furthermore, most policy decisions are actually made by unelected career bureaucrats. What ends up happening is that vocal minorities who DO feel strongly about a particular topic end up having disproportionate influence. See http://en.wikipedia.org/wiki/Regulatory_capture for an example, although the phenomenon is more general than that.
From the article:
"...regulatory capture occurs because groups or individuals with a high-stakes interest in the outcome of policy or regulatory decisions can be expected to focus their resources and energies in attempting to gain the policy outcomes they prefer, while members of the public, each with only a tiny individual stake in the outcome, will ignore it altogether. When this imbalance of focused resources devoted to a particular policy outcome is successful at 'capturing' influence with the staff or commission members of a regulatory agency so that the preferred policy outcomes of the special interest are implemented, then regulatory capture has occurred."
That's democracy in a nutshell - except it applies to governments, not just regulatory agencies.
Regulatory capture may always exist to varying degree. To lessen the effect takes involvement.
I fail to see how my view is naive. You only have two choices: "get involved" or "do nothing". I am fully aware most people do nothing (except complain). However, the stats from 2008 elections show significant increase in involvement.
Your view of "democracy in a nutshell" is "democracy performing poorly". It is your choice to take the pessimistic view that it will remain this way. My view is that democracy is a process, not a product.
This is basically taxing the citizens to pay for the expenses of a private company. High time someone defines how and how not a Government can use/abuse tax payer's money.
Let me guess... after I receive funding from GovCo venture fund, they get to strong arm my company with infinite stipulations and rules about diversity, salary caps, mandatory participation in government sponsored community service, or whatever the vote-buying scheme du jour is.
Why'd this get down voted? What he describes in paragraph 2 is not far from what happens with a lot of the current government ventures into the economy.
E.g., private company's wishing to get in on government contracts need to publish their "diversity policies" to ensure they are diverse enough (I guess):
There are countless first world countries that have programs like this and you'd have to be batshit insane to start calling them facist nations. Maybe the people doing the voting down are from some of those countries. In Australia we have a programs like this.
Just out of curiosity will this program fund the artists in America? I ask because as a ceramic artist I work out of my studio in my barn. I give an "Art for Kids Program" that was created to be affordable to children in the Myakka City, Florida area. And, even still at the price of $10.00 per 3 hour class, they still cannot afford the program.I started the program because Myakka City is approximately 30 miles away from the nearest business establishment a child can go to for entertainment. The program is meant to get children off the couch, away from video games, and up from the computer doing something creative. I have been lucky enough to get a few businesses to donate clay, glazes and tools for the kids to work with, but the problem still remains that they can not afford the $10.00 to attend with today's economy. There are programs out there for artist, but an artist has to be nominated for the award, or the awards are so small that it barely pays for studio equipment. It is a worthy program of sponsorship, but then the problems remains as to, how do I afford to pay employees, and provide insurance for them, if the grants available to artist are so small. Read more about the "Art for Kids Program" at http://www.ladyhawkofheartland.spaces.live.com. Or am I off my rocker, for wanting help with a program that would open the minds of young children, and cause them to challenge themselves to do better and achieve more. I am thinking that the program shows Entrepreneurship, or am I incorrect in my thinking. Blondell Lehocki.
So, wait, the federal government will actually actively help and support startups.
...
No, drawing a blank. Can't find anything wrong with this at all. This is actually how federal money should be spent, after all - investing in capital. Even if you view this through a lens of cynicism, the fact still stands that companies'll probably survive and thrive a lot more with governmental help than without. Which benefits everybody - more people make more money, which means they pay more taxes, which means the government can fund more startups, etc.
I like it. I hope it works out as intended. This is definitely one of the few inarguable ways to get an economy moving along.
Europe in particular but also states, cities and regions in the US are filled with these types of programs designed to promote startups. When I was younger I've been in them both in Denmark and in England.
I'll go out on a limb and say that they have not helped one successful startup, who wouldn't have made it on their own.
The real benefit of these programs is that politicians get to say they are being proactive about helping startups. All we really need is less red tape and general meddling in what we do.
I would say that I have plenty anecdotal evidence, but I prefer baseless speculation.
Anecdotal evidence is that a small (probably less than 10) prolific European investors like the Skype founders, Fon's Martin Varzavski et al have done a fantastic job promoting entrepreneurship Europe wide.
My baseless speculation is that they have probably done considerably more in the past 10 years than the last 20 years worth of EU and state sponsored 'enterprise programs' and my guess is for a fraction of the money spent on setting up all the 1000s of enterprise agencies, regional enterprise centers etc sprinkled throughout Europe.
US state and local governments are also filled with these local business development agencies and startup one stop shops. I just haven't spent any time looking at them, so yes I can only speculate that all of them together have had less positive effect on the world than one Paul Graham.
Of course since Obama unlike all the governments of Europe always surrounds himself with the smartest people in the world, this is sure to be different. This time government will finally come through for us and help us out.
