Startup Cities: Can entrepreneurship save politics?

If the past month has told us anything, it’s that there are thriving start-up hubs in literally every corner of the earth. But besides nurturing some of the biggest businesses of tomorrow, what impact can these hubs have on our lives?

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Startup Cities Institute is an organization offering a new approach to political reform, a solution based on better governance through start-up entrepreneurship. In their own words, "Startup Cities are opt-in, competing communities that test new policies before they are scaled to the national level." To get a better understanding of how governments can learn from the work of start-ups we spoke with Zachary Caceres, Executive Director of the Startup Cities Institute at Universidad Francisco Marroquín in Guatemala.

What’s the mission of Startup Cities?

When you look at political reform, you start to see that both reformers and entrepreneurs share the same problems: too much complexity, too little feedback, and huge risks for making small errors. Startup Cities is a new approach to reform that uses small, highly autonomous municipalities to pilot reform projects before they are scaled to the national level. Startup Cities are politically neutral. They can be broad with innovations like independent courts, a different legal system, radical transparency, new social services, or their own municipal police force. Or they could be focused on a specific area like reforming education.

Startup Cities bring to politics the agile, competitive dynamic that works well in tech. Cities compete with one another to discover public policies that improve the lives of citizens. Citizens are empowered since they can ‘vote with their feet’ and move between cities much more easily and safely than they can cross into another nation. Competition between these zones creates tight feedback for governments to know if their reform is working. Competition also creates strong incentives for innovation and experimentation. 

To attract capital, citizens, and ideas to one area rather than another, cities must be responsible and work to satisfy citizen’s needs through constant improvements in public policy.

Startup Cities Institute has grown to be the world’s leading resource for this approach to reform. We’re working to find answers to the hard questions that reformers face as they try to execute this idea: for infrastructure and design, how can you build a ‘minimum viable community’ that attracts citizens but doesn’t waste investment? What kinds of laws are the most effective to create adaptable city governments? How can you build an accountable police force from the ground up? We’re a distributed think tank with members from around the world – everyone is invited to participate.

The only way to resolve this is to start treating law and governance as the technology it is.

What inspired you to embark on this mission?

A few years ago I was training to be an economist and went to do field research in Kenya. I traveled around the country with groups of street traders and learned about the problems faced by real grassroots entrepreneurs. My experiences there destroyed my certainty about economics and reform, led me into a huge crisis, and helped me appreciate just how complex problems of violence and poverty are. There are no silver bullets.

I had worked entrepreneurially before and I started to see parallels between the complexity of reform and the wild early stages of new start-ups where you’re almost completely ignorant of where you’re headed. Then I read a life-changing book, The Nature of Technology by Silicon Valley technologist Brian Arthur. It got me thinking about whether political systems – law and governance – could be seen as a technology. If we can treat law and governance as tech – then perhaps we can innovate in it.

About a year later, I was covered in garbage flies standing on the edge of a cliff over Guatemala City’s central landfill. Hundreds of people, including many children, wander this steamy wasteland scavenging for anything valuable. People are murdered every week by gangs that prowl the dump. 

I met one trashpicker named Miriam who made her livelihood with her teenage daughter by selling plastic scraps for a dollar or two a day. She was telling me her story: the grinding poverty, the constant threat of extortion and murder by organized crime, the shooting of her husband, the sexual assaults on her daughter. In the middle of this heartbreaking story, her phone rings and she pulls out a nice smart phone, texts someone, and turns back to me like nothing happened. Miriam faces these ancient human problems of violence and poverty, yet she owns a futuristic technology like a smartphone. This haunted me for months.

The biggest paradox of today’s world is that we have rapid, constant progress in physical technologies like phones and computers, but billions of people have no access at all to good law and governance, or what you might call ‘social technologies’. 

Even someone as poor as Miriam can get a smartphone. But she can only dream of access to the rule of law, to good infrastructure, to security, to the ability to start a legal business, or to decent education and healthcare. The only way to resolve this is to start treating law and governance as the technology it is. How? By applying to law and governance the same start-up entrepreneurship that has worked so well to generate constant innovation in phones or cameras. We promote Startup Cities as a way to emulate the trial-and-error, bottom-up process of startup entrepreneurship but in law, governance, and community design.

Why are start-up communities a good place for legal and political reform?

Political reform is extremely risky. Typically, we only think that a reform has ‘failed’ when a new law or program doesn’t pass Congress. But reform, just like entrepreneurship, is full of failure. Sometimes a reform is captured by special interests and becomes like Frankenstein – some horrible creation that its inventors never wanted. Or a committee somewhere along the way destroys it. Worst of all, sometimes reformers are just mistaken and they end up ‘doing bad while trying to do good’. Political systems are complex, so it’s easy to misdiagnose a problem – just like it’s easy to design a fancy new product that no one wants to buy.

You make all these risks worse if you try to reform on the national level. Think about it: you have millions, maybe even hundreds of millions of people in this incredibly complicated social system called an economy. You hire the smartest people you can and put them in an office away from the customer: your citizens.

Then those people try to design some solution. You don’t ‘test’ anything. You don’t ‘validate’ your ideas. In the words of start-up guru Steve Blank, you never “get out of the building”. You just put some huge plan together and then impose it on millions of people.

Startup Cities reverse this logic. Competing communities have enough autonomy to try lots of different and new approaches to the same problem. This is the entrepreneur’s spirit of humility through experiments. Any failures are small and local rather than dragging down the whole country. Local experiments are cheaper and often easier to understand. Cities are more agile than nations and can adapt to failure more swiftly. 

