Singapore: Why Innovate in Utopia?

SINGAPORE– On the eve of my trip to Indonesia last May, I was having dinner in Cape Town with someone from an investment firm that has been killing it in Asia. When I told him Indonesia was my first trip to Southeast Asia he almost spit out his Springbok, saying “My God! You are starting with the hardest one first!”

On the eve of this trip to Singapore, I was having coffee in San Francisco with a venture capitalist who has been killing it in the Valley, after four years of living in Southeast Asia. He gave the same observation a decidedly Valley twist: “You are going to be bored to death in Singapore.”

Bored is hardly the word I’d use– it’s hard to be bored when you are running from meeting to meeting, not to mention eating some of the most awesome food known to man. But Singapore is most definitely an Asia with training wheels. And that’s the Singapore blessing when it comes to globalization, but it may be its curse when it comes to entrepreneurship.

Singapore is easy, clean and staunchly non-corrupt at a country level. The trees are immaculately groomed. Any 7/11 can give you a week of Blackberry service for less than $20 and double as full-on tech support if something goes wrong. You think of a cab, and it’s there, clean and cheap. When I landed in Singapore on Sunday, there was a white haze over the sky– that looked almost like a dome. Combine that with the clean streets and lush foliage and my jetlag-hazed drive from the airport to the hotel looked like I was in the episode of Battestar Gallactica where Starbuck and Apollo grab some faux rays on Cloud 9. People here call it “an experiment” and a “startup country.”  But James Chan, of the incubator/ venture fund Neotany Labs co-founded by Joi Ito and advised by Reid Hoffman, says what they really mean: “It’s utopia.” (More from Chan in Friday’s Ask a VC.)

Of course there’s a reason few people call it utopia. You don’t have to be a science fiction junkie to know utopia always has a catch, and obnoxious American reporter that I am, I’ve been looking for it since I arrived. So far– from what I can gather– people aren’t murdered when they reach the age of 30, homeless people aren’t repurposed into crackers, or encouraged to have meaningless sex as long as they don’t procreate and stay drugged up on Soma. But Singapore has one big challenge: How to create a country of entrepreneurial problem solvers and hackers when there’s no chaos, total practicality and a culture of obediently going-with-the-flow.

People call Singapore a police state because of its heavy authoritarian reach, punishment by caning, one of the highest rates of capital punishment in the world, and– you know– the whole ban on gum, to which people here get defensive and say “That’s totally overstated! You can chew gum, it’s just that no one is allowed to sell it.” (So, you get it from….?)

But that’s not really apt. Unlike a lot of authoritarian regimes, Singapore is ruled by practicality not some force-fed morality. When the population was growing too fast it instituted a “two is enough” campaign. When people reacted by having fewer than two children per household the government mandated that local TV stations devote their final hour of programming to romantic soaps to get people in the mood. I’m not sure if that story is really true or apocryphal, but its certainly believed by a wide swath of people here I’ve asked.

An even better example, which may also be apocryphal: The government wanted to encourage the development of a more vibrant artistic culture, and a study revealed that societies with more open gay and lesbian populations had more artistic achievements. So Singapore’s Prime Minister went on TV and expressed support for “our gay brothers”– nevermind homosexuality had been illegal before. Locals have told me Singapore has one of the more accepting cultures of homosexuality in Asia today.

For the last few years, the government is trying mightily to spur high-growth entrepreneurship. Unlike, the US, which is punishing immigrants and proposing laws to restrict angel investing, Singapore is doing all the sensible, practical things. The red carpet is rolled out for skilled immigrants, who now make up some 40% of the population. After years of investing hundreds of millions directly in entrepreneurs, Singapore is now taking a lead from how Israel created its venture capital ecosystem. It partners with venture firms, allowing them to make the best investment decisions and given them up to 6-to-1 matching funds. In other words, a firm invests $15 million and the government will invest $85 million for a convertible note. Under other programs the government will pay 50% of small companies R&D costs, ensuring they are focused on building something differentiated.

Billions are spent in government-run R&D labs that produce crazily disruptive innovations and “science fair projects” that capitalist, short-term thinking VCs in the US would never fund. Government programs send kids to the United States where they can work with startups, see behind the glamor, and hopefully catch the entrepreneur bug. They’re trying to augment an already rigorous education program that focuses on math and science to include more exercises on reasoning and problem-solving. Looking at the highly-practical policy free of moralistic, protectionist grandstanding, you can see why Singapore– a tiny nation of just five million people with comparatively few natural resources relative to its neighbors– has so outperformed on a per capital economic basis, with a stunning 18% growth rate.

Practical as ever, most Singaporeans I’ve met with this week have told me up until now, it’s excelled at being a global hub, but it hasn’t excelled when it comes to local high-growth entrepreneurship. Can it legislate its way there? It’s unclear. If any place can it’s likely Singapore. I mean, if local stories are true it helped legislate who people have sex with and how frequently they do it.

But my gut says that chaos and problem solving go hand-in-hand. When things are too comfortable, why take risk?Disproportionately immigrants make better entrepreneurs than trust fund kids. Small companies are the ones who actually innovate more than large, publicly-held market incumbents, who like to buy innovators or just throw the word around. (OK, Google, you and your flying cars get a pass…for now.) Countries in chaos tend to have greater needs– and great market holes to exploit.

It’s hard to find any corner of chaos in Singapore. The system is engineered with one outcome, Chan says: “Making people good economic units for society.” Is there room for a high-beta version of good economic units of society– one that could succeed disproportionately or fail disproportionately in a culture so tied to obediance? The big “what’s-wrong-with-youth-today?” scandal of late has been kids getting out of school and taking all the tables up at Starbucks with their endless studying. Lily Chan, CEO of the National University of Singapore’s Enterprise program, thinks it’ll take generations for Singapore to truly develop a culture of entrepreneurship– and she blames the parents. In a place replete with accountant and banker jobs, where buying a house is more expensive than most places in the United States the pressure not to waste your time building something speculative is high. There’s also another problem: One employer has optimized the system to find and make lucrative offers to the smartest kids in the system– that’s right, the Government. People who could have made the country’s top entrepreneurs instead make comfortable salaries trying to craft policy to encourage people to be entrepreneurs.

But just because an ecosystem isn’t poised to give rise to a disruptive potentially $1 billion dollar company doesn’t mean it’s not innovating and doesn’t mean the Valley doesn’t need to pay attention. I’ll detail how Singapore is accomplishing both of those in future posts.