While I'm sure your point is valid, how much of it is tainted by the fact that mom-and-pop startups simply aren't the sort that gets sexy coverage? Exactly how many regionally-locked businesses were actually dependent on these government business aid programs for their initial creation? And how many of them continue to thrive?
I rather suspect the tech industry may be somewhat self-absorbed in its own successes. Just because we managed to pull it off without government aid, for the most part, doesn't mean that our success stories are the norm. Besides, pushing a lawnmower through the red tape's quite a bit of help on its own.
Why is federal money--which is distributed based upon bureaucratic and political whims--better for investing in capital than private investment, which has incentives to invest as profitably as possible? Wouldn't it work just as well for the government to lower taxes (or to spend more on public goods, i.e. healthcare) and allow that money to do what it was going to do anyway, more efficiently?
To put it simply, direct investment plays a lot better with business owners' incentives than lowered taxation.
It's a false corollary to expect lowered taxation to immediately equal greater spending - especially in times of economic flux, that sort of government action mainly encourages /hoarding/ behavior, which isn't good for the economy's health.
On the other hand, direct investment in startups gives an immediate incentive to spend - spend and grow.
Spending more on public goods like health care helps - the money we'd save with a public option is obvious to anybody that isn't a far-right ideologue. But that's /saving/ wealth, not /creating/ wealth. When you finally snip away all the excesses and waste generated by the current model of health care coverage, you still need something to pay for the cost of the improved system itself.
> that sort of government action mainly encourages /hoarding/ behavior
Citation needed?
> Spending more on public goods like health care helps
I think most of us are fine with government supporting the public good, building infrastructure, etc. But it's a little sleazy to directly fund startups. I mean, if my uncle donates to Obama's campaign, will my business get special treatment? (That's how it works here in Illinois, or so it seems...)
"It's a false corollary to expect lowered taxation to immediately equal greater spending - especially in times of economic flux, that sort of government action mainly encourages /hoarding/ behavior, which isn't good for the economy's health."
Hoarding usually means saving, and saving usually means investment, since most people save in interest-bearing accounts that one way or another turn out to be investments. You definitely want a good mix of investment and spending (not too much or too little of either) but it's rather ham-fisted for the feds to invest the money themselves.
http://www.commerce.gov/NewsRoom/PressReleases_FactSheets/PR...(...) Office of Innovation and Entrepreneurship
The mission of the Office of Innovation and Entrepreneurship is to unleash and maximize the economic potential of new ideas by removing barriers to entrepreneurship and the development of high-growth and innovation-based businesses. The office will report directly to Locke and focus specifically on identifying issues and programs most important to entrepreneurs. Working closely with the White House and other federal agencies, this new office will drive policies that help entrepreneurs translate new ideas, products and services into economic growth. The office will focus on the following areas:
Encouraging Entrepreneurs through Education, Training, and Mentoring
Improving Access to Capital
Accelerating Technology Commercialization of Federal R&D
Strengthening Interagency Collaboration and Coordination
Providing Data, Research, and Technical Resources for Entrepreneurs
Exploring Policy Incentives to Support Entrepreneurs and Investors
It doesn't sound much like a fund to me, more like a clearing house or head start program for the self-employed.
The National Advisory Council on Innovation and Entrepreneurship will ... include successful entrepreneurs, innovators, angel investors, venture capitalists, non-profit leaders and other experts (...)
They have been influenced by this detailed and somewhat surprising report produced for the Small Business Administration in 2004 ('A National Assessment of Entrepreneurship
and Regional Economic Growth and Development'): http://www.sba.gov/ADVO/research/rs256tot.pdf
There's pretty near unanimous support among people who care about the issue at all. Startups that have immigration problems mostly would like such an option. And to those that don't, what difference would it make if another few thousand (mostly smart) immigrants were allowed to come to the US?
bokonist's comments on this thread were incredibly good. I get the sense that I'm nowhere near him on the political spectrum, but I couldn't stop reading what he had to say about this and found him very persuasive.
It's true that if the government implemented such a program, they'd probably do a bad job. But they couldn't do worse than they're doing now, which is to turn people away at the borders.
If the strongest argument you can make against a proposed government policy is one that you could make against any government policy, then it's pretty good, as proposals for government policies go.
I agree that by default the government does things badly, and that the government ought therefore to do as little as possible. But immigration policy is an area where they're already acting, and going to continue to act. So it's reasonable to propose ways to act more intelligently.
bokonist even concedes that your proposal could be beneficial in the short term. It's what it does in the medium-long term that concerns him. So, I think the Founders Visa is bad policy. You asked, there's my response.
That aside, I'm with sachinag. This issue is a red herring. If we want to foster startups in the US, we should start by addressing barriers that face US citizens:
It's true that if the government implemented such a program, they'd probably do a bad job. But they couldn't do worse than they're doing now, which is to turn people away at the borders.
There's pretty near unanimous support among people who care about the issue at all.
pg, this is absolutely false. Maybe you haven't been reading all of the recent HN threads on this issue, but the highest-rated comments tend to oppose founder's visas.
what difference would it make if another few thousand (mostly smart) immigrants were allowed to come to the US?
