Is Heavily Subsidizing the Startup Ecosystem Hurting Middle East Economies in the Long run?
Photo by David Rodrigo on Unsplash
We all know from day one in economics class that in a modern free market economy the more output is created, the higher the GDP, and the higher the amount of export compared to import, the stronger the economy. And to get there, an economy must be competitive, and to be competitive, there must be more than one player in the market so that the invisible hand can create prices which make products affordable in the local as well as global marketplaces. This is the underlying truth, fortunately, or unfortunately.
In recent years there has been a notion in the Arab world that in order to get there we have to encourage “innovation” (what innovation means is a topic for another discussion). Sort of a magic spell that we can conjure up to bring about a sudden fall in unemployment and increase productivity so that our economies can compete with that of the “First World”. And although this is true in theory, we all also know that the quicker the high, the quicker and harder the comedown. Quick fixes only get you so far, its sustainability that we should be aiming for.
The advantages Western economies had, which led them to be classified as ‘First World’ in the first place, came post-WWII during the rebuilding of the world economic stage when NATO had an enormous competitive advantage over the rest of the world and the ability to dictate global trade policies. This was coupled with the learning curve of the industrial revolution which reached a plateau by that time which allowed Western economies to be at the forefront of everything from, engineering, medicine, science, and business. A considerable gain in their own game which they reap the rewards from till this day. And so, the prerequisite to playing this game has to be, to be as good as them, if not better, which some countries in East Asia, despite their post-WWII disadvantages have managed to do, and this only came about from gaining the same skills and practices which allowed their counterparts to thrive in the first place.
My question is, are we jumping the gun? Are we trying to be innovative without the skillset allowing us to be innovative? Are we putting the cart before the horse? Should we be more concerned about creating our own MIT and our own Stanford before creating a Silicon Valley or a NASA? Is it right that there are 100 local tech startups in the Middle East to every 1 local developer? (not actual figures, but I do know that 99% of all tech startups I come across locally outsource to India or Eastern Europe because of a lack of local technical skillset).
That’s with regards to creating real innovation, the goal. Now let’s turn our heads to the catalyst, the startup, and try to understand what a startup really is. According to Investopedia:
‘A startup is a young company that is just beginning to develop. Startups are usually small and initially financed and operated by a handful of founders or one individual. These companies offer a product or service that is not currently being offered elsewhere in the market, or that the founders believe is being offered in an inferior manner.’
What I want to highlight in this definition isn’t “to create a product or service that isn’t being offered”, because that’s a given, but to rather turn your attention to the word ‘Market’ itself. Meaning, that the fact that while ‘Innovation’ and ‘Startups’ have become part our common vocabulary these days, which is great, given the right conditions of course, the problem is, we’re also simultaneously pushing for globalisation as well. Which means that regardless of whatever innovation we try to innovate or startups we try to start, we’ll always run the risk of competing with not only our local markets but the global ones as well. Why is this a problem? Because we’ll always run the risk of being out-competed because of a technical and economic disadvantage to begin with, which has forced some entrepreneurs to adopt a copy-paste methodology knowing that if we can’t compete, lets at least beat them to our own markets. Which is evident when you see that our most successful ventures to date in the Arab world or what we call our ‘Unicorns’ were basically white labelling of what was already created elsewhere.
Other than that, anything we try to do which hasn’t been done, we almost always face a problem in selling the idea to the masses, because we simply lack the “cool factor”. Our own unique identity which will make us, as well as the rest of the world, start to think that anything that comes from here must be worth checking out at least. Would you, and potentially anyone outside of the Arab world switch to a cool Saudi version of Snap chat called ‘Hala Chat’ with Arabesque filters (great idea btw)? If not, then why not? Why have we, and most of the world, always fixated our eyes on the West as the source of inspiration and product adoption? Simply, because they’re cool. LA is cool, Surfers are cool, Hollywood is cool, Hip-hop is cool, Apple is cool, Cowboys are cool, Classic Chevies are cool etc. etc. So we need to find our own cool and make everyone else see it too. Look at Japan, Tokyo’s done that, Korea even has that too now with K-pop and gaming. So why can’t we.
So if our only choice, for now, is a quick copy-paste, which there isn’t any shame in, because every Coke needs a Pepsi, should we not at least at the same time, for now, protect our own until we reach a level of technical know-how to become truly competitive globally? Put up barriers to entry, like China has done, to allow for companies to grow and thrive before competing on the world stage? Alibaba, Wechat, and QQ are to name a few. All have either IPO’d or are worth billions, and don’t run the risk of losing that position until China decides to open their doors to outsiders. And they also have the luxury of allocating huge budgets to R&D because they know, that if they don’t, or can’t, compete globally, at least, at least, they’re protected locally. Is it not wasted effort for us to tell all these wide-eyed young entrepreneurs to start businesses that their global counterpart can at any second come in, with huge economies of scale, and sweep them off their feet? and not in a romantic way either. Imagine the endless possibilities of what Careem can do if they didn’t have to spend half their time looking over their shoulders for the goliath Uber who’s been able to roam freely in our own backyards. And not only that, we’ve funded them to do it as well.
There’s more than one way to skin a camel. Thriving economies and a low unemployment rate can also come about from allowing the few truly innovative to grow, while at the same time not discouraging others to still take on work in the broader economy where they can still have a huge impact on by pushing the boundaries of traditional sectors of the economy further.
This brings me to my main point (although I think I’ve made a few side ones along the way), that by knowing all this to be true, and with the already high failure rate in the West of startups (9/10), with billions of dollars being wasted by VCs each year on companies which they thought to be winners but later had, for whatever reason, gone belly up, and who had already enjoyed huge economic and technical advantages to the rest of the world, then should there then not be a more scientific approach to encouraging our potential would be lawyers, doctors, engineers, teachers, artists, accountants, and politicians, to be entrepreneurs? By saying to them “Hey! What are you thinking of doing? Has it been done, do we have the means of protecting your IP, can you compete locally or internationally, and if so how can we help you get there.” YOU, not an army of YOUs, just you, who we see potential in to be the next big thing. Or else with every government-backed entity competing to encourage every able-bodied young person to follow their dreams or passions, and giving them a little office space or money to do so, are we not inevitably leading the lamb to the slaughter, and just ending up instead having a whole generation of inspired youth waking up one morning exhausted, broke, and frustrated, with no business or career to show for. Should the ability to earn a living not be our ultimate goal? While at the same time giving them the tools to innovate when and how they see fit?
One day soon, if not already, we will reach a saturation point of the products and services we can mimic to suit our local tastes and customs, then what? Who will invent the next big thing, how will we help them do it, and if they do, how will we encourage the world to jump on board?
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