Posts Tagged ‘Entrepreneurs under socialism’

Entrepreneurs under socialism

January 31, 2011

One of Americans’ great strengths is our entrepreneurial spirit.  Polls show that a higher percentage of Americans than of any other advanced country dream of owning their own businesses.  But a survey by the U.S. Small Business Administration shows that the percentage of Americans who actually start new businesses is less than for Canadians, Danes, Norwegians and Swiss.

U.S. government policy for the past 30 years has been aimed at encouraging business growth by cutting the marginal tax rate, which is the top tax rate, the tax rate on the next dollar earned.  The idea is that the less a business owner has to pay in taxes on additional profits, the more incentive the owner has to start and grow the business.

Along with this is the shrinking of the social safety net.  Owners of financial assets are supposed to be more productive because they have a greater incentive of gain.  Wage earners are supposed to be more productive because they have a greater incentive of fear.

But what if it doesn’t work that way?  What if, as the RSA Animate video suggests, other things were more important?

When I reported on business for the Rochester (NY) Democrat and Chronicle, the successful entrepreneurs I interviewed didn’t fit that pattern.  The typical story was somebody working for a large corporation had a good idea, couldn’t get anybody in the corporation to pursue it, and so decided to pursue it on their own.  These entrepreneurs wanted to get rich, of course.  Who doesn’t?  But the main thing was to achieve their goal.

Inc. magazine this month ran an excellent article about business start-ups in Norway. It began with a profile of Wiggo Dalmo, a high school graduate and mining equipment machanic, who got tired of working for a large company and started a successful business of his own, Momek, which now has 150 employees and $144 million in annual revenue.  He is taxed more heavily than he would be in the United States, but, according to Inc., he doesn’t mind.

“The tax system is good—it’s fair … What we’re doing when we are paying taxes is buying a product. So the question isn’t how you pay for the product; it’s the quality of the product.” Dalmo likes the government’s services, and he believes that he is paying a fair price.

Modern capitalism is possible because entrepreneurs and investors are cushioned from the worst consequences of failure. With bankruptcy laws, entrepreneurs can only lose what they have.  With limited liability corporations, investors can only lose what they put in.  Without these cushions, anybody who started a business, or even invested in a business, would be in jeopardy, when the business failed, of a debt burden they could never pay off in their lifetimes.  The consequences of failure are spread over society.  Arguably this is unfair, but by reducing fear of failure, it makes possible a dynamic, growing society.

In a welfare state such as Norway, there is more cushioning of risk.  Entrepreneurs have even less reason to fear failure than in the United States.  No matter what happens, they and their families will have access to medical care, their children will have access to a good education and their retirement income will be above the poverty level.

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