Creating Silicon Valley in Europe: Public Policy Towards New Technology Industries

Citation

Sharma, M. and Joshi, S. (2012), "Creating Silicon Valley in Europe: Public Policy Towards New Technology Industries", International Journal of Social Economics, Vol. 39 No. 9, pp. 738-740. https://doi.org/10.1108/03068291211245745

From 1970s onwards entrepreneurship has become institutionalized. The Silicon Valley model is the standard for policy makers when they consider orchestrating the institutional systems needed to engage in radical innovation. It refers to a relatively standardized set of financing, governance and organizational techniques used to package entrepreneurial ideas into new ventures. Entrepreneurial business models organized within small innovative firms are characterized by the development of three competencies: the management of high risk finance, development of human resources within a competency destroying environment, and the creation of sufficiently high powered motivational incentives for personnel. These three competencies are closely related to technology adaptation in innovative firms. However, the feasibility of each is impacted by the nature of national institutional frameworks. The Silicon Valley model has developed to govern the commercialization of radically innovative industries across coordinated market economies (CME) and liberal market economies (LME)[1].

The book examines ways and means by which new technology industries emerge and become sustainable across different types of advanced industrial economies. It employs empirical studies of the biotechnological and software industries in the USA and three European economies to examine the relative success of policies aimed at cultivating the “Silicon Valley Model” of organizing and financial companies in Europe. This model is the standard for policy makers when they consider organizing the institutional systems needed to engage in radical innovation. The close proximity of firms to a knowledge base and the availability of venture capital to seed and grow a new venture are intended to entice entrepreneurs to commercialize new scientific knowledge or invention. The success of the US biotech industry, and especially the Silicon Valley model, has stood out as an example to other nations and provided a blueprint to jumpstart an industry.

The success of Silicon Valley has led to the diffusion of a well‐defined model of financing, managing and organizing new technology firms. This model surrounds the use of venture capital to finance companies, corporate governance arrangements, employing ownership stakes in the company to generate high powered performance incentives for managers and employees, and flexible patterns of company organization that employ short term employment to facilitate project‐based work environments.

The Silicon Valley model has become institutionalized across the advanced industrial economics and is commonly employed to manage new ventures in technologically turbulent or “radically innovative” industries.

Steven Casper's book is organized into two parts followed by a conclusion. Part I contains structured comparisons of the ability of LMEs and CMEs to sustain new technology companies focused on radically innovative commercialization strategies. It also explores the “varieties of capitalism” perspective to develop a theoretical framework used to generate expectations linking national institutional structures within LMEs and SMEs to the sustainability of radically innovative companies. The core of this analysis focuses on the development of company competencies associated with the Silicon Valley model of organizing and financing companies, drawing on empirical examples from biotechnology and software.

Part II investigates alternative pathways by which entrepreneurial technology firms located within organized market economies can become sustainable. The theoretical expectations from this argument are tested through examining patterns of subsector specialization of publicly listed biotechnology and software firms across the UK, Germany and Sweden.

This book explores that national institutional frameworks do strongly impact the emergence and sustainability of new technology companies. A key aspect is the issue of how public policy can have an important role in stimulating industrial performance in new industries, across both LMEs and CMEs.

The global appeal of Silicon Valley model of organizing new technology firms represents a strong test of varieties of capitalism (VoC) theory. A primary contribution of this book is to use the VoC perspective as a starting point to develop and test whether institutional frameworks strongly impact the introduction of new forms of economic organization of the economy. Study of the emergence of the San Diego biotechnology cluster poses the question of why so few biotechnology clusters with radically innovative firms have succeeded in the USA. There are many regions in the USA with world‐class universities and medical research. Yet, only the San Francisco, Boston and San Diego regions have been able to create and sustain successful biotechnology clusters. The “varieties of capitalism” perspective does not provide an adequate explanation as to why there is regional heterogeneity in the institutional systems of national economies. Hall and Soskice (2001) have made the strongest arguments linking institutions to competitiveness, arguing that contrasting patterns of coordination represent comparative institutional advantages that conduce towards success in how companies can govern some innovation strategies, and disadvantages in others. The explanation that Casper offers lies in the social network within a cluster that creates a “flexible recycling mechanism” (Bahrami and Evans, 1995) of knowledge and labor. Unsuccessful clusters that remain small and do not generate a critical mass of firms are unable to create this social network that is not only used to share information and ideas but also to lower the risk that employees face in accepting a high‐risk position in biotechnology firms that have high failure rates.

Countries outside of the USA, for example Germany, The Netherlands and other continental European countries, have also tried to replicate parts of a Silicon Valley model in an effort to increase radical innovation in “new” industries. From a VoC standpoint, the German biotechnology industry is an intriguing case to study as it represents a stark contrast with the incremental innovation in “old” industries that the German institutional systems support. According to the VoC framework, one would expect that the comparative institutional advantage of Germany's institutional framework would not support the radical innovation associated with biotechnology firms. The author suggest that German biotechnology firms follow strategies of incremental innovation within the biotechnology industry. Since many characteristics of the Dutch institutional framework are similar to the German systems, the same assumptions hold for The Netherlands.

Yet the question that continues to be raised is: can economies that have fundamentally different institutional environments orchestrate the Silicon Valley model through policy? What happens to firms and institutions when policy initiatives encourage innovation strategies that are incoherent with their national systems? And what kinds of adjustments do firms make to compensate for the shortcomings in the system?

In the last few years, comparative capitalism, and neo‐institutional theory in general, has been criticized for being too deterministic in its view of path dependence (Crouch, 1997) and its lack of recognition of actors' capabilities in changing institutional frameworks or creating alternatives to the dominant paths. The process of institutional change and of the hybridization of institutional systems as actors seek alternatives to dominant paths is gaining.

The book's empirical findings support the view that national institutional factors strongly condition the success of new technology policies. However, the study also identifies important cases in which radically innovative new technology firms have thrived within organized economies. Through examining cases of both success and failure, Creating Silicon Valley in Europe helps identify constellations of markets and governmental activities that can lead to the emergence of sustainable clusters of new technology firms across both organized and LME.

Notes

LMEs and CMEs are the commonly used term in the area of capitalistic economy.