# The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World

Amar Bhidé
Pages: 520
https://www.jstor.org/stable/j.ctt7snqb

1. Front Matter
(pp. i-vi)
(pp. vii-viii)
3. Preface
(pp. ix-xii)
4. Introduction
(pp. 1-30)

Many manufacturing companies that once flourished in the United States have succumbed to overseas competition or have relocated much of their activity abroad. Domestic employees of U.S. companies make few of the ubiquitous objects of daily life—most of the clothes and shoes that Americans wear, their furnishings, children’s toys, TV sets, phones, and computers are produced by foreign companies, typically in foreign factories. Even the ships and containers that carry these goods to the United States most often come out of overseas shipyards and factories.

Now services appear to be reprising the journey of manufacturing. Just as the manufacturing...

5. Book 1 Cautious Voyagers: Why VC-Backed Businesses Still Favor Home
• Book 1 Cautious Voyagers Why VC-Backed Businesses Still Favor Home
(pp. 31-40)

“No right-thinking businessman or woman, whether in El Paso or Detroit, thinks in terms of the U.S. only now,” says Richard W. Fisher, president of the Federal Reserve Bank of Dallas. But how much does the world outside really matter to the more than twenty million small businesses in the United States? The barber in New York may have been born outside the United States and may trim the locks of numerous immigrants. But it would be a stretch to say that the barber participates in international trade. Similarly, the neighborhood florist who buys roses from a local wholesaler may...

• 1 VCs in New Ventureland
(pp. 41-58)

VC-backed businesses differ from each other more than do barber shops or restaurants—for instance, in what they sell and whom they sell to. Yet they do share common characteristics. I will highlight some of them by comparing VC-financed firms with other kinds of new or emerging businesses. These distinguishing features will help explain the nature and extent of the cross-border interactions of VC-backed businesses. The comparison will also illuminate an important feature of the overall innovation game, namely the high degree of variety and specialization of the players. As we will see, even the relatively broad category of VC-backed...

• 2 Advancing the Frontier: The Nature of Mid-level Innovation
(pp. 59-100)

The role of mid-level innovators—as exemplified by many VC-backed businesses—has not received the attention it deserves. Many researchers and policymakers make no distinction between levels of know-how and product development, or they focus only on the development of high-level knowledge. I emphasize the distinctive features of the middle level for two reasons: As we will see in later chapters, how mid-level players innovate has a significant influence on their overseas marketing initiatives, and their use of offshoring and immigrant labor.

Understanding what mid-level innovators do—and what they need in order to flourish—will also buttress the analysis...

• 3 Marketing: Edging into International Arenas
(pp. 101-151)

Advocates for free trade and globalization argue that rapid economic growth in China and India is good for the United States because it expands opportunities for U.S. exporters, particularly of advanced technology products. As evidence, they cite the fact that international sales of high-tech companies such as Intel and Microsoft have boomed. But export opportunities are not equally attractive for all U.S.-based players in the innovation game; high-tech products don’t comprise a homogeneous category like soybeans or corn. As we will see in this chapter, only a small number of the VC-backed businesses in my study pursued customers abroad in...

• 4 Offshoring: The Ins and Outs
(pp. 152-205)

Colonial powers once went to war to secure overseas markets, but today export opportunities do not have a significant place in the popular consciousness. Rather, offshoring—which leads to the importing of goods and services—dominates the discourse on trade. Populist critics, such as Lou Dobbs, oppose offshoring of any and all jobs, while techno-nationalists don’t mind “mundane” offshoring, as long as the United States can offset that exodus by creating high-paid employment in activities such as R&D. But according to some techno-nationalists,¹ that’s no longer happening: witness the rush, they say, by VC-backed businesses to relocate their development activities...

