The Entrepreneurial Imperative: How America's Economic Miracle Will Reshape the World (and Change Your Life)

Turn on or to a Sunday morning talk show, public radio, or the op-ed page of your favorite newspaper and you're likely to find a pundit bemoaning the state of the American economy. The post-9/11 recovery, he or she will say, is a mere illusion built on cheap credit, irresponsible lending practices, and a live-for-today mentality. Factor in the shenanigans of Wall Street financiers, shortsighted CEOs, and feckless politicians, all of whom have conspired to sell the American worker down the river, and you have a disaster in the making.

While simplistic, such analyses contain an element of truth. In an era of disruptive technological change and massive wealth creation, the gap between the top 1 percent of earners and everyone else is widening. The number of people without health insurance or unable to afford a college education is growing. And the sense shared by many that they have been left behind is deepening.

The forces behind structural changes in the American economy are, as New York Times columnist Thomas Friedman argues in The World Is Flat, global in nature and, increasingly, driven by a "non-Western, non-white — group of individuals." Moreover, thanks to ever-cheaper communications technologies and the spread of democracy, more and more people around the globe are able to participate in and shape what some have labeled "the long boom" — an extended period of economic growth with the potential to lift hundreds of millions of people out of poverty and substantially reduce the gaping disparities between North and South, developed and developing, haves and have-nots.

It's a confused and confusing situation for Americans, who have long enjoyed freedom and material prosperity and would like to see those blessings conferred on others. At the same time, many resent being dragged into a zero-sum economic game in which other countries' gains seem to come at their expense. In their more pessimistic moments, some even question whether the American dream the idea that if you work hard and play by the rules, your children's standard of living will be better than your own will be little more than a pipe dream in the new century.

It doesn't have to be, argues Carl J. Schramm in his new book, The Entrepreneurial Imperative. But for the United States to continue its economic and political leadership in the world — and for the American dream to survive — Americans must see entrepreneurs and entrepreneurship as their central comparative advantage. That's no surprise coming from Schramm, a "recovering" health economist and president and CEO of the Ewing Marion Kauffman Foundation, the only U.S. foundation committed to expanding the role of entrepreneurship in the American economy. But Schramm, who has written and spoken about economic competitiveness for years, is no Pollyanna. His short, tightly argued book is both a manifesto and a wake-up call for those who would prefer to ignore the realities of the global economy.

For Schramm, a staunch believer in the notion of American exceptionalism (like it or not, he writes, "we are the country that must carry democracy and freedom into the world"), those realities are stark: technological change and the largely unfettered flow of information, capital, and people across national borders has made capitalism more Darwinian than ever; and the United States is in danger of losing its leadership role in the world economy to countries like China, India, and Israel.

The good news, as he sees it, is that entrepreneurship — a "process in which one or more people undertake economic risk to create a new organization that will exploit a new technology or innovative process that generates value to others" — is both an "infinitely renewable resource" and the "subtext of American history"; indeed, the United States was founded, he writes, on the principle that it should have a new kind of economy in which only the efforts and responsibilities undertaken by individuals would determine their future. Watt and McCormick, Morse and Vanderbilt, Carnegie and Rockefeller, Jobs and Gates — the American experience, if nothing else, is the story of people free to dream and pursue their ambitions.

After flourishing in the 19th century, that ideal which Schramm calls the "freedom of self-determination" was discredited in the 20th thanks in no small part to two world wars and a global economic depression and virtually disappeared in the 1970s, an era of "bureaucratic capitalism" characterized by big government, big companies, and big unions. But the notion prevalent then, as it is today, among leftist academics, labor advocates, and traditional Democrats that the goal of a successful economy is to insulate individuals from "the insecurity that accompanies economic dynamism" turned out to be a prescription for economic stagnation. In fact, the "disquieting conundrum" of Schramm's book is that, in a world racing to embrace "entrepreneurial capitalism," policies designed to guarantee economic security tend to make us less rather than more secure.

