The innovation argument for abolishing non-compete agreements

Myron Kassaraba passed on to me a great statement of the innovation argument for abolishing non-competition agreements. An article in the Harvard Business Review discusses what makes Silicon Valley special.

The absence of non-competes is not explicitly mentioned, but the central thesis is that Silicon Valley keeps innovating through the mobility of talent across companies. When things go bad, people leave and recombine in new teams to do new things. A contrast is drawn with the self-sufficient culture of Route 128 where companies do everything within one vertically integrated silo which, because of the lack of connection across companies, is vulnerable to ultimate destruction when the world changes. Think DEC, Prime, Wang, all dead, or think of EMC, still, apparently, thriving but perhaps vulnerable — very aggressively defensive of its particular business silo.

The argument is a familiar one, but the interview is special, because the interviewee is the author of the book that originally made the argument 25 years ago — AnnaLee Saxenian. Asked what would signal the end of Silicon Valley, she mentions “those price-fixing legal things”, but also talks about investment in education and infrastructure:

What would be the warning signs that ‘OK, this Silicon Valley thing is over’?

I think if you saw a falloff in startups, if you saw a flight of capital, if you saw more of these price-fixing, legal things that made people feel less comfortable about moving between firms or trying new things. The things that I worry about, to be honest, have much more to do with the failure of the state to reinvest in our higher education system, our infrastructure, just basic things that in the postwar period we took for granted. California had a remarkable three-tiered public higher education system that was really unparalleled. The infrastructure was new, it was all very functional. All of those things have been deteriorating and we’re not reinvesting in those. That won’t be a fast impact, and maybe it won’t slow things down dramatically, but I do worry about that.

So, the legal environment is by no means the only thing to worry about, but it’s one of the things that would be good to get right. We’ll take another run at reforming non-compete agreements this year.

Myron passes on these additional references:

Published by Will Brownsberger

Will Brownsberger is State Senator from the Second Suffolk and Middlesex District.