Multiple people have pointed out that a founder's visa program would have larger ramifications, and you've replied to at least one of them so you must have seen answers to this question.
There is widespread support for the idea of allowing founders to immigrate. There is scepticism that this can be executed in a way that is a net gain. Some people are sceptical at a practical level and others at a theoretical one.
I don't. My colleagues post on HN and we probably have the same external IP address. If you don't believe me, I will stop posting if you just ask. However, I don't see why you need to assume my guilt. I wonder if you still would have done that if I'd agreed with you earlier instead of disagreeing.
I was actually just curious. Usually when people create new accounts, it's because they want to say something they don't want associated with their main account. A few others do it to vote up their own comments. But neither seemed to be the case here.
The reason I thought you weren't a new user was that you used HN's idiosyncratic markdown subset on your first comment. That's very rare. But if you say you're different people, I'll take your word for it.
I am disappointed that investors that openly support a founder visa have not published a pitch on par with what they expect from founders pitching to them. You guys should be able to write better pitches than anyone, right? You have access to the best data, right?
I don't think anyone expects your first essay that brought this issue to light to be anything more than an essay. It was well written and I agree with the general idea. But that's not enough to "fund" the deal. Where is the hard data on these assertions that investors are missing out and if they had access to founders visas, what the return would be to the economy.
When it comes to IT startups, I think its a tough hurdle to show there would be net job creation. Its my understanding that most IT value propositions, if achieved, result in a net reduction of labor. I know that at least one aspect of the value proposition for every IT project I've ever worked on in 20 years was to reduce labor costs. This was true from $250M enterprise projects to $50K bootstrapped ones.
Although I'm not hearing unanimous support for the founders visa, those that are questioning it do seem to be pro-immigration in general. So if there is a stir in these quarters, what happens when this issue gets in front of Americans that think building a wall covering the entire Mexican border is a smart and achievable goal?
There's pretty near unanimous support among people who care about the issue at all.
It's extremely illogical to equate not supporting the founder visa to not caring at all about the issue. I care about the issue and I don't support a founder visa. There are plenty more as well.
I'm a little suprised by your reply - I haven't seen an entrepreneur say "We don't really want a founders visa" either.
We've seen several threads on news.ycombinator on the need for a "founder's visa" and immigration reform. The current H1 visa system is cearly busted. If there is going to be a new office set up for early-stage entrepreneurs, this is certainly one of the important tasks at hand for the federal office.
Eyeballing the whole thread, it looks like support ran 50/50. Note that, for instance, arguing for a "more Canadian-style immigration policy" is not the same thing as supporting the Founders Visa proposal. We are allowed to believe simultaneously that H1-B is busted and the Founders Visa is a bad idea.
Wait, no, here's a more recent thread about Founders Visas. It's got 89 votes. The top comment opposes founders visas:
I see many of these comments as criticisms of superficial implementation details, that don't necessarily indicate opposition to all variants of the Founders Visa idea.
Comment votes, top-comments or even prevalence of critical comments are not reliable indicators of net agreement/disagreement. Threads have lots of factors that cause criticism and disagreement to be over-represented, or cause quibbles to be misinterpreted as opposition.
I myself would criticize the 'investors panel' mechanism because I support the overall gist of any policy to increase founder immigration. Sure, I understand bokonist's critique and I'd prefer saner non-political mechanisms for boosting beneficial immigration.
But given that immigration policy will continue to be a bureaucratic mess -- there's no 'grand fix' proposal on the table as an alternative -- even a flawed program could be worthwhile. All the existing 'doors' through which immigrants enter are politically-flawed; why not have one more door, also admittedly flawed, through which a few more valuable immigrants might enter?
Most agree that things like the H1-B program are broken. We have tons of data over many years to support this.
The assertion that creating a founders visa enables more successful startups that in turn makes the economy grow (preferably sustainable growth) has not been proven at all. Its a very nice assertion, and I'd like to buy into it, but I have seen no meaningful data in support.
I do not fully agree with that testimony, but I completely agree with the point that if taxing the private sector to raise money to fund startups only works if the public sector is better at predicting success than the private sector. And I think the public sector is worse at that.
How should this affect government policy? Let's take green energy for my example.
First I accept the proposition that basic research benefits from government funding. Why? Because commercialization timelines from are long, research benefits from sharing knowledge, and free sharing of knowledge causes economic benefits to accrue to different people than the ones who did the research. Therefore capitalistic incentives don't work so well. So I'm behind NSF grants into basic science.
Second I accept that carbon fuels have significant externalities and cause global warming. By all means have some kind of carbon tax, or a cap and trade system to make oil more expensive to use. Economic theory is solidly behind this method of making private companies properly account for externalities.
And that is where the government should stop. If the price of gas is high enough, consumers will demand that companies meet strict fuel standards. Additional fuel standards regulations are an admission that the incentives are wrong. If the economic returns are guaranteed to be there, then the free market will throw up solutions. Direct investment in green technologies is an admission that the economic incentives are not there for alternative energy, and breeds companies that are dependent on that direct investment.