Mittelstand in the American Heartland
Why we don’t have to out-compete Silicon Valley
Within Midwestern startup communities, there is often a goal of attempting to emulate the successes of Silicon Valley within their local area. To this end, city councils and private sector investors set up incubators that replicate the kinds of tech companies that populate the valley. Every incubator wants its own Facebook, Twitter, or Uber to emerge and legitimize these efforts and provide some much needed economic growth to their metropolitan area. There is such a focus on creating the next ‘unicorn’ that smaller, yet profitable businesses are ignored in the hope of striking it big. It is not a sign of failure if a company only rises to millions in revenue, rather than the billions expected in the Valley.
However, this is a wasted effort as attempting to compete against Silicon Valley at what it does best never works out. The kinds of companies that exist on the coasts have difficulty emerging in the heartland, as the supporting infrastructure simply doesn’t exist. Tech startups tend to follow the money to the coasts, as the moneyed elites prefer living in areas within eyesight of the ocean and with ample yacht parking. Attempting to create similar infrastructures in the middle of the country simply isn’t going to exist when Silicon Valley already exists and is more than willing to outbid any small town efforts at a tech-based revival. Much of the success of Silicon Valley can be traced to concentration of industry and relatively easy availability of financing for new ventures; its difficult to get funding for companies outside of financial centers, as the greater the distance from capital the lower the chance of a successful funding round.
In fact, Silicon Valley is a poor model to follow in this regard, as it ignores the unique marcoeconomic circumstances within the Midwest. Historically, the region has been a key region of agricultural and manufacturing innovation, as its farms and factories dominated (and still do) the local landscape. However, economic conditions have made these engines of economic growth less viable due to low cost competition from developing countries. Many commentators have stated that the Midwest is rather doomed, as the economic opportunities on the coasts tend to create an internal brain drain that moves talent (and economic growth) away from the heartland.
The rural nature of a region does not need to serve as an impediment to economic growth, and in at least one case, has served as the core of a national economy. In Germany, the Mittelstand has served as an engine of economic growth despite its rural location. The Mittelstand refers to small and medium sized businesses located in rural communities that are family-owned and focus on export markets. More importantly, these companies succeed by developing dominance within a niche of economic production. This frequently involves partnerships with local universities in maintaining expertise and leadership within particular areas of value-added production.
The American heartland is a goldmine of underutilized potential, as the region still maintains significant expertise in agriculture and manufacturing areas. Rather than competing against Silicon Valley in creating the next Snapchat, the Midwest (and similar regions) should focus on creating companies that merge these core competencies and help maintain American dominance in these fields.
