noah Smith In conversation with Dr. Robyn Klingler-Vidra
Introduction
On 5 June, the Oxford Taiwan Studies Programme at the Oxford School of Global and Area Studies (OSGA) hosted Dr. Robyn Klingler-Vidra of King’s College London to discuss her recent book, Startup Capitalism: New Approaches to Innovation in East Asia, co-authored with Professor Ramon Pacheco Pardo. Dr. Klingler-Vidra is Vice Dean for Global Engagement and Reader in Political Economy & Entrepreneurship at King’s Business School. Her research focuses on entrepreneurship, innovation, and venture capital.
A self-described comparative political economy scholar, Dr. Klingler-Vidra began with a central question: How do venture capital and startup promotion travel across economies? Her talk explored the East Asian perspective, the book’s theoretical framework, and its key findings.
Following the wider 21st century shift of the “startup zeitgeist,” East Asian governments began introducing policies, programmes, and funding initiatives targeted at startup growth. In their book, the authors define “startup capitalism” as an economic and political system in which startups contribute to employment, innovation, and growth. Drawing on Klingler-Vidra’s comparative expertise and Pacheco Pardo’s specialisation in South Korea, the book focuses on Taiwan, South Korea, Japan, and China. It asks: Are current startup initiatives a departure from these countries’ developmental state traditions—or do they represent a form of continuity?
Theoretical Framework
The book utilises Schumpeterian theory as its grounding. As Dr. Klingler-Vidra explained, Schumpeterian theory breaks down competition and innovation into two distinct phases, Mark I and Mark II. Mark I is characterised by “creative destruction,” low barriers to entry for new firms, and radical innovation by new firms. This is where we expect to see unicorns and where startups drive real transformative change. Mark II is characterised by oligopoly, with large, well-established firms displaying incremental innovation with pre-established technologies, creating high barriers for new, smaller firms to get a foot in the door.
Dr. Klingler-Vidra, however, goes against the conventional view that contemporary startup-related industrial policy aims to cultivate creative destruction and disruption. Policy analysis across the four East Asian states reveals that startups can instead be resources for large firms, rather than disruptors of incumbent firms and technologies or agents of creative destruction.
East Asian Economies and Antecedents
Since the beginning of the 21st century, East Asian governments have pushed for startup promotion, cluster development, and unicorn cultivation. We can see this in the establishment of the Taiwan Tech Arena, the J-Startup initiative in Japan, and the South Korea SMEs & Startups Agency (KOSME). Each nation has put forth policies that focus on cluster-building, with coworking spaces and accelerators. To measure continuity versus change in each nation, the authors first mapped the antecedent moments on radar charts according to developmental state and comparative capitalism literature. Each of the four nations was mapped along five elements:
firm size: what firm size is being targeted in policy and media?
employment: how are labour market policies changing? Are they becoming more fluid or tighter?
finance: how much of the financing mix is equity-based as opposed to debt-based?
innovation: to what extent is the intent of innovation radical versus incremental?
social purpose: is the motivation behind new policies and programmes domestic or external?
Taiwan began as the most ‘startup-centric’ compared to the other three nations, leaning toward radical innovation, small firms, and equity financing. Taiwan at this point also tended towards external-facing social purposes. Employment was at a similar level to China and more fluid than that of South Korea and Japan. South Korea and Japan’s antecedent moments were largely similar, with incremental innovation, large firms, lifetime employment, debt financing, and in-the-middle social purpose. China started out with incremental innovation, larger firms, both debt and equity financing, and a more domestic social purpose.
