The Third Wave: An Entrepreneur's Vision of the Future (18 page)

In 2015, journalist Darren Samuelsohn wrote an article for
Politico
, “What Washington Really Knows About the Internet of Things,” in which he set out to determine “how well government was keeping up” with an industry that he predicted could end up being as much as 10 percent of the global economy.

“What I found, overall,” Samuelsohn wrote,

is that the government doesn’t have any single mechanism to address the Internet of Things or the challenges it’s presenting. Instead, the new networked-object technologies are covered by at least two dozen separate federal agencies—from the Food and Drug Administration to the National Highway Traffic Safety Administration, from aviation to agriculture—and more than 30 different congressional committees. Congress has written no laws or any kind of overarching national strategy specifically for the Internet of Things.

Samuelsohn’s reporting is both worrying and unsurprising. Because of the size and bureaucratic nature of government, political leaders tend to act more like the fire department than the police force. Rather than patrolling for problems, they wait until something is burning.

But even once policymakers focus on it, the effort won’t be easy. Because Third Wave entrepreneurship will touch so
many distinct industries across every sector of the economy, the jurisdiction problems alone are overwhelming. The federal government isn’t designed to regulate issues that affect so many different sectors at once. And when it tries, the result is often a patchwork of inconsistent, even contradictory, rules and a maze of confusion for the businesses trying to follow the rules.

One option would be to reduce the size of the cabinet, which now includes twenty-two people, all reporting to the president. I don’t know of any CEO in America with so many direct reports. Government and business are not the same thing—not by any stretch—but this is one lesson from business that government should embrace. In 1971, President Nixon proposed reducing the cabinet to just seven departments, consolidating agencies and providing more authority to the officials who run them. Unlike other cabinet-reduction proposals, the goal here would not be to reduce the size of the federal government. Rather, it would be to reduce the inefficiency that comes with its size. There would be fewer cabinet officials, yes, but they would be meaningfully more powerful. The vice president might even act as a COO would, running a coordination effort across government and freeing up the president to be more strategic, much like a CEO.

At the same time, we should reform the Senate confirmation and vetting process, which is so long and so overreaching that it discourages some of the country’s most talented people from serving, even when called upon by their president.

Of course, in Washington, something this sensible would likely be considered radical. It is not something that can be accomplished overnight. And in the meantime, businesses will keep bumping up against a deeply inefficient government, slowing the pace of innovation and allowing competitors to catch up.

As a stopgap measure, we might at least consider a temporary fix. Toward the end of 2014, an outbreak of Ebola in Africa snowballed from an isolated incident to a growing epidemic of potentially global proportions. The American public began to panic when, for the first time, Ebola made its way to the United States, infecting people who had traveled to West Africa and the medical staff who cared for them. Congress called for immediate action. President Obama recognized the growing discontent and grew increasingly concerned about the federal response. He knew the effort would have to be coordinated across several agencies. That’s when my friend and colleague Ron Klain got a phone call.

Ron oversees our investment activities at Revolution and also helps provide guidance and support to The Case Foundation. He has served in many government roles, including as chief of staff to vice presidents Al Gore and Joe Biden. Ron is known for his intelligence, management skills, and problem-solving ability, and for his steady hand. That’s why President Obama thought that he would be the perfect choice to become the Ebola czar. There were too many agencies working on different aspects of the crisis, and it meant that a lot of efforts weren’t being coordinated. The president needed
a single person reporting to him, someone to whom all of the different agencies reported—someone with the authority to work across every aspect of the federal government to clarify strategy and then execute it.

We need the exact same thing for the Third Wave. We cannot afford to have such an enormous economic opportunity get stifled by a government too slow and too fractured to respond in time. What we need is a single person within the executive branch with the authority to work across—and above—the myriad agencies, putting a clear strategy in place and managing the day-to-day execution of it across government. What we need, I believe, is a Third Wave czar.

I believe that this is only a temporary solution—that the real need is to reboot and reorganize the executive branch. Many presidents have tried, but Congress has always blocked the changes, in part out of self-interest, worried they might lose authority over an industry that supplies them with campaign contributions. More czars are a Band-Aid, not a long-term answer. In a rapidly changing world, only a government that is nimble and strategic can keep America on track.

Thirty years from now, it’s unlikely that the country will view Google (also known now as Alphabet) as our most inspiring, path-breaking, and big-thinking company. The cachet that Google now enjoys will belong to a newer, younger company. And, like Google, this new company will have made its name
off technology that, in its early stages, was developed with the help of the federal government’s investments in research and development—assuming, of course, that we make those necessary investments.

That’s not an easy assumption to make. We should be mortified by how little we’ve been investing in possible breakthrough technologies. In 2015, federal investments in R&D amounted to 0.69 of a percentage point of GDP—the lowest level it’s been at since the 1950s. And we’ve been cutting back R&D steadily over the last twenty-five years—even as federally supported R&D continues to prove its value. No wonder we now lag behind China and Germany in high-tech exports—with Singapore and South Korea following closely behind.
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The lack of investment has crippled programs and institutions that have been among the most critical launch pads for innovation. The National Institutes of Health, for example, has a track record of success in the field of medical research. But in 2014, the NIH’s budget was 25 percent lower than it was a decade earlier. In the past, the NIH could fund one out of every three research proposals they received. By 2014, they could fund only one in six.
²

The National Science Foundation, NASA, the Centers for Disease Control and Prevention, the Department of Defense, and the Department of Energy were among the most important government-funded R&D centers to see significant budget cuts.
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Fifty-four percent of scientists and researchers who receive some federal funding to conduct their work were
forced to lay off staff. Some began considering moving their work overseas, where more stable funding options exist.