• 5 Founders and Staff: Global at Home
(pp. 206-238)

The participation of immigrant scientists and engineers in the U.S. high-tech industry is in some ways a forerunner of and a substitute for the offshoring of innovative activities. Programmers from abroad working “on-site” (on client premises) in the United States paved the way for offshoring; and now that offshoring is well established, overseas programmers can work for U.S.-based companies as immigrants or as offshore workers. Like offshoring, immigration evokes anxiety and debate. Critics argue that immigration depresses the wages of scientists and engineers in the United States. This discourages the nativeborn from pursuing careers in these fields and makes the...

• 6 On Methods and Models
(pp. 239-250)

Some scholars will ask why I have not tested my conjectures (about, for instance, what factors affect the number of immigrants employed by a firm) through a regression analysis. A traditional econometric procedure would start with a linear “model” of the form

${\rm{Y = }}a{\rm{ + }}{b_1}{x_1}{\rm{ + }}{b_2}{x_2}{\rm{ + }}{b_3}{x_3}{\rm{ + }} \ldots {\rm{ + }}{b_n}{x_n}{\rm{ + }}\varepsilon$

In this equation, Y, the dependent variable, could be the number of immigrant employees; eachxwould represent an independent or explanatory variable—the revenues of the firm, the number of immigrant founders, whether or not it is located in California or has an immigrant CTO, the number of patents filed (or better yet, cited in other...

6. Book 2 Embrace or Resist?
• Book 2 Embrace or Resist?
(pp. 251-256)

In book 1, I suggested that globalization is not proceeding at breakneck speed on all fronts. But to deny that economic engagements across great distances have increased—including those involving innovative activities—is like questioning the spheroidal shape of the earth. Our interviews with VC-backed business represent a snapshot—albeit one with a nearly two-year exposure—not a movie. Although my findings suggest that the global engagement of VC-backed businesses is less than many make it out to be, it is almost certainly greater than it was just a couple of decades ago. For instance, many interviewees told us that...

• 7 Alarmist Arguments
(pp. 257-271)

When the United States secured independence, its economy was dominated by the production of agricultural and other commodities. Alexander Hamilton, the first secretary of the U.S. Treasury, produced, in 1791,The Report on Manufactures,which proposed a system of tariffs and subsidies to nurture “infant industries” that would not otherwise survive in the face of more established competitors from Britain and continental Europe. Although there was debate about the desirability of moving away from an agricultural economy and the protection of infant industries, Hamilton’sReportwas profoundly influential, and many of its ideas were later incorporated into Senator Henry Clay’s...

• 8 The Reassuring Realities of Modern Cross-Border Flows
(pp. 272-286)

Once upon a time it might have been reasonable to assume that new technologies would only be used by domestic, vertically integrated firms (or “regional clusters”) and that only the final goods and services they produced would cross national borders. This is not an accurate representation of cross-border flows today. Containers upon containers of “final” consumer goods arriving from China represent only the most visible and measurable manifestation of cross-border trade. As we will see in this chapter, globalization today also features substantial—although less vivid and hard to track—flows of capital, intermediate goods, and know-how. These background flows,...

• 9 Valuable Differences
(pp. 287-295)

A first cut at explaining how the expansion of cutting-edge research in China and India could make the world as a whole more prosperous is now at hand: the development of more high-level know-how has modest economic value on its own, but it does provide raw material for developers of mid- and ground-level products who combine and extend the high-level know-how. Those lower-level innovations help increase overall productivity and incomes.

This analysis assumes that the high-level research does not usurp resources that would otherwise have been more fruitfully used to develop and deploy mid- and base-level innovations. Indeed, I am...

• 10 Serving the Service Economy
(pp. 296-307)

In the last chapter, I discussed how high-level know-how developed abroad benefits the U.S. economy by stimulating the development of mid- and ground-level products tailored for the U.S. markets. Obviously such products generate a larger surplus for U.S. consumers than they do for consumers abroad. In this chapter we will see why the growing role of the service sector means that the expansion of mid- and ground-level innovation “disproportionately” benefits domestic workers as well as domestic consumers.

