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The Citizen

Are Start-ups a Public Policy Tool?

This summer, Fernando Berdion del Valle interned at a start-up incubator in Mexico City called Venture Institute. He followed a class of entrepreneurs and researched public-private partnerships between incubators in Mexico and the federal agency dedicated to supporting them, Institututo Nacional del Emprendedor (INADEM). You can follow him on his blog Verano Startupero.

At first blush, entrepreneurs and policymakers don’t have much in common. Entrepreneurs are sexy. They compete for spots in elite accelerators and receive millions in venture capital. They wear purple, patterned socks.

Public policymakers are technocratic and boring. They make decisions based on cost-benefit analyses and care about p-values. Their ultimate goal is to build up the very type of stable systems that entrepreneurs would like to disrupt.

In the United States, at least, we are very comfortable separating these worlds. If we think of public policymakers at all, it is mostly to ensure that they are not intruding into free market mechanisms that drive innovation. Back in Boston, I asked a friend who works in venture capital what was the best thing government could do to promote entrepreneurial ecosystems. His (only slightly facetious) answer was: “Stay out of the way.”

Here in Mexico, the discussions about entrepreneurship and policy are much more closely linked. Government is not viewed as an impediment to growth so much as one of the primary resources that can help build an entrepreneurial economy. This year, the administration of President Enrique Peña Nieto has set up the National Institute for Entrepreneurship (INADEM) specifically to systematically support start-ups, incubators and accelerators.

Recently, President Peña announced $9 billion pesos in additional support for small and medium enterprises (SMEs). Interestingly, the majority of private equity and venture capital funds in Mexico receive direct public support.

If anything, the conversations in Mexico revolve around how best to manage public involvement and how to prevent an overreliance on government funding as the ecosistema emprendedor matures.

Of course, with a great deal of money at stake in Latin America, there is the obvious problem of corruption. (According to Transparency International’s Corruption Perception Index, Mexico ranks 105 – only a couple spots above Ethiopia and substantially lower than other Latin American countries like Colombia and Argentina). Even if corruption per se is controlled, there is always the threat that valuable public funds are being spent on low impact projects, going either directly to start-ups that would not otherwise be viable, or else to ineffectively-managed incubators or accelerator programs that add only marginal value to entrepreneurs.

Still, it’s interesting to be in a place that sees start-ups as more than an investment vehicle, or a non-traditional way for twenty-somethings to kick-start their careers (although they are those things as well).

Perhaps most importantly, the INADEM project is a kind of a laboratory for other nations looking to foster entrepreneurial ecosystems in their own economies. In the coming months we will have to see whether programs like the INADEM – and similar efforts like Start-up Chile – will lead to an expanded role of  public policymakers in the entrepreneurial world, or whether start-ups are best left to the people with the purple-patterned socks.