The changing role of government in a startup ecosystem

In his book Startup Communities, Brad Feld posits that governments should play a support role, rather than an active role, in a startup ecosystem.

From my experience outside of the United States, I have seen many governments play more of an active than passive role. In the UK, the EIS and SEIS seed investment incentivize schemes and the British Bank backed VCs play an important part in the ecosystem. In Europe, the EEF plays an important part in backing VCs. South Korea's government has been tremendously active, putting a large amount of money and hosting numerous startup conferences. Taiwan has seen Startup Stadium come by government means. Kuala Lumpar has MAGIC. Singapore's government intervention is well known, with government backed VC funds like Infocomm, Golden Gate, and others. Hong Kong's government has built coworking spaces like Science and Technology park and Cyberport.

Is Brad wrong? Yes and no.

Government activities help ecosystems that are not as well-developed. Government support creates short-term incentives and stimulates ecosystem action before private industry steps in. Because policies are geared to longer term benefits, governments can step in if private industries are unwilling to take the initial, short-term risk.

However, as the ecosystem matures, government support may have to change. Government startup policies are geared to help total startup ecosystem growth, rather than optimized startup ecosystem growth. Simply, government policies are geared to produce as many startups as possible, whereas private industry is geared to produce as many healthy, sustainable startups as possible.

The point in which a government changes support is a trickier issue. One hypothesis is that the point arrives when the culture of creating startups changes from the exception to the norm. When that happens, the government's role in creating as many startups as possible disappears. Countries like the US, China, and Israel demonstrate the correlation between government support needed and an entrepreneurial career as the norm.

Until that point, my view is that the sole role of government should be the sustained effort of creating as many early stage startups as possible.