Whether you’re building a company, a city, or a national economy, talent and capital are the raw materials that make it possible to do things that others can’t. These two simple ingredients are the driving force behind innovation and growth. In this article, we’ll explore why Silicon Valley is the world’s most magical mixing chamber for talent and capital, and how other cities are trying to replicate its success.
The Magic of Silicon Valley
Silicon Valley is home to the most exciting, creative, and valuable companies on the planet. Every city in the U.S., and around the world, wants to be the "Silicon Valley for X" because this simple recipe of talent plus capital produces radically different outcomes than anywhere else. Money flows to opportunity; if you can turn singles into twenties, somebody will write you a check no matter where you are.
However, humans have a stickier relationship to geography. They have friends and families, spouses with careers, mortgages, and kids in school. Talent flows to places where the opportunities are greatest and the risk of getting stuck is lowest over the long term. If things don’t work out in one job, you can move on to the next big thing without changing locations.
The California Advantage
So how did Silicon Valley become the world’s leading innovation economy? One of the least celebrated but most fundamental drivers of that success is an obscure-but-powerful legal provision passed into law back in 1872. The California Civil Code was amended to include the following language:
"Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void."
In other words, human capital – talent – working in the State of California can’t be contractually bound to any employer for any reason (excepting a very narrow and well-defined set of edge cases). This is very different from many other states in the U.S., including several that aspire to compete with Silicon Valley for leadership in the innovation economy.
The Power of Freedom
By writing this simple human freedom into law, California ensured the free flow of talent to the best and most promising opportunities. Whether or not that’s what their previous employer had in mind, human capital in California does whatever the hell it wants. And that free flow of talent makes the Bay Area what it is.
The Challenges Facing Washington and Massachusetts
Washington and Massachusetts aspire to greatness in innovation. Both have solid track records of success in nurturing world-class technology companies. Both are home to great cities, with outstanding research universities that attract talent from around the world. But both are also home to "champion" companies that have used lobbying power to block the passage of laws similar to California’s that would outlaw non-compete agreements.
The Problem with Non-Compete Agreements
Strong Federal statutes exist to protect intellectual property (via patents) and block the sharing of trade secrets (through enforceable non-disclosure agreements). But non-compete agreements don’t exist to protect trade secrets – as their defenders claim – but rather to prevent workers from pursuing goals that might conflict with those of their employer.
The Solution: Replicate California’s Success
Legislators in both Washington and Massachusetts have recognized the harm that non-compete agreements cause. They’re trying to pass laws similar to California’s, which would give employees more freedom to move on to other opportunities without fear of being sued by their former employer.
The Road Ahead: Can Other Cities Replicate Silicon Valley’s Success?
As other cities try to replicate Silicon Valley’s success, they’ll need to focus on creating an environment that attracts and retains top talent. This means embracing the free flow of human capital and giving employees the freedom to pursue their passions without fear of being tied down by non-compete agreements.
By doing so, these cities can create a more dynamic and innovative ecosystem, where talent flows freely and entrepreneurs can thrive. It won’t be easy, but if they’re willing to take risks and challenge the status quo, who knows what might happen?
