In its last issue, Foreign Affairs presented the opinions of about a half dozen experts on what the United States can learn from the experience of fighting the Iraqi and Afghanistan wars. These so-called experts focused exclusively on how we can fight wars better and spent no time discussing how we can better evaluate if a war is worth fighting.
In the current issue, called “Here Comes the Disrupters,” Foreign Affairs turns to a discussion of entrepreneurship, which loosely means the craft and science of starting businesses. The publication concerns itself primarily with entrepreneurs whose business ventures disrupt an industry, usually through technology. In the mythology of capitalism, entrepreneurs are heroic disrupters who through their vision, talent and perseverance overcome the great odds facing anyone who starts a business (except those who start with a lot of money and connections, which seems to apply to Jeff Bezos, Michael Dell, Meg Whitman, Bill Gates and most of the other entrepreneurs lauded by the mass media).
The introduction by editor Gideon Rose sets the stage for the one-note pony show in the magazine by praising Joseph Schumpeter, a mid-20th century Austrian free-market apologist who postulated that innovation was crucial to economic growth and that entrepreneurs were solely responsible for all innovation. Rose, like most right-wingers, praises the “perennial gale of creative destruction” (a translation into English of Schumpeter’s words) that roils the lives of individuals but benefits the overall economy and therefore helps all individuals raise their standard of living.
Yet Rose expresses befuddlement at how to share the fruits of entrepreneurship with the rest of the humanity: “Everybody wants more growth, more dynamism, and more broadly distributed benefits, but nobody seems to know how to get there.”
But we do know how to get there. We tax the entrepreneurs for their excess profit and use that money to provide a range of benefits and incentives to others, such as a decent minimum wage, high wages for all; job creation programs, low-cost college education, social nets for the poor and active public investment in infrastructure and research and development. That’s what the industrialized nations did roughly between 1935-1975.
Fostering entrepreneurial creative destruction was and remains a major rationale for virtually every aspect of the Reagan revolution, including lowering taxes on the wealthy, passing regulations making it harder for unions to organize, letting the buying power of the minimum wage deteriorate, scrimping on societal investments and retreating from our commitment to free public education and low-cost universities. The result—a steady decline in new start-up companies (that is, companies less than a year old) since 1978 from more than 14% of all U.S. firms to around 8%.
In other words, by writing that nobody seems to know how to broadly distribute benefits in society, Rose has either not read even the basics of 20th century history or is consciously lying. I’ll leave my readers to decide which one.
One reason that entrepreneurship has slowed down may be that our society has become less equitable since the late 1970s. To start a business requires resources that the entrepreneur must either have or borrow—but most start-up business people must pledge their house and other assets as collateral to borrow money from banks. Even venture capitalists want the entrepreneur to have some “skin in the game.” But fewer people have the “skin” to get into the game, as technology automates ever more middle class jobs, wages have stagnated for essentially 35 years and the cost to gain the education needed to be an effective technology entrepreneur becomes ever more expensive. The basic dynamics of capitalism have always depended on the accumulation and investment of capital. No wonder entrepreneurship is declining—fewer people can muster the capital needed to compete.
Rose follows his wave-the-free-market-flag encomium to entrepreneurship with interviews with six of the world’s leading technology capitalists whose companies significantly changed the dynamics of their respective industries, people like Amazon’s Jeff Bezos and Skype co-founder Niklas Zennstrom. The publication creates an artificial diversity by featuring an American man and woman, plus males from South America, Africa and Scandinavia and a Jew from Wales. But the diversity is only ostensible, as all come from either upper middle class or wealthy backgrounds and all attended elite educational institutions or exclusive colleges.
The six entrepreneurs seem to agree on most things. Yes, entrepreneurs help the entirety of society and not just themselves. Yes, competition, free markets with government investment in pure research, little regulation and open immigration are the ways to foster entrepreneurial activity. Yes, it’s too bad that creative destruction causes people to lose jobs, but what can we do about the vast wealth and income inequalities that have formed in virtually all countries of the world? All agree that “creative destruction” is a good thing.
Interestingly enough, the chiming of this chorus of “disrupters” rings most harmonious when discussing the single most important factor in their success. All blame their success on the luck of being at the right place at the right time with the right product or concept, the right contacts and a goodly amount of financial backing. Yet none seem to understand the major implication of relying on luck, which is that these captains of technology don’t deserve all the accolades and rewards they get. To rely on luck really means one is relying on society, since society creates most of the conditions which shaped the successes these people have had. If you don’t believe, consider the bad luck of living in a society with no roads or telephones.
Without knowing it, these entrepreneurs build the best case possible for high rates of taxation on the incremental income of the wealthy. Taxes quantify the value of luck to the entrepreneur. The more one makes, the luckier one has been, the less one has had to do with one’s success and the greater share should be returned to society to pay it forward for the next generation of the lucky few and the just-muddling-through rest of us.
Funny thing, though, none of these entrepreneurs want to complete the thought process. They prefer instead to speculate on what society can do to make it easier for entrepreneurs to succeed, as if that were the end goal of society.