Where do Startup Cities currently have a presence?

We’ve been amazed by the warm response this idea has received around the world. In just the few years since we started, two nations, Honduras and the Republic of Georgia, have made significant strides toward using autonomous cities for reform. Although each nation has their own unique take on the idea, both projects are in the spirit of Startup Cities. We’ve spoken with other nations that are watching these projects closely and, if they work, will follow in the years ahead.

The bigger reality is that many countries are already moving in this direction. Thousands of special zones for business already exist – they just don’t have the autonomy or scale to grow into full-fledged cities. Without enough autonomy, they also can’t compete effectively with each other.

But all the pieces of Startup Cities are already out there. China’s autonomous Special Economic Zones have long competed fiercely to attract entrepreneurs. In the early 2000s, Dubai pioneered small zones with independent legal systems. Switzerland and Liechtenstein have extremely effective local governance and Singapore remains a prosperous city-state. Even the United States incorporates new municipalities every year.

The developing world is full of ‘new city’ projects like Songdo in South Korea or Masdar in Abu Dhabi. Unfortunately, governments tend to make the same mistake that they do with traditional start-up hubs. They focus on building big offices and superhighways instead of making social life attractive and easy for entrepreneurs with reliable courts, low crime, fun nightlife, and police that don’t extort you. As for us, we’re in the heart of the action here at Universidad Francisco Marroquín in Guatemala City. We’ve been able to leverage this position in the developing world to reach mayors, reformers, technologists, and activists from Mozambique to Detroit and many places in between.

All problems are opportunities for entrepreneurs. The best way to solve something is to connect a problem with a profitable business. 

Are start-up hubs similar all around the world, or do you notice differences from country to country?

It’s proven much harder than people thought to create vibrant hubs for business around the world. Countries tend to make the same mistakes: overvaluing ‘concrete and classrooms’. Start-up communities are made by their people. Instead of spending money on lavish facilities or expanding universities, nations should look at how they can make life easier and more attractive for small-scale entrepreneurs.

Make it easy for immigrants to come and start a business. 

Make the streets safe so that people mix naturally in bustling cafés and clubs. It’s about people and their creativity, not big new offices. There’s a similar problem in how nations are approaching ‘new city’ projects. Governments are laying out millions or billions for infrastructure, as though people are only concerned with art museums and wide sidewalks. You can see the disastrous results of this in China’s many ‘ghost cities’, where magnificent cities have almost no residents.

What role do you think entrepreneurship can play in solving some of the world’s global problems?

All problems are opportunities for entrepreneurs. The best way to solve something is to connect a problem with a profitable business. The first step to build a start-up is finding a problem in your customer’s life. Then you work like crazy to find a scalable and replicable solution. Many people think that the really hard problems like violence, global poverty, malnutrition, or lack of education are beyond the capabilities of entrepreneurs. It’s just not true. The big, serious problems of governance and community arise from our failure to unleash the power of entrepreneurship on the right scale.

Think of it this way: we set-up a legal and political system so that markets work and entrepreneurs can solve tons of problems. It’s amazing – all these entrepreneurs out there working in parallel, all trying different things from the ground up. Markets are problem-solving machines. Millions of people all search through trial-and-error for some kind of solution. We accept this as natural in most areas of our lives. But not the most important one: the way we structure communities themselves. While we’re marveling at the problem-solving ability of entrepreneurs, we’re also always complaining about corruption or poverty in our legal and political systems.

We don’t have progress there because we don’t allow real entrepreneurial solutions. If we treated other technologies like we treat law and governance, we’d never get anywhere. Think of what photography would be like if we gave Kodak total power over the future of the camera. Yes, they’d do their research in their labs. Occasionally they’d make something good. But we would never have today’s scale of innovation and progress. That requires start-ups that constantly enter markets and disrupt everything with new ideas. Most governments are like Kodak, struggling to cope with a wildly shifting market for governance and law.

Where do you think is the best place to start a business in the world?

How much of an adventure do you want?

Countries like Estonia, New Zealand, Singapore, or Hong Kong have all made it easy to start businesses. Anyone can consult the World Bank’s Doing Business Index and see just how easy (or incredibly hard) it is to get through a nation’s legal proceedings in business. So in that sense, head for these streamlined business hubs.

On the other hand, if you’re looking for the really tough problems and the adventure of a lifetime, other nations beckon. Setting up a firm easily isn’t all that matters.  Entrepreneurs are desperately needed in the places where it’s sometimes the hardest to set up a firm. Plus, highly competitive environments like, say, Singapore mean that your start-up is facing some of the fiercest talent around. In countries where it’s harder to operate, like Kenya or Guatemala, you have the chance to be a first mover.

People have far more serious problems outside of business meccas like Silicon Valley or New York. These should attract those who are truly looking to make a difference in people’s lives. Entrepreneurs can fill voids where existing firms and even governments have failed. Think of Shaffi Mather’s remarkable and humane private ambulance service or BRCK’s rugged internet boxes. Developing nations need entrepreneurs pushing limits in traditional areas like access to food and water, education, and telecom but also in medicine, community design, and security.

There’s lot of ripe, low-hanging fruit if you’re brave enough to venture into some of the tougher economies. Perhaps they’ll soon be plenty of Startup Cities around to host you and your world-changing idea.

Thumbnail and background image from gettyimages.

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