I participated yesterday in the Economist Roundtable in Beirut. The theme was around “how Lebanon can reach its full potential” and mostly focused on the role of government. There were some impressive talks by various Ministers including Charbel Nahas, Gebran Bassil and Mohammad Safadi. My panel discussed how to foster and keep Lebanese talent in the country, obviously I vouched for innovation and entrepreneurship especially among the youth.
I won’t try to be comprehensive in this post on what I think governments should do in general to foster innovation and entrepreneurship but I would like instead to talk about their roles on what Joi Ito a great friend and mentor always talks about as a key factor to increase innovation: “lowering the cost of failure”.
Although the “fail fast, fail cheap” mantra is mostly talked to in regards to internet businesses it does apply to all industries. Obviously some governments can afford to take a very proactive role to spur innovation like with the tons of money spent into military research that got us the Internet. However even in those cases, it’s only when governments liberalize the base layers they created that creativity starts to take place on top of them.
If governments focus, in their own capacities, on setting channels that lower the cost of failure then step aside, it could have a tremendous trickle down effect on innovation. Think about it this way, it’s not the rate of failure that matters, it’s the cost - time and money - and associated risk that would be problematic. As Scott Anthony, a frequent writer on the subject, puts it: “the only way to successfully innovate is to be prepared to iterate like crazy”. With a low cost of failure, one has a leeway to iterate a number of times and increase the chance of successfully innovating.
In the case of Lebanon, it is obvious that broadband infrastructure is a huge impediment to creativity and innovation both because it’s expensive and inefficient. [According to Minister Nahas it seems though, that a project is under way to improve bandwidth within a year. I hope he will be able to smoothly execute without much interference.] Other countries in the Middle East have different kind of restrictions like censorship or the use of VOIP. This is exactly the type of things that increase the cost of innovation and that governments should NOT do
Registering and liquidating a company are also still costly in Lebanon and across the Middle East. It still is very difficult to liquidate a company and in some countries in the Middle East declaring bankruptcy results in imprisonment.
Another important area that could lower the cost of failure is access to capital. Regulations imposed on bank lending to businesses require having collateral assets. Although a much better way of startup financing is the one that add value - Angel investors and VCs - banks remain one of the first financing destinations for young Lebanese entrepreneurs but having collateral assets is not always easy, so most end up abandoning their projects. Relaxing those regulation and putting tax incentives on banks and wealthy individuals to invest in human capital would lower the cost of financing and therefore allow recipients to focus on what they do best.
One last point that was recently brought by my friend and Woopra founder Elie Khoury is about encouraging multinationales to open R&D shops in the countries. While I don’t really see this as being part of the “lowering cost of failure” context I do agree that it’s of huge benefit to spurring innovation. It’s the likes of PayPal, Ebay and Google that are breeding the new generations of entrepreneurs.
So although I do believe governments could and should play a huge role in accelerating entrepreneurship and innovation the general question remains not what governments should do, but rather what they should NOT do!
