In the article I argue that Y Combinator is a victim of an unfair (inefficient) economic advantage that's being exercised more and more by incubators funded with state money.
Y Combination isn't a victim here. State funded incubators don't make it on YCs radar at all, because the state funded incubators/early stage funds are terrible at picking winners.
Until Y Combinator came around and revitalized the incubator model by doing it with micro-investments (and not being an incubator, something the clones have mostly failed to understand), private incubators were money losing failures.
As far as I am aware, AlphaLab in Pittsburgh is the only government funded incubator investing with the same magnitude as YC. They are no threat to YC, because they are only targeting people that live in Pittsburgh.
It does mess the Pittsburgh entrepreneurial scene up with Innovation Works and the Pittsburgh Life Sciences Greenhouse being the gateway to angel investment. But I believe strongly that we are much better off with them than without them. If they were gone, millions of dollars of additional capital wouldn't come to Pittsburgh to replace them. Investors don't avoid Pittsburgh because they have to compete with the PA government; the PA government isn't very good at investment.
Investors stay away because no rich people want to live here. PG accurately describes this in http://www.paulgraham.com/siliconvalley.html
How do you think a government should encourage innovation?
but seed money isn't geographically constrained. even if i live in pittsburgh, i can apply and get yc funding or any other kind of seed funding and bring it back to pittsburgh. therefore, any government funding program still has nation-wide competition.
