Why are Minnesota and California so friendly for innovation? Knott recognized in her article that on a cursory look, these two states could not be more different. California and Minnesota have vastly different climates. They are located in different geographical regions. The states have different cultures. What’s more, Knott identified that both states comprise a wide set of industries and are not dominated by one single industry. Of the firms looked at in the states (235 in California and 38 in Minnesota), Knott found that “no single industry comprises more that 15% of firms in either state.”
What then explains the commonality between Minnesota and California? According to Knott and the article, California and Minnesota share an important institutional feature: both states restrict the enforcement of non-compete agreements. Non-compete agreements are generally unenforceable in California. In Minnesota, non-competes are not restricted through legislation. Instead, courts have generally restricted the enforcement of non-competes, and judges have apparently “given leeway to adjust contracts if they view them as overly broad, often striking a fair balance between the interests of employer and employee.”
Through restricting the use of non-compete agreements, Knott believes that “California and Minnesota have created environments that are favorable to the spawning of entrepreneurial ventures around a successful large innovator.” Even though some may view California as being too expensive for businesses, Knott believes that California’s “friendliness to entrepreneurial employees” makes it a better long term location than less friendly states.
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