Innovation Must Be Cultivated

I’ve been thinking a lot about how the current Administration is waging war on U.S. science/scientists, and how other countries are hoping to benefit from a U.S. brain drain.  But two articles in today’s Wall Street Journal reminded me that attracting talent is only part of what must happen for science, technology, and innovation to flourish. Getting the talent is, in some ways, the easy part; getting the most out of that talent is the tricky part.   

If only creating innovation hubs was that easy. Credit: Microsoft Designer

The first article, by Tom Fairless and David Luhnow, is about the European tech industry, and they pull no punches in their opening sentence: “The world’s technology revolution is leaving Europe behind.”

Europe, they point out, actually has more people than the U.S., a large economy, and a well educated work force. It is home to some of the best universities in the world. It even has some strong history in tech, including Nokia, ASML, Spotify, and Klarna.

But, they point out, only 4 of the world’s top tech companies are European, and they cite calculations from Andrew McAfee, a principal research scientist at the MIT Sloan School of Management: “Over the past 50 years, the U.S. has created, from scratch, 241 companies with a market capitalization of more than $10 billion, while Europe has created just 14.”

Umm…

The authors say:

Europe lacks any homegrown alternatives to the likes of Google, Amazon or Meta. Apple’s market value is bigger than the entire German stock market. The continent’s inability to create more big technology firms is seen as one of its biggest challenges and is a major reason why its economies are stagnating. The issue is even more urgent with the prospect of higher tariffs threatening to further curb economic growth. 

Investors and entrepreneurs say obstacles to tech growth are deeply entrenched: a timid and risk-averse business culture, strict labor laws, suffocating regulations, a smaller pool of venture capital and lackluster economic and demographic growth. 

As a result, they speculate: “Having largely missed out on the first digital revolution, Europe seems poised to miss out on the next wave, too.” They mention how Mario Draghi, the former European Central Bank president, wrote in a report last fall: “The EU is weak in the emerging technologies that will drive future growth.”  As evidence, they note: “None of the top 10 companies investing in quantum computing are in Europe.”

Their diagnosis of the problem: “A big reason why Europe is now behind can be summed up as a lack of speed. Entrepreneurs complain that everything takes longer in Europe: raising money, complying with local regulations, and hiring and firing workers.”

“What is different in America is the speed of almost everything,” Fabrizio Capobianco, a tech entrepreneur from Italy, told them. “Americans make decisions very fast. Europeans need to talk to everybody—it takes months.”

The EU has been more proactive than the U.S. on important 21^st century issues like privacy and AI regulation, but this is both a blessing and a curse. Protecting the public and workers fits the European social contract, but can have adverse impacts on businesses’ abilities to take chances. U.S. companies complain about our federal and state regulation, but often find that doing business in Europe is even harder.

The authors mention Bird, a messaging start-up from the Netherlands, that is moving its main operations out of Europe. “Stop regulating, Europe. We might be the first, but we won’t be the last (to leave),” Robert Vis, the company’s founder, wrote.

The authors close with another quote from Professor McAfee about the Dragi report, which called for more government investment in tech, not for finding more ways to attract private capital. “That’s when I went from nodding my head in agreement to banging it on the table.” 

------------

The second article was on, of all places, Austin. Austin, the darling of so many people, for so many reasons. Its slogan is “Keep Austin Weird!” It has a very non-Texas laid-back vibe. Such a distinct music scene! And it’s not Dallas or Houston!

A few years ago, especially at the worst of the pandemic, Austin seemed fated to be a new tech center. People were fleeing Silicon Valley and San Francisco in particular: too expensive, the quality of life had suffered, and remote work was in. Austin seemed like a great alternative.

That, according to WSJ reporter Isabelle Bousquette, may be ending. She reports:

A new report from venture-capital firm SignalFire shows that in 2024 Big Tech employment declined 1.6% in Austin, and startup employment fell 4.9%. Tech employment in Dallas and Houston also declined, along with cities like Denver and Toronto. Tech employment grew, on the other hand, in New York and San Francisco. 

“I think that promise was never realized,” said Asher Bantock, SignalFire’s head of research. “This idea that it would become a new startup hub didn’t materialize.” The SignalFire report also showed that Big Tech employment in San Francisco rose 1.8% during the same time period, and start-up employment went up 0.8%.

Credit: SignalFire State of Tech Talent Report 2025

Ms. Bousquette quotes one tech worker, who broke his lease in Austin after six months, tried Boston and D.C., then moved to San Francisco. “They [his employer] gave me a list of cities and asked me about Austin, and I said, ‘No, not Austin. It’s kind of dead.” 

That’s not what we’re used to hearing about Austin.

You may remember – I did not – that part of the 2022 CHIPS Act was for Regional Tech Hubs. The Biden Administration designated 31 such hubs in 2023, although current Commerce Secretary Lutnick recently vowed to put the Administration’s own spin on the program (and just yanked funding from Spokane’s would-be aerospace hub). It’s nice to give grants and try to spur the kind of innovation ecosystem Silicon Valley has long enjoyed, but it’s not so simple.  

“People are putting down roots in these regional tech cities all across the country and I think that’s frankly good for America,” Julie Samuels, president and CEO of Tech:NYC, told Ms. Bousquette. “But people who want to ride the AI wave, people who are really ambitious, who are trying to build big companies, those people are really attracted to the coasts right now.” 

That’s the lesson that Austin is learning, and that Europe hasn’t quite learned.

Innovation hubs may be things that one can’t really create, but they are things one can easily ruin. Making them flourish, ah: that’s the hard part.