Recall the assumption made by the North-South models that some techno-nationalists invoke: where cutting-edge research originates determines where all subsequent development and the...

• 11 Venturesome Consumption
(pp. 308-323)

Why is the United States a good place to innovate? The question has attracted considerable attention in recent years, particularly in Europe and Japan. Much of the writing on this topic emphasizes “supply side” factors such as the availability of venture capital, the IPO (initial public offering) market, the rule of law, and the enforcement of intellectual property rights. In this chapter, I will offer a complementary, “demand side” perspective, focusing on the frequently neglected role that consumers play in the multiplayer innovation game.

My interest in the purchase and use of new technologies dates to 1982, when, as an...

• 12 Winning by Using
(pp. 324-340)

Rich countries tend to make greater and more effective use of IT and other advanced technologies than do poor countries. But even within rich countries (as defined by membership in the OECD), we find considerable variation in “venturesome consumption” of new technologies. An OECD research team reports that “although ICT [information and communication technology] is a ‘general purpose’ technology and readily available in worldwide markets, only a limited number of OECD countries have been reaping its significant potential benefits to the full.”¹ As we will see in this chapter, the United States happens to be one of those countries, and...

• 13 Nondestructive Creation
(pp. 341-355)

In the last two hundred years or so, innovative technologies have reduced labor costs through a combination of automation and specialization (as in Adam Smith’s famous pin factory) and by facilitating the relocation of production to low-wage locations.* For instance, according to Edward Leamer, starting in the 1850s, “high-skilled, high-priced Boston craftsmen in artisan shops were replaced by low-skilled, low-paid workers in shoe factories in New York and points west, thanks to the standardization of shoes by size and shape, the mechanization of the factory floor (especially the McKay stitcher in the 1860s) and the division of labor. Mechanization and...

• 14 Immigrants: Uppers or Downers?
(pp. 356-379)

Immigration—the cross-border flows of people—is a particularly contentious facet of globalization, often stirring up more emotion than the importing of goods and the offshoring of services. As with imports and offshoring, populists and techno-nationalists have different concerns about immigration. Populists decry the immigration of unskilled and often “undocumented” individuals, just as they bemoan imports of “old-economy” goods and the offshoring of low-end services. Techno-nationalists aren’t as concerned with low-skill immigration, just as they don’t worry about old-economy imports or low-end offshoring. Rather, as mentioned in chapter 7, techno-nationalists believe that the United States is excessively dependent on foreign-born...

• 15 The Elusive Underpinnings
(pp. 380-410)

Let us return to the puzzle raised at the end of chapter 7 about why the United States has not fallen behind in economic growth. According to convergence theories, poorer countries naturally grow faster than richer countries. Even the mild version of the techno-nationalist argument suggests that any catch-up in their research capabilities by poorer countries will boost their naturally higher rates of growth. The tougher version takes this one step further, predicting that if the research gap is reduced, richer countries will suffer an absolute decline in living standards. But the alleged erosion of its lead in science and...

• 16 First Do No Harm
(pp. 411-438)

In previous chapters, I disputed the techno-nationalist prediction that disastrous consequences await the United States should its lead in cutting-edge science diminish. However overly dire forecasts can lead to desirable outcomes, particularly given the human tendency toward optimism and inertia, and people can make good choices for the wrong reasons. “Paranoid” executives like Intel’s Andy Grove, for instance, can drive their businesses to exceptional performance partly by exaggerating the threat their rivals pose. Smokers who take fright from false signs of a heart attack may actually quit. Similarly, even if their analysis of globalization is wrong, the techno-nationalist remedies could,...

7. Acknowledgments
(pp. 439-442)
8. Appendix: Tables
(pp. 443-460)
9. Notes
(pp. 461-482)
10. References
(pp. 483-498)
11. Index
(pp. 499-508)