The start-up fallacy

This morning’s Observer column.

In an essay entitled "How to Make an American Job Before It's Too Late", Grove pointed out that whereas Apple has 25,000 employees in the US, Foxconn has 250,000 in southern China alone. "The company," he points out, "has grown at an astounding rate, first in Taiwan and later in China. Its revenue last year was $62bn, larger than Apple Inc, Microsoft Corp, Dell Inc or Intel. Foxconn employs more than 800,000 people, more than the combined worldwide head count of Apple, Dell, Microsoft, Hewlett-Packard Co, Intel and Sony Corp."

Grove cited these figures to attack what he regards as a pernicious mindset that now afflicts government policymakers in most western countries – "Our own misplaced faith in the power of start-ups to create US jobs. Americans love the idea of the guys in the garage inventing something that changes the world. New York Times columnist Thomas L Friedman recently encapsulated this view in a piece called 'Start-Ups, Not Bailouts'. His argument: let tired old companies that do commodity manufacturing die if they have to. If Washington really wants to create jobs, he wrote, it should back start-ups."

Grove thinks this is baloney and he's right. Start-ups are wonderful but – at least in technology – they generally don't create jobs on the scale that western economies need. What really matters is what comes after that eureka moment in the garage, as the new idea goes from prototype to mass production…