

Why sclerotic California hasn't yet stifled the extraordinary Silicon Valley - grellas
http://online.wsj.com/article/SB10001424052748704596504575272963682533080.html?mod=WSJ_Opinion_LEFTSecondBucket

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rdl
Most of the relevant factors for startups are due to people and culture of the
valley, not the California government, but there are some which are actually
due to the state government:

California has a few big advantages due to the state: * Non-competes invalid *
Well-understood legal system for startups

And big startup-relevant disadvantages: * High taxes on income and especially
capital gains (taxed at the 10.3% rate!!!) which force out some angel
investors, and potentially reduce capital formation for new angels. * High
cost of living (which makes engineers expensive, and hurts during
bootstrapping) -- some of this IS due to California government decisions.

Employment law, minimum wage, etc. don't really affect startups directly.

"Uncertainty due to the state being bankrupt" is a major new negative factor,
however. Even though the current situation still leaves SFBA as the top
startup location in the world, I could see a dying California enacting new
policies which change this.

~~~
skybrian
Since technology companies are a major cause of the high cost of living in
Silicon Valley (by increasing the demand for housing by people who can well
afford to pay), it's hard to see how you can reduce the cost of living without
making Silicon Valley _less_ attractive to entrepreneurs.

~~~
hga
It's easy in principle if you focus on the supply side of the equation instead
of just the demand side. Instead of decreasing the number of people looking
for affordable housing, increase the supply of it.

In reality, so many people have a stake in the current level of housing prices
that doing this will probably be impossible in practice, even if you have some
stern court decisions backing such a push.

~~~
skybrian
Supply is fixed by the amount of land, the consensus that remaining open
spaces should be protected, and zoning laws in desirable communities that
prevent higher density.

Of course this could be relaxed but that only buys us a few years before the
new housing fills up and we're back where we started, but with a more crowded
community, one step closer to Manhattan. The steady state in a built-up place
like the bay area is zero growth in housing.

~~~
rdl
I think there are a lot of ways to in-fill housing in SFBA without affecting
open space. Allowing tall skyscraper condos in downtown SF makes a lot of
sense (and has been one of the major changes from 1995 onward); the continued
replacement of light industrial with lofts (from the 1980s), and subdividing
victorians into apartments (1920s?).

Most of this has been focused on SF itself. I'd be happy to see more apartment
complexes in the 2-5 story range replacing single family homes in parts of the
peninsula. Improving transit can also make the east bay and San Jose itself
more viable. HSR will arguably make Stockton/Modesto an option for a lot of
people.

Actual home space isn't the limiting factor I think. I'd like to see the
supporting infrastructure be more dense and efficient (roads/transit, schools,
utilities).

Of course, once I bank my first $250mm, I'd like a $20mm house in Palo Alto as
it is right now, and a $10mm loft and $10mm house up in SF. :)

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ww8520
California government did one thing right that few other states can match to
encourage innovation - California Labor Code Section 2870. This single law
negates many of the bullshit employment contracts required by companies to
confiscate new idea and innovation from employees working at their home and at
their own time. This actually helps to spawn off new startups. I will never
move to and work in another state that doesn't have similar law.

~~~
rdl
Few other states HAVE matched this, but it's one of the easiest legislative
changes any state could make to advance new business creation.

For non-US startup creation, I'd focus on "better" IP law, too. Most countries
already don't have software patents.

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abstractbill
_California has piled every imaginable burden on businesses. Minimum-wage laws
are among the highest in the country, and health and safety regulations are
among the strictest; cities like San Francisco and San Jose require businesses
to offer employees health insurance; labor laws are extremely union-friendly;
environmental policies drive up energy costs—and on and on._

I have never heard anyone at justin.tv complain about the impact on our
business of minimum-wage laws, health and safety regulations, mandatory health
insurance, union-friendly labor laws or environmental policies. The article
claims to be talking about things that hurt Silicon Valley startups, but I
don't recognize anything that rings true in the above paragraph.

~~~
Rod
1) since when is justin.tv representative of the SV?

