Thanks to Tomas Rawlings for pointing me to two interesting articles.

1. The first article, dating back to December 2007 but still of current interest, reports on a debate within venture capital circles, on the value of “Noncompete” agreements, enforced in Massachusetts but not in California, which restrict the mobility of employees, but also therefore the flow and sharing of information. Different research studies are cited showing how crucial this fact is for the higher competitivity of California.

For example:

“Some researchers from Harvard Business School put out some research earlier this year that not only compared the situation in Silicon Valley to Boston, but added a third natural experiment in Michigan. You see, Michigan used to not enforce noncompetes, but in 1985, Michigan inadvertently began allowing noncompetes to be enforced again. The research showed that immediately following the change, mobility of inventors in Michigan decreased noticeably, slowing the spread of certain ideas. Their research found that “The networks of small companies so crucial to Silicon Valley’s growth would be less likely to develop in regions that enforce noncompetes.”

The author Mike Masnick concludes:

“In order to understand how this makes sense, just think of noncompetes as the “DRM” of human capital. Just as DRM tries to restrict the spread of content, a noncompete seeks to restrict the spread of a human’s ideas for a particular industry within the labor arena. Both concepts are based on the faulty assumption that doing so “protects” the original creator or company — but in both cases this is incorrect. What it actually does is set up an artificial barrier, limiting the overall potential of a market. It may not be easy to see that from the position of the content creator or company management (or investors). It’s natural to want to “protect,” but it’s actually quite damaging.

While it may seem easier to “protect” your ideas and your people, what you really end up doing is blocking off your own access to many of the ideas that you need to continue to innovate. You limit the vital mix of ideas to build not just decent products, but great products. Just as DRM has helped to destroy the record labels when competing against more nimble, more open technology — noncompetes destroy businesses when competing against more nimble, more open technology clusters.”

2. The second, more recent article, makes a different but related point:

“Plenty of studies have shown that innovation happens much faster when you have the free and open sharing of information (rather than having it locked up, say, by patents), as that mixture of different approaches and ideas allows for breakthroughs to come much faster.

And, in fact, that’s exactly what happened with the Netflix Prize. The first “team” to break the 10% finish line, BellKor, was actually a merger of a few separate teams, allowing them to combine different pieces of different approaches to actually leap ahead. So, rather than trying to hoard the idea for themselves to claim the entire prize themselves, they realized it was better to team up to make the real breakthrough.”