HN Books @HNBooksMonth

A really good book to read on the subject is AnnaLee Saxenian's Regional Advantage: Culture and Competition in Silicon Valley and Route 128 (http://www.amazon.com/Regional-Advantage-Culture-Competition...). It discusses why Route 128 failed while Silicon Valley flourished. A major part is that under California law, non-competes are not enforceable in California. As people moved freely between competing companies, their ideas, information, and best practices traveled with them. The diffusion of good ideas gave the region as a whole a competitive edge.

⬐ dredmorbius

And in response, California firms repeatedly engaged in (illegal) noncompete and anti-poaching collusion to both drive down wages and limit labour mobility.

⬐ spacecowboy_lon

Then the responsible directors should have been banned for life as not fit and proper persons to be directors of a company.

⬐ dredmorbius

I'd definitely like to see some personal penalty. Though Jobs is already dead.

Worth noting: much as I despise Facebook, Zuckerberg did the Right Thing here and didn't play along (though it's not clear whether or not FB reported the collusion).

⬐ mathattack

Yes - this is an instance where a law can help an ecosystem at the expense of individual players. In aggregate though, it's net neutral for most companies, since they benefit from being able to hire from competitors. The companies doing interesting things probably benefit, while the ones doing boring things get a little hurt.

The (largely untrained) economist in me says that mobility of labor is very important for growth and economic efficiency, as systems work best when the best people flock to the most important well funded ideas.

⬐ new1234567

It's not a net neutral for most companies. It's a huge benefit for all the companies in that area. Skilled professionals have a choice of region and company to work in. IF they choose one with better terms for them, then that region will have a more skilled pool of workers. This benefits companies in that region. One could argue that the stronger ecosystem and pool of employees creates significant benefits that outweigh any corporate advantage due to restricting employee mobility. That's what the above reference is arguing.

⬐ spacecowboy_lon

Which is a good argument for taking employment law away from the states having 52 slightly different sets of laws is not efficient.

Of course this would probably reduce the number of HR roles but hey you cant make an omelet without breaking some eggs :-)

⬐ richmarr

Completely agree with your awesome comment except for one niggle...

> it's net neutral for most companies

My take is that if there were only two companies this would be true. Considering that no company employs more than a tiny fraction of the skilled labour market the vast majority of labour innovation occurs elsewhere.

A company would have to be doing an immense amount of innovation in order to not have a net benefit from free movement of labour.

We could talk about whether the Googles, NSAs, or Amazons of the world hit this threshold, but I'd argue that nobody else does.

⬐ srean

Thanks. You touch upon one of my pet peeves. A huge amount of legislative energy is spent to ensure that capital can move around unfettered. On the contrary, movement of skill and intellectual property seems purposefully hindered. Implicitly it says that capital is much more important than the others, I simply disagree.

⬐ guelo

Yes! Imagine if these trade deals were also about allowing the unfettered movement of people.

⬐ mathattack

It helps for capital to have cheaper labor, and vice versa. :-) The system grows best when both are free. (Incidentally, this is also why I'm ok with stock buybacks. If companies can't put their money to good use, retire the stock and let people invest it elsewhere)

⬐ dredmorbius

It's less that capital is more important and more that it's inherently more concentrated, and hence, more capable of expressing its political will.

A dynamic pointed out quite explicitly by Adam Smith in Wealth of Nations.

⬐ mathattack

There's an economics term for this, though I'm spacing on the name. It's the same reason the taxi lobby is so strong - it's a subset of 1 issue voters with concentrated financial support of key issues. It's also behind why tax loopholes are so hard to close - a small subset cares a lot, but the masses less so.

⬐ dredmorbius

There are several. Smith noted Hobbes's truism: wealth is power. You might be thinking of the logic of collective action, Mancur Olsen.

⬐ mathattack

Yes - Mancur Olson it is. Thanks! It's more subtle than just Wealth is Power, as it also explains some counterintuitive results.

https://en.wikipedia.org/wiki/The_Logic_of_Collective_Action

⬐ dredmorbius

Quite. A personal fave.