2) if you don't see how minimum-wage laws, health and safety regulations,
mandatory health insurance, union-friendly labor laws or environmental
policies can hurt businesses, then it's because you're not on the finance arm
of such businesses.

~~~
abstractbill
1) What company would you pick? Is justin.tv very atypical of current Silicon
Valley startups in some obvious way I've missed?

2) I've been at justin.tv since long before we were big enough to have a
finance arm. I may have little idea of how those policies can hurt really big
companies, but the interesting thing about Silicon Valley isn't the big
companies - it's the startups.

~~~
Rod
1) I would pick no company because the SV is not a homogeneous habitat. You
have capital-intensive startups founded by PhD's trying to capitalize on 20
years of research... and you have startups bootstrapped out of lunchmoney by a
couple of college dropouts who believe their new app will be a killer.
Seriously, technology is more than the web.

2) generally speaking, imposing constraints can only decrease the maximum of
the objective function one is trying to optimize; I did not say that such
policies _do_ hurt, I suggested it's not hard to see how they _can_ hurt.

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ojbyrne
I'm impressed that it doesn't even cross the author's mind that his ideology
might be completely wrong. Perhaps health insurance, labor friendly laws,
strong environmental, health and safety regulations actually attract the best
people.

~~~
jerf
It isn't binary, either good _or_ bad. Maybe it attracts the best people (and
I note you had to say "perhaps" since you are just speculating), but it
_definitely_ raises the costs of doing business quite substantially, which
means less ability to hire, expand, or exist at all. That's not speculation,
that's the entire purpose of regulation like this; the government directs you
to spend money in this manner or go out of business, no third option.

You must also consider that the California system as a whole, which includes
its regulatation system, _has become_ unaffordable and California faces the
task of either tearing some of it down or raising taxes to make up for it, and
one way or another you must account that negative to that system, too. It's
easy to "politic" away the problem of unaffordability for quite a while, just
as we have done, until suddenly it produces a result far worse than if we had
done the putatively-inferior-but-actually-affordable thing in the first place.
Unaffordability is not a political matter, it's an objective one that can't be
argued away. And I emphasize the "has become" because that is now past tense,
it has happened.

The author is sticking to the facts of the cost of doing business, rather than
speculating about IMHO rather nebulous possibilities of "retaining the best
people". I think a rather good case could be made that whatever positive
effects such regulation has, it passed the point of diminishing returns a
_long_ time ago. I don't live in California, and I do not feel a pressing need
to move there so my boss stops beating me. (Yes, that is rhetorical, but the
basic point stands. At some point regulations just add cost and not much
benefit.)

~~~
ojbyrne
I'm not saying the opposite is true (hence the "perhaps"), I'm saying that the
author seems physically incapable of entertaining that option.

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DaniFong
I was once asked by a Ghanaian student at Princeton how long it took to become
incorporated.

"What? I don't know. A day, and month? Something like that?"

"and how much!?!"

"Dunno. $150?"

"My god -- I thought incorporation was the hardest thing."

That's because in Ghana, it is. 3 years to get a permit! I suspect if you
bribe the right people it would take only one year. But still -- a big
advantage the US has in starting companies is that, somewhat tautologically,
it is easy to.

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skybrian
A correction: the article refers to Kevin Kelly as the "founder" of Wired,
when actually it's Louis Rossetto. (I wonder what else they got wrong?)

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spamizbad
If California's state laws are truly a boot on the neck of entrepreneurs, by
all means someone launch a startup in Alaska, New Hampshire, or Tennessee (The
three states with the lowest tax rate and least amount of regulation) and
prove this notable economist correct.

~~~
natrius
That isn't a sound argument. Regulated California may be better than loosely
regulated states, but that doesn't mean that an unregulated (EDIT: that is,
more loosely regulated) California wouldn't be even better.

~~~
spamizbad
The tax/regulation issue can very easily become a red herring when it clashes
with the reality of certain industries.

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kiba
I wonder why it seem that some of the world's biggest economies move faster to
the brink of economic destruction?

