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Thursday, March 23, 2023

Biden ties startup funding to his national & social policy priorities

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Joe Biden proposes linking startup investment to national and social policy goals. This is most likely an improvement over Silicon Valley values.

Rising borrowing rates, falling stock prices, and corporate America’s move from growth to profitability have suffocated one of the key sources of innovation and new business formation in recent decades: venture-backed software firms.

Meanwhile, the US government approved a slew of measures last year that generate new financing sources for the industrial and technology industries, but with strings attached. As a result, economic development this decade may be driven less by Silicon Valley principles and more by the administration’s values in determining the terms of the additional investment.

Because venture capital is an inherently dangerous industry in which most new company ideas fail, a VC fund’s few winners must be extremely profitable in order for it to justify its existence. While Silicon Valley has had many achievements, it’s fair to say that the economic development and societal advantages it provided were very limited, with the beneficiaries largely being young, tech-savvy West Coast employees.

The bad consequences of the grow-at-all-costs ethos — abusing independent “gig” employees and gambling with money — appeared to be embraced as an inevitable outcome of success. The infrastructure measures and funding streams enacted by Congress last year were in part a reaction to the perceived flaws of the venture-capital model and Silicon Valley mentality.

Success criteria are less stringent than those required by venture capital, giving firms more time to develop their ideas. The National Environmental Policy Act establishes environmental requirements. Businesses that accept government funds must follow prevailing wage regulations as specified by the Davis-Bacon Act.

Many regard it as an attempt to shift economic growth from shareholder capitalism to stakeholder capitalism — social policy disguised as industrial policy. Whether or not this transition to government-influenced investment is successful depends on your point of view.

If your aim is an economy in which employers offer child care, pay a livable wage, and prioritise stakeholders other than shareholders, you’ll be happy whether or not the activity created by government funding is productive and efficient. Yet, it remains to be seen if these Biden plan expenditures will result in the types of cost-conscious innovation and productivity increases that backers claim would drive economic development.

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