Last week, a letter in the Wall Street Journal claimed that Americans would be foolish to start a business today because the government has been destroying the incentive to build a successful company. We have heard this refrain in casual conversation and in the context of electioneering.
How odd. We are at a loss to think of a time and place in human history in which there was greater freedom or a better time to start a business, almost any business.
It is important to clarify what is needed to start and grow a business and to be clear where government has the ability to interfere.
Entrepreneurs must identify a service or product that is new or distinctive or is to be delivered in a new or distinctive way. Thanks to globalization and the internet, American’s can think and invent across sectors, industries, regions, and delivery modalities in ways that our parents and grandparents could not, regardless of their intelligence. In America, the government cannot and does not limit one’s ideas, though we can do it to ourselves pretty easily.
To start and build a company requires tremendous determination, the ability to move through adversity, the willingness to invest time and energy and then more of both. Ownership requires a sense of ownership. No government policy can give one a strong work ethic. The hardest working people we know are driven more by intrinsic than extrinsic motivation. (Yes, that recognition represents a key part of the origins of “Syntrinsic.” If we embraced external motivation, our name would be quite different.)
In order to implement one’s idea, it often is necessary to acquire new knowledge about technical or management aspects of the business. America’s education system gets a lot of criticism and much of it deserved; however, at least America as a country does not prevent people from learning what they want or need to know. Someone passively waiting to be given knowledge may struggle, but those who actively seek to learn can take advantage of a social system full of free and low-cost educational opportunities. For generations, the best way to acquire knowledge was through apprenticeship, not in school; that ability to glean on-the-job training from experienced mentors is as robust as ever if one is appropriately motivated.
No business succeeds in a vacuum. Partners, employees, vendors, customers, strategic partners, and other stakeholders share in the work via creativity, insight, or simple sweat equity. In America, entrepreneurs can seek out and find the people they need from around the globe, and in America people can take the risk of joining something new or innovative or both. We are not constrained by government in who we can hire nor are those who seek work constrained by government in seeking employment. America does not force children to choose professions in early adolescence as many developed countries do. We have the opportunity to invent and reinvent ourselves many times over.
Rule of Law
Volumes have been written about the critical role that that the rule of law plays in creating a healthy climate for constructive capitalism (see: The Mystery of Capital, Hernando De Soto, Basic Books, 2000). While we do not all agree on specific laws or even how many laws there should be, we do live in a country governed by law and with largely disinterested courts and other intermediaries to help officiate the application of law.
Access to Capital
While it has been difficult to borrow money from traditional banks over the past 2+ years, there remain many individuals and organizations that possess capital and are willing to invest in those with compelling business plans. Government may not go out of its way to make it easy for an entrepreneur to secure funds for an idea, but nor does government step in the way to prevent access. If you want to borrow against your credit card or home you can, provided the lender on the other side is interested. If you want to borrow from private or institutional investors the government will not prevent you from doing so. That may seem simple but it means the world.
Many other factors contribute to entrepreneurial opportunity, including civil society, transportation infrastructure, accessible telecommunications, absence of corruption, and healthy demographic trends. No combinations of factors ensure success of an individual entrepreneur, but taken together, they do create a climate where society-wide entrepreneurial success is highly likely.
The challenge of course, is that these factors must be protected vigilantly. Success can easily breed complacency. Just because America has been a richly innovative society since before its founding does not mean that it must remain so.
At a policy level, government can take many steps that simply make it harder to start a business:
· Diminish some of the incentive for working hard by making the work too onerous (e.g. regulatory overkill) or reducing the potential rewards of success (e.g. onerous tax policy).
· Make it scary or difficult to hire people by: mandating salary and benefits (including employment taxes) that are beyond what employers are able/willing to pay; mandating whom one can hire by gender, nationality, race, or other socio-political factors; making it easy not to work; or by making it difficult to remove people from employment.
· Demonize businesspeople.
· Threaten the Rule of Law by creating uncertainty about the application of laws already on the books. Recent examples include displacement of secured bond holders (Chrysler), interference with foreclosures, and protection of certain failed institutions (while allowing others in the same industry to crash). When one earns a reputation for changing the rules in the middle of the game, one makes it harder to get people to play again.
· Mandate allocations of capital. All capital controlled by the government was private capital first. Thus, any time that the government requires that a government agency allocate capital in a way that does not make economic sense or any time that the government mandates private corporations or individuals to allocate capital in a certain way, the risk is run that capital will not be available for otherwise meritorious ideas
That said, we do not think that government is the main problem today. That’s a highly unpopular thing to say in this political environment, but stay with us for a moment.
Ultimately, American government reflects American culture, and we’re more concerned with the latter than the former. We are not so sure American culture understands or is excited about entrepreneurship in the manner necessary to go forward effectively. The factors most necessary to start a business today—great ideas, work ethic, innovation, courage, leadership, collaboration—these are not controlled or materially limited by the government. These factors are our responsibility as individuals, as citizens.
It is easy to bash government from all sides of the aisles, and there is a place for it perhaps. More importantly however, our economy will only thrive—and our society prosper—so long as there are people with good ideas who possess the work ethic, skill, and tenacity to bring those ideas to life.
There’s been no finer place to start a business than America. If not now, when?