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Why are Liberal and Labor so infatuated with start-ups?

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In the overwhelming majority of cases, public money for startups goes towards short term, low paying employment, writes Gerard May.

Startup companies are becoming increasingly important leading up to the next Federal election.

The Liberal Party have stated their intent to lure Australian entrepreneurs that have been successful in startups overseas — back to Australia. The Labor Party have also put forward policy incentives to generate more start-ups.

If elected, Labor wants to implement a policy they call “startup year”, designed to help 2,000 students each year establish startups within a university or other accredited accelerator or incubator through a loan system.

Another Labor policy is an intent to invest $17.8 million to drive a

‘... new generation of innovators, risk-takers and wealth-creators.’

These initiatives follow Bill Shorten's 2015 Budget Reply speech in May, when he stated:

“I believe Australia can be the science, start-up and technology capital of our region: attracting the best minds, supporting great institutions and encouraging home our great expats.” His reasons: “we understand, in the new economy, it’s these businesses that will drive growth and create jobs.”

There is some support for this view from the Organization for Economic Co-operation and Development (OECD). While it depends on the country, they say there is clear evidence startups generate jobs.

As the OECD says:

‘In most countries gross job creation by surviving micro start-ups more than compensates gross job destruction by exiting units.’

Clearly, Labor is not reinventing the wheel on government funding for startups.

Professor Mariana Mazzucato, of the Science Policy and Research Unit at the University of Sussex, states:

‘Silicon Valley firms were initially not funded mainly by venture capital. It came in after the ball had got rolling thanks to funding by the Department of Defence, the Department of Health, and Department of Energy.’

Society reaps gains from startups from the few who prosper.

However, I’ve witnessed the start-up culture where I live in New York City. Floors of rented out office space, with chairs and computers sub-contracted out to row after row of twenty-something CEOs, with their one, two and three person companies. Many using their entrepreneurial spirit as a result of a lack of opportunity into gaining employment into a traditional workplace.

Employee pay and conditions are notoriously bad in startup companies (beginning cash poor). While the overwhelming majority never succeed.

Therefore, with a few great exceptions, government initiatives into startups are about putting public money into generating low paying, short term jobs.

This leads to some questions, including:

  • Isn’t that what workers have been campaigning against?
  • Don’t we want public money put into generating secure, well-paying jobs?

Furthermore, in the Australian Labor Party’s policy plan on startups, it says:

‘... the Australian Government can do more to support startups in their early growth phases by opening up opportunities to demonstrate their worth via access to government procurement.’

As part of the "cash splash" towards publicly financed startups, there should be well considered regulation. This should include contracts and loans being awarded to startups most likely to be sustainable, that provide good paying jobs and conditions.

This will increase the chances of Australian workers benefitting from startups. Especially considering, in the overwhelming majority of cases, public money into startups is for short term, low paying employment.

You can follow Gerard May on Twitter @GerardMay5.

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