Schramm supports his argument by examining four components of the emerging entrepreneurial economy — start-up businesses, large corporations that seek to operate in an entrepreneurial way, universities, and government — and explains the potential of each to contribute to a revitalized American economy. Citing the fact that the majority of new not to mention most exciting — jobs in the U.S. are created by companies less than five years old, he suggests that asking whether entrepreneurs are born or made is the wrong question. The better question involves understanding how someone deals with risk at each stage of their life. The twenty-something graduate of Stanford's business school, a forty-something divorcee, a recent immigrant — all are likely to have different motivations for starting a business, yet may see starting a business as the least risky alternative facing them at the time. The important point, says Schramm, is to recognize that the pace of economic change is accelerating, and that Americans must be willing to be creative, innovative, and entrepreneurial as never before.

The same is true for large corporations, which have succumbed to the process of "creative destruction" at an ever-quickening rate since the 1980s. He notes that turnover among Fortune 500 companies jumped from 4 percent a year in the 1960s and '70s to 8 percent in the 1980s and continued to accelerate in the 1990s, so that by 2005 nearly three-quarters of the hundred largest companies in American had not existed in their current form in 1980. While not necessarily a bad thing, Schramm writes, it suggests an over-eagerness on the part of corporate managers to let the demands of capital markets prevail to the long-term detriment of the firm.

To avoid that trap and make our emerging system of entrepreneurial capitalism more successful, we need to do a better job of balancing human capital, ideas, and financial capital. And key to that effort are corporate managers who understand the needs and culture of start-up firms, and entrepreneurs who appreciate the pressures under which corporate managers labor. Unfortunately, the sphere in which much of that training and acculturation should occur — America's colleges and universities is no longer as entrepreneurial as it once was. As perhaps only a parent with tuition bills to pay can, Schramm takes America's universities to task for feeding "social narcissism" and "displacing a sound general education" with "vocational training" courses and majors such as game design, alternative medicine, music therapy, teacher licensure, sports and leisure studies, and marine animal rescue. He then cites four areas in which American higher education has lost its way: the decline of science and engineering as fields of importance (China graduates six Ph.D.s in the sciences for every American receiving a similar degree); the creation of studies that yield uneducated graduates with an anti-business perspective; attempts to capitalize on R&D discoveries; and bloated bureaucracy and cost structures.

The Entrepreneurial Imperative isn't afraid to tell hard truths — and it isn't just for economists or policy wonks. It's full of pithy sayings and aphorisms ("Your choice of spouse should be guided by one rule: Don't marry an idiot!"), which makes it a pleasure to read. It also includes a handful of "letters" to people who have asked Schramm for advice over the years, including parents with children, young adults in their late teens and twenties, and a fifty-something mid-level manager who has been laid off. Each missive is inspirational in its own way, and all are food for thought. But it's the letter with which Schramm closes his book that best sums up his no-nonsense and, ultimately, optimistic take on America in the 21st century. "Dear Mr. or Mrs. President of the United States," he writes:

"Implementing your vision [of the Entrepreneurial Society] will lead to unparalleled levels of domestic prosperity and prove to be the soundest basis for international economic growth. When in place, it can achieve the most elusive of goals: a domestic policy that serves as an easily understood foundation for our foreign relations, one that reflects the noblest aspirations of this country for expanding liberty for all citizens of the world.

"That, of course, will lead to expanding world security. As you said throughout the campaign, very few people who are doing well economically want to risk that financial security by going to war. You were prescient when you said, 'Making the Entrepreneurial Society work is America's next and perhaps last chance to show the world the promise of self-government and what freedom means to the future of the world....' "

Not a message, perhaps, that will resonate with government ministers in Iran, Venezuela, or North Korea, but certainly one that our current crop of presidential aspirants — and each one of us — would be wise to heed.

Mitch Nauffts
Publisher/Editorial Director, Philanthropy News Digest
Foundation Center
New York, New York