In the field of biomedical research, federal investment has dropped every single year since 2003.
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From 2007 to 2012, the U.S. share in total biomedical research dropped 9 percent, while the Asia-Pacific region’s investment levels rose 51 percent in the same period. The new jobs and companies are following the money.
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Budget cuts may have been enacted out of concerns over deficits, but decreasing our investment in research and development guarantees future deficits. According to Nobel Prize–winning economist Robert Solow, we owe more than half of our GDP growth over the last fifty years to scientific breakthroughs. Yet we’ve been reducing our ability to undertake cutting-edge research that gives rise to disruptive technologies. In shrinking our commitments to research and development, we are decreasing our long-term economic potential and squashing our ability to create tomorrow’s great innovations.

Every single day, Americans come up with great ideas they could conceivably turn into a business. But few of them go forward with it. One of the greatest difficulties of starting a business is finding capital. If you don’t have a network of contacts, it can be hard to get in front of investors. The hustle involved could turn people off from pursuing what could end up being a successful business. But it doesn’t have to be this
way. In the age of the Internet, connecting ideas and investors could be a much easier process—and the federal government can facilitate it.

Congress and the White House took a big step when they passed the JOBS Act, which, among other things, legalized equity-based crowdfunding. Before the JOBS Act, people could only invest in a startup if they were “accredited” by the SEC—which requires either a net worth of more than $1 million or an income of at least $200,000. And if a company had more than 500 shareholders, it had to be registered with the SEC.

These paternalistic rules had two negative effects on the economy. First, they have kept billions of investment dollars on the sideline, money that isn’t being used to create companies and jobs and the value that comes with them. Second, by making it so that only the wealthy can invest in startups, the accredited investor system only exacerbates income inequality. The rich get richer, as only the accredited investors get the opportunity to invest in the startups that could become the next Facebook.

This system was modified in an important way with the JOBS Act. But after its passage in April 2012, the Securities and Exchange Commission, which was in charge of writing the rules to implement the law, took more than three years to do so. The end product was a set of rules that are still burdensome (albeit less so) for young companies. They will certainly require fine-tuning over time. I understand the need to take a careful approach to these rules. But these kinds of delays are the
antithesis of the speed and nimbleness that startups require.

Once fine-tuned, the SEC rules will help, but they won’t, on their own, make capital accessible for any worthy startup. There are other approaches that can increase the flow of investments into startups that Congress ought to explore. Tax incentives—like reducing tax rates on capital gains earned from certain startup investments—would drive dollars into young ventures at key stages. Any conversation about tax reform, therefore, must include these considerations. Long-term investments that can create jobs and drive growth must be encouraged.

Many consider immigration reform to be a “third rail” of American politics. Touch it and you die (or, at least, your electoral future does). But in the entrepreneurial sector, there’s no such controversy. What there is instead is a recognition that we are in the middle of a global battle for talent.

There are many, many immigrants with good ideas. They come from Asia and Africa, Europe and the Middle East. According to a 2012 Kauffman Foundation study, roughly one in four tech companies established between 2006 and 2012 had at least one foreign-born founder. In Silicon Valley, nearly half did.
⁶
As I noted when I testified in front of the Senate Judiciary Committee advocating in favor of immigration reform, those businesses accounted for $52 billion in revenues in 2005 alone.
⁷

Elon Musk, founder of Tesla, emigrated from South Africa
to Canada and then from Canada to the United States. Sergey Brin, co-founder of Google, fled the Soviet Union with his family and came to the United States as a six-year-old. As the
New York Times
put it: “Were it not for the Hebrew Immigrant Aid Society, there might be no Google.”
⁸

Yet even as more and more immigrants flock to the United States, the uncertainty and insecurity generated by outdated and inadequate immigration laws have hobbled our ability to compete for the best talent. The percentage of companies founded by immigrants has declined more than 16 percent since 2005,
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and just about any startup founder can tell you what a nightmare it is to obtain a green card for a prized employee. Talented scientists and engineers are still coming to American universities to study—but all too often they are then returning home with their entrepreneurial ideas, even when they would have preferred to stay.

It’s not that foreigners aren’t founding companies anymore. Rather, they’re being turned away from the United States, making it more likely that they’ll try starting a business elsewhere, either at home or in a more hospitable country. Snapdeal was co-founded by a Wharton graduate, Kunal Bahl, but he was forced to relocate when he couldn’t get a visa to stay in the United States. By 2015, Snapdeal was worth $5 billion and employed more than 5,000 people—in India.

Those jobs, and that economic growth, could have stayed in the United States if we had a more flexible immigration system. It makes no sense for us to invite students to come to
the United States, train them to create economic value, and then kick them out.

America has been the most innovative and entrepreneurial nation in part because we’ve been an immigrant-friendly nation. As we’ve made it harder to come here and stay here, we’ve lost talent to other countries.

Most of the immigration debate within the tech industry has focused on reforming the H-1B visa program, which provides a temporary stay for foreign workers employed in specialized fields. The pool of H-1B visa holders is often a great source of employees for tech companies. But only 85,000 H-1B visas are awarded annually, with 20,000 reserved for applicants with master’s degrees, while demand is much higher—U.S. Citizenship and Immigration Services received more than 172,000 petitions in 2014.
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Increasing the number of immigrant entrepreneurs and engineers who can acquire an H-1B visa would be a boon to American businesses.