Findings by Country
Following this introduction to the four nations’ beginning stages, Dr. Klingler-Vidra elaborated on the evolution of each country’s industrial policy.. Taiwan has changed the least of the four. Social purpose continues to be about the existential threat that it faces and looks to the external. Small firms and, later, startups have often relied on grey and venture capital financing, as bank loans have been historically difficult to access. We see increasing fluidity in the labor market and movement to ever more radical innovation. Dr. Klingler-Vidra noted that Taiwan shows a significant difference in the extent to which startups are positioned as reinforcing existing strengths. South Korea and Japan tend to foster startups that are complementary to existing powerful, large firms. Taiwan, instead of attempting to reinforce its existing aces such as semiconductors, is trying to diversify, create new capabilities, reduce reliance on its greatest hits, and go global. Taiwan shows a story of continuity, despite the expectation that, over time, the startup economy would double down on its ‘silicon shield.’
South Korea has shown an expansion around equity funding, radical innovation, and a looser labour market. In 1996, South Korea launched the KOSDAQ Securities Exchange, which led to a huge expansion in equity funding. As the nation emphasises attracting talent, KOSME organises the annual K-Startup Grand Challenge to bring foreign ideas and talent to Korea. Interestingly, one of the success indicators is the number of partnerships or licensing agreements that participants make with Korean chaebols, i.e., large, family-owned conglomerates such as Samsung or Hyundai. Another example of the South Korean startup initiative is its 18 Centres for Creative Economy and Innovation, which are coworking innovation spaces. Each of these 18 centres are consigned with chaebols, meaning that each centre has a partnership with one conglomerate. This means that as innovators work in these spaces alongside and with assistance from chaebol partners, information flows both ways. One of the core key performance indicators (KPIs) of these centres is to inject “innovative DNA” into the chaebol. Looking at these elements, South Korea also exhibits continuity with its past. While startups offer “innovative DNA,” the focus and main beneficiaries of the system are still the large, well-established chaebols.
Japan has shown growth in key domains, in particular around equity financing. There has been a shift towards more radical innovation and a modest loosening of the labour market. Two key changes assisting these shifts were the introduction of pension fund portability – until reforms in 2001, if you left your employer in Japan, you would forfeit your pension savings until that point – and the rise of corporate venture capital. As a world leader in corporate venture capital, the rise in equity financing moves Japan closer towards a Schumpeterian Mark I system. However, because corporations are the major equity financiers, this shift comes from, within, and by the corporate system. This begs the question, which startups are corporates more likely to support? Due to corporate control over financial resources, the startups likely to be supported are those that complement rather than truly challenge or disrupt the established corporate giants.
As China’s development has seen many twists and turns, it is a harder case to follow. Overall, there has been a massive increase in rhetoric of the external security-focused social purpose and a massive move towards more radical innovation. There has also been significant growth in equity funding fuelled and supported by the government. There are differences across technologies and sectors, with startups in some sectors acting as resources for large firms rather than as disruptors. In other cases, only those entrepreneurs who survive the intense initial market competition will receive support from established corporations or the government.
Conclusions
Dr. Klingler-Vidra concluded her talk by characterising Taiwan as the most Silicon Valley-like of the four, with China as a close second. While startups inject “innovative DNA” into large firms in South Korea and Japan – which demonstrate continuity – it does not necessarily align with Schumpeterian Mark II, as this theory describes an industrial dynamic in which companies’ borders were closed. Now, large firms are much more involved. The oligopolistic mode is different in the contemporary era, and governments contribute by encouraging incumbent competitiveness through engagement with startups, such as mentorship schemes, secondments, and licensing agreement KPIs. Across all four economies, startups function less as agents of creative destruction and more as complementary partners to incumbents. And in many cases, the large firms are themselves driving this interaction to tap into innovation and talent. Ultimately, each country is charting its own unique path within the global startup economy—at times drawing on institutional legacies, and at others pioneering genuine policy innovation.
The seminar is organised by Dr. Bo-jiun Jing, Senior Research Fellow in Taiwan Studies at OSGA, as part of the Oxford Taiwan Studies Seminar Series. This article marks the inaugural publication in the partnership between the Oxford Taiwan Studies Programme and St. Antony’s International Review.