Timothy J. Sturgeon’s "How Silicon Valley Came to Be" covers this as well:

   The fact that the San Francisco Bay Area’s electronics   industry 
   began close to the turn of the Twentieth Century should lay to 
   rest the notion that industrialization and urbanization on the 
   scale of Silicon Valley can be quickly induced in other areas. 
   Silicon Valley is nearly 100 years old. 
   It grew out of a historically and geographically specific 
   context that cannot be recreated. The lesson for planners 
   and economic developers is to focus on long-term, not short-term    
   developmental trajectories. Silicon Valley was the fastest 
   growing region in the United States during the late 1970s and 
   early 1980s; but that growth came out of a place, not a technology. 
   Silicon Valley’s development is intimately entwined with the long 
   history of industrialization and innovation in the larger San   
   Francisco Bay Area.

See http://web.mit.edu/ipc/publications/pdf/00-014.pdf I had blogged about this in 2008 at http://www.skmurphy.com/blog/2008/11/05/steve-blank-on-secre...

Three good books on how Silicon Valley came to be

"Understanding Silicon Valley" by Kenney http://www.amazon.com/Understanding-Silicon-Valley-Entrepren...

"The Silicon Valley Edge" by Lee, Miller, Hancock, and Rowen http://www.amazon.com/Silicon-Valley-Edge-Innovation-Entrepr...

"Regional Advantage" Saxenian http://www.amazon.com/Regional-Advantage-Culture-Competition...

See also this thread: http://news.ycombinator.com/item?id=908026

My argument is not that Silicon Valley was inevitable but that it takes a long time to grow an entrepreneurial region.

It's not misleading in raising the bar to areas/regions that want to be the next Silicon Valley and don't have an entrepreneurial substrate and appropriate ancillary services (e.g. attorneys, accountants, banks, that understand startups and entrepreneurs) to form a viable ecosystem.

I don't think the 100 years is misleading, if it had happened somewhere else (e.g. Boston) I think it would still have involved the same antecedents: major universities, risk capital, electronics firms...It may also have been important that it was primarily agricultural land that was pushed aside, if there had been other active industries they may have preferentially competed for the same talent.

Three good books I rely on for this analysis are

"Understanding Silicon Valley" by Kenney http://www.amazon.com/Understanding-Silicon-Valley-Entrepren...

"The Silicon Valley Edge" by Lee, Miller, Hancock, and Rowen http://www.amazon.com/Silicon-Valley-Edge-Innovation-Entrepr...

"Regional Advantage" Saxenian http://www.amazon.com/Regional-Advantage-Culture-Competition...

Face to face communication is still the best. One of the reasons that Silicon Valley works so well is that it is so small. Many industries develop from hubs and it's not surprising that web technology companies would be any different from automobiles (Detroit), insurance (London and Hartford CT), or movies (Hollywood and Bollywood (Mumbai)) to name three other examples.

For some background on Silicon Valley see

Anna Lee Saxenian's "Regional Advantage: Culture and Competition in Silicon Valley and Route 128" http://www.amazon.com/Regional-Advantage-Culture-Competition...

"Clusters and the New Economics of Competition" by Michael E. Porter in the November-December 1998 Harvard Business Review http://harvardbusinessonline.hbsp.harvard.edu/b02/en/common/...

⬐ rokhayakebe

see i think if we all sit down and say SV is the IT and fold our arms it won't work. there needs to be some of us who say "it can be another way". people and money, no matter how abundant in SV, are resources that can and should be distributed in a better manner. before bollywood, first came hollywood. now what if Indians said "we can't compete with the billions of dollars and actors, and connections in CA?" it all starts with "what if?"

⬐ skmurphy

I believe that Silicon Valley will be a startup hub for at least another ten years. I believe that many successful technology startups will thrive in other parts of the world. I don't think these two statements are contradictory. Silicon Valley doesn't have to fail for you to succeed somewhere else. Especially if you are bootstrapping.

As far as I can tell, Bollywood formed around India's domestic market, a market that Hollywood was doing very little to serve. I think the primary barrier to establishing other Silicon Valley equivalent hubs around the world is finding a local culture that doesn't punish failure. It needs not just to tolerate but to celebrate the level of prudent risk taking defines entrepreneurship.

