Wednesday, February 08, 2006

Gandalf's Rule

Europeans think they can overtake the US economy by spending more on science education. They're wrong - US economic superiority flows from its unique culture of optimism, competition and innovation, and Gandalf's Rule quantifies this for the benefit of tech entrepreneurs.

Here's a clip from WaPo, hat tip Heritage Foundation Research (good source of data, so added to blogroll):

In the early 1980s the National Science Foundation predicted "looming shortfalls" of scientists and engineers, and the National Commission on Excellence in Education declared, "If an unfriendly foreign power had attempted to impose on America the mediocre educational performance that exists today, we might well have viewed it as an act of war." But the American economy went from strength to strength over the next decades, while supposedly more technical countries such as Japan and Germany foundered.

...The science lobby should also stop pretending that countries compete the same way companies do. Firms such as Toyota and Ford really do go head-to-head against each other; if Toyota has superior technology, it will steal Ford's customers -- and Ford may even disappear. But if China produces Nobel-quality science, it won't put the United States out of business; rather, Chinese discoveries will help American scientists discover more, too.

...In short, the "China threat" argument ignores the ways that competition between countries, unlike companies, is a positive-sum game. ...In the race to turn scientific ideas into businesses, the United States is hard to beat.

My experience in tech companies in the US and Europe confirms this. There's no problem getting smart engineers and marketeers in Europe, but a tech business needs customers prepared to take risks, and these are much more common the US than in Europe.

The reason seems to be that - on average - Europeans fear the failure of a risky project more than they value its potential success. In the US, it's the other way round, and businesses take risks to cut costs and improve products and services - if it doesn't work, they shrug, beat up on the supplier, and move on to the next innovation.

Gandalf's Rule quantifies this:

If you build your business in the US you'll hit revenues of $10 million in the same time and for the same cost that get you to $1 million in Europe.