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Chile: Smart Rules for the 21st Century?

Submitted by on December 21, 2010 – 2:09 amNo Comment

Throughout the 19th century Britain was the world’s most industrialized nation with an empire where the sun famously never set. In contrast Germany was, in the words of Frank Thadeusz, an “underdeveloped agrarian state.” In a matter of just 50 years, however, Germany caught up while British development and innovation began to languish. The difference, according to economic historian Eckhard Höffner, lies in a debilitating British copyright law that limited access to knowledge by otherwise would-be entrepreneurs. Meanwhile in Germany, where copyright laws were essentially absent, book publishing and reading flourished, including unexpected hits such as “Principles of Leather Tanning” by chemistry professor Sigismund Hermbstädt. If you accept Höffner’s thesis, then it could be said that Germany’s industrial innovation outpaced Britain’s because it had better rules, which begs the question: what are the best rules to bring about a 21st century economy based on information, software, and design?

Such a seemingly simple query has turned into a mild obsession for Stanford economist Paul Romer who has been traveling the world this past year promoting the concept of “Charter Cities“, small enclaves with smart rules that bring about 21st century economic development. It has also been on the mind of Esteban Gutierrez, a talented Mexican software developer who recently penned his reflections on “Mexico and the lack of a software industry:”

After more than forty years of computers in Mexico and what we see is the lack of an industry that needs to do nothing more than support local talent. The government has not offered any step forward to encourage more computer science education or the creation of software start-ups. PROSOFT, a government fund for development of the software industry, only helps sustain the old model of large software factories and is not concerned with startup creativity.

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Chile, on the other hand, just might be the 21st century’s “City upon a Hill” in terms of creating smart rules that bring about innovation and entrepreneurship. In July Chile became the world’s first country to guarantee net neutrality, ensuring small startups as much access to the market of internet users as established, major corporations. Just two months earlier Congress passed the region’s most progressive intellectual property reform, protecting fair use and satire while introducing copyright exceptions for the visually impaired, public libraries, and non-profit archives.

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With the basic rules in place to support a culture of startup innovation, the Chilean government is now supporting what Vivek Wadhwa describes as “a radical new experiment:”

It is importing entrepreneurs from all over the world, by offering them $40,000 to bootstrap in Chile. They get a visa; free office space; assistance with networking, mentoring, fundraising, and connecting to potential customers and partners. All the entrepreneurs have to do, in return, is commit to working hard and live in one of the most beautiful places on this planet.

The program, called Start-Up Chile, is still in the pilot stage. Chile has selected 25 teams to receive grants. Seventeen of these teams have already moved to Chile’s capital city, Santiago. The program will be officially launched on January 13, 2011. It will then be opened to the next batch of 100 startups. Chile expects to “import” around 1000 startup teams over the next three years. The program is headed by Nicolas Shea, who reports to Chile’s Minister of Economy, Juan Andrés Fontaine.

So far most of the incoming entrepreneurs seem to come from California. One group, “CruiseWise“, aims to become the Kayak.com for online cruise booking. Aeterna Sol wants to make solar panels more efficient through modularization and sunlight tracking. Entrustet helps users manage their digital assets after they die, a virtual probate lawyer for the digital age.

Wadwha emphasizes that Silicon Valley’s success has depended on its ability to attract the very best talent from all over the world who then create new wealth and companies that in turn create more jobs and a more robust economy. Will the same magic formula apply to Chile? We’ll have to wait and see. Ten years from now we might look at Start-Up Chile as a cheap gimmick to attract foreign investment while giving some kids from California a year to surf and snowboard. Or it might be seen as the seed that transformed Chile into Latin America’s first fully developed country.

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