Opinion - Politics

John Chambers: It's time to embrace businesses that will bring about a new form of capitalism

John Chambers
John Chambers, CEO of Cisco, at the 2015 CGI Annual Meeting in New York.
Adam Jeffery | CNBC

John Chambers, the former executive chairman and CEO of Cisco, is the founder and CEO of JC2 Ventures.

We are mere months away from the 2020 presidential election, and I am challenging each candidate to make digital, inclusive job creation, entrepreneurship, and startup growth part of their main agenda items.

The U.S. is the only leading country in the world without an integrated government-level strategy for fostering these important issues. While we have made some progress, it is often progress other countries started years ago. We are also seeing many debates around new forms of capitalism with this in mind – and, in my opinion, our future as a country lies in these priorities.

As a nation, we must have the imagination to visualize what is possible in this new digital era, and that means making changes to our traditional models to benefit all citizens.

What is the new form of capitalism?

The current form of capitalism in the U.S. has become too focused on the short term and almost exclusively financially focused, rather than financially and socially focused for the long term. As a result, often many large companies – which treat their resources as assets that can be ramped up and down depending on the day, quarter, or year – are being rewarded.

We have to better understand the impact business has on society as a whole, and we are simply not learning from the old models that are beginning to break down and fail. It is imperative that we foster long-term success as a nation. While many in the past have talked about redistributing wealth with taxation, welfare, and public services, I believe these are tactical solutions that will ultimately fail.

If we want to benefit fully from the digital age, we have to disrupt ourselves, before it is pushed upon us – and that means embracing the businesses that have the ability to create the next generation of job creation, increased income, and inclusion of all citizens.

My perspective on who those companies are? Startups. I know from firsthand experience, working directly with 18 global startups and interfacing with hundreds more each month, that young, growing companies are the players that can provide the opportunities needed to benefit each individual member of society and regenerate the communities in our country that would otherwise risk being left behind in the era of digital.

Startups: The secret to long-term, national growth

Regeneration through startup growth and creation is the answer that will have a real, lasting impact for the U.S. Startups will be the drivers of job creation, GDP growth, inclusion, and innovation in the future, which is why we see young talent favoring small companies for employment over large, global brands.

That said, we are facing a serious dilemma when it comes to fostering startups. The number of companies filing to go public has started to increase again in the past few years. In 2018, the number of IPOs filed on the NYSE and NASDAQ was approximately 330. But that growth is not happening nearly fast enough. This is even more apparent when you look at past decades, like in 1996 when the number of companies that went public was 706 – 114% more than today.

Additionally, startups, locations where there is access to capital (which is one of the hardest obstacles a startup will face in its growth journey), and high-tech talent continue to be concentrated in hubs like Silicon Valley and New York City. It is worth mentioning that a handful of new and surprising cities are popping up as startup-friendly destinations – like Phoenix where one of my startups, Privoro, is located and Atlanta, where JC2-backed Pindrop is headquartered. These cities are starting to attract young people looking for cool, hip, tech-savvy jobs.

But we need more than just a few new places embracing innovative, small companies. Every state needs to become a Startup State, if we want to succeed as a country in a digital-first future. We cannot leave the heartland of America behind. By bringing startups in volume to all 50 states, we will be able to regenerate the middle class and regain our standing as the leading Startup Nation of the world.

Taking a microscope to the IPO issue, from a VC perspective

So, why are we seeing so few companies go public in recent years? In the past, companies would go public early in order to raise funds.

As a result, every day citizens were able to get involved and invest their money in smart ways. Cisco's IPO, for example, allowed investors who put $1,000 in our stock in 1990 to grow their investments to more than $156,000 by the end of 2015. Facebook and Google on the other hand, both waited much longer to go public and the majority of their rapid growth occurred prior to the IPO. For example, if you invested $1,000 at the time Facebook went public, you would have only generated approximately $4,000, and with Google, about $23,000 – good returns, but missed the majority of the appreciation.

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In today's environment, companies are staying private longer and longer. I believe this is because of increased regulatory burden, shareholder activists, the short-term mentality of the public market where leaders are managing quarter-to-quarter as opposed to three or five years out, and the availability of private funding. Yet, if startups go public sooner, not only will the average American be able to participate over a longer period of time with a much higher return than late stage IPOs create. In terms of job creation, and why the number of IPOs are so important to national employment, more than 75 percent of a company's headcount growth occurs after they go public.

We need our political leaders to prioritize a digital and innovation agenda that will help startups grow and prosper. That is how we can regenerate wealth in America, rather than redistribute it. We want to grow the pie, not create even smaller slices. As such, our government must look at regulation, complexity of tax policies, and shareholder activities through the eyes of a private company. Sarbanes-Oxley and the current standalone considerations on privacy and security legislation, for example, are too focused on the missteps of the large companies; when small companies implement the same processes, the expenses are prohibitive, dramatically reducing their ability to grow and create new jobs.

It is critical that we create a win-win solution for government, enterprises, and citizens – and that this lies in requiring an analysis, especially as it relates to unintended consequences for small companies, of every regulation and tax policy change related to job creation before any legislation is passed.

The recipe for a successful talent pool and future

We not only need to create more than 25 million new jobs over the next 10 years to support our growing population – we also need to create 10-15 million new jobs to replace the ones that will be destroyed through technology and business model changes. However, the current talent pool does not support these numbers. For example, consider the Global AI Talent Report, which found that the number of global qualified AI specialists is estimated at just 36,524. AI is going to touch every industry, every company, and every individual person, and we need to increase the high-tech talent pool dramatically before we miss this opportunity as well.

The best place to start addressing this is by encouraging business, political, and academic leaders alike to work together to foster entrepreneurship and high-tech skills at the university-level, in addition to creating new models like the much talked about vocational and apprenticeship-based training approach.

We need to ensure this happens at campuses across the entire U.S., not just in places like California, Texas, and New York, because if young people do not feel the need to leave Middle America to find next generation education, they will be more likely to stay in a state like Indiana or Missouri to start their own company or pursue other job opportunities. In fact, in my home state of West Virginia, I am working to do exactly this. Together with leaders from various businesses, political parties, and academic institutions, we are hoping to jumpstart the state's entrepreneurship and startup engine through a program with West Virginia University that will nurture a startup culture, rooted in entrepreneurship, inclusion, and innovation.

If we want to prepare for the jobs of the future and drive long-term growth and success, we need government, business, and community leaders to join forces and have the courage to reinvent our education system for a new era that is focused on startups. If we come together to foster the next generation of innovators, there's no reason why my home state – or any state for that matter – can't become a Startup State.

Looking ahead to 2020 and beyond

We are at an important crossroads in our nation's history. The reality is that our political system has never been more divisive – but I think we can all agree and come together around the imperative for sustained, long-term growth. As we enter the next election cycle and look ahead to the progress that needs to be made over the next four years, it is my belief that it is time for the U.S. to disrupt ourselves, starting with establishing a new form of capitalism driven by startups that have the potential to lead in innovation, job creation, and inclusion for generations to come.