The readers may be interested in "Regional Advantage: Culture and Competition in Silicon Valley and Route 128" by AnnaLee Saxenian, a professor at Berkeley:

http://www.amazon.com/gp/product/0674753402/ref=cm_cr_pr_pro...

The book was written in 1994, one year before the Netscape IPO, but even 13 years ago, the author concluded that Silicon Valley offered enormous advantages over Massachusetts for entrepreneurship. Two points in particular are worth noting:

1. Professor Saxenian paid particular attention to the (back then) highly successful minicomputer companies: Digital Equipment, Data General, Prime Computer, Wang. All of them were vertically integrated companies that attempted to do everything themselves -- R&D, product design, manufacturing, sales, and after-market service. The SV companies were more likely to focus on their core competencies and then network with other companies to provide the missing pieces.

2. Employment laws make a significant difference. Under California law, a non-compete contained in an employment agreement is void as a matter of public policy. In the employment content, California courts simply do not enforce them, and thus companies do not even bother to ask for a non-compete in California. Under Massachusetts law, a court of equity will consider enforcing a non-compete agreement if it is reasonable in terms of scope, duration and geography. I say "consider enforcing" because to a large extent, it depends on which judge decides the case; some judges are more sympathetic to the employer seeking to enforce such an agreement while others are more sympathetic to the employee who needs to earn a salary.

The upshot of this is that in California, labor is extremely mobile. People quit their jobs on Monday and start a new company or work for a new company on Tuesday, and there is nothing the former employer can do in terms of enforcing a non-compete clause. (I am ignoring intellectual property issues that may protect the former company.) Because the new employer know that California courts will not enforce non-compete agreements, it is willing to hire employees that would not be hired in Massachusetts, and investors are willing to fund start-ups that would not be funded in Massachusetts.

In Massachusetts, due to the legal uncertainty and the possibility that a non-compete will be enforced, lots of employees are not hired, lots of start-ups are not started, and lots of start-ups are not funded, that would be in California.

Simply put, Massachusetts could increase its competitive advantage (or more accurately, decrease its competitive advantage) by changing its law concerning non-competes.

One issue that Saxenian and Paul do not address is the quality of the business laws and its court system. Ceteris paribus, a state where business laws make sense and where the courts enforce contracts and handle business disputes quickly and fairly will have an advantage over other states.

The "gold standard" is Delaware. The Delaware Corporations code, for example, is clear, well written and is in almost cases unambiguous. The Delaware Chancery Court (a court of equity that hears all business disputes) is respect through the world for its smart judges who show no favorites, enforce reasonable agreements, and decide cases quickly. Their supreme court (Delaware is small enough so that all appeals go directly to the state supreme court) is equally well regarded. To some extent, companies outside Delaware can opt-in to the Delaware legal system by incorporating in Delaware, giving Delaware jurisdiction to corporate governance issues, for example.

Neither Massachusetts nor California can compare to Delaware. In comparing Massachusetts and California, I believe Massachusetts has the advantage. At the Superior Court level, at least in Middlesex and Suffolk counties (the only two counties with which I am familiar), the judges are very well regarded. Massachusetts has a ton of law schools who produce an excess number of lawyers who do not want to practice law. So when a judgeship opens up, a lot of very good, well educated lawyers apply, and the committee has its pick of the litter. At the appellate level, the judges are also well regarded.

A recent development in Suffolk county has been the establishment of a court -- called the Business Litigation Session ("BLS") -- whose sole mandate is to adjudicate business disputes. Like federal court, the BLS handles the entire case from the time it is filed to trial. Allan Van Gestel is the judge appointed to the BLS. He is highly experienced in business disputes and is very well respected by lawyers who litigate business disputes. So far, none of the other counties have create a BLS, even though everyone agrees the BLS has been quite successful.

In California, the court system is less well regarded. The caliber of the trial judges is very uneven. Appeals in California are often unpredictable -- California is such a large state that different appellate divisions in the state simply disagree with each other, and thus there is not the predictability there is in Massachusetts. And the California Supreme Court does not step in enough to decide the disagreements among the appellate divisions, again because California is such a large state that there are simply too many appeals to the California Supreme Court, a small fraction of which are accepted for review.

James Mitchell [email protected]