The Entrepreneurial Imperative Should be a Categorical U.S. Policy Imperative

by on October 24, 2006 · 2 comments

The U.S. has the reputation of being entrepreneurial relative to other countries. The AEI event I attended yesterday was a book forum for Carl Schramm’s new book, “The Entrepreneurial Imperative.” The event focused on why entrepreneurs are important (they spur innovation) and how Washington policy helps and hurts entrepreneurial activity (despite our country’s relative success).

U.S. bankruptcy law is a reflection of our culture that accepts failure. In other countries, if you start a company and it goes under, you are a failure. In the U.S., however, entrepreneurs go on to start another business, and if that fails, then another one. The process is a learning–not losing–experience.

Yet other laws often have unintended deleterious effects on entrepreneurial activity. Schramm mentioned that the market for medical devices is dominated entirely by large companies because of the over-application of product liability laws. He also mentioned tax rules that prevent acquiring companies from fully writing off the R&D expenses of the acquired firm, which reduces the ability of large firms to incorporate small firm innovation and hurts small firms with an exit strategy of based on monetizing their hard work and selling the company.

International trade policies affect innovation. Schramm said that U.S. policy based on protecting dying, inconsequential industries like steel, sugar and textiles hurt our negotiations when trying to prevent piracy and protect our growing intellectual property industries. IP is the future (if not the present) yet our protection of older industries hurts our leverage when advocating free trade and IP protection.

According to Schramm, of the Fortune 100 companies that existed in 1980, only 25 rank among the 100 today. This, he said, is due to the dynamism of the marketplace–thanks mostly to the direct and indirect influence of entrepreneurs.

Indeed, the entrepreneurial imperative should be a categorical imperative for U.S. policy.

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