America’s Entrepreneurial Imperative

I’ll be spending quite of bit of time on this issue in the coming weeks. The Kauffman Foundation's President Carl Schramm has a new book called: The Entrepreneurial Imperative: How America's Economic Miracle Will Reshape the World (and Change Your Life).

It’s an expansion of an essay he did for Foreign Affairs.

Here’s a summary of that piece: The "Washington consensus" approach to development -- which urges other countries to emulate American capitalism -- misses one vital ingredient: the role that entrepreneurs play. Jump-starting growth in the developing world will require an understanding of the American entrepreneurial system, which involves four sectors of the economy: high-impact entrepreneurs, large mature firms, the government, and universities.

Here are some excerpts from Schramm’s recent interview with BusinessWeek:

BW: What is the entrepreneurial imperative?

It's the nature of the economy changing profoundly in terms of entrepreneurship in every respect. So much so that I think we should call this phase of the economy "entrepreneurial capitalism." It's imperative that all institutions and people who anticipate working think in entrepreneurial terms.

BW: Entrepreneurship is often referred to as the backbone of the American economy. What, if anything, is new in this area for you to write about?

This is pulling the insight together if you add up all the changes. [The book] paints a picture of the economy significantly different than how most people think about it, which is huge government, [domination of] the interests of big companies, and big unions. That was once an accurate portrayal, but increasingly there are new firms [owned by] individuals, the number of people working for [big] companies is declining, and unions are half of what they were 30 years ago.

BW: You say that if America exports entrepreneurial capitalism and other nations copy this economic model, as a result, our own wealth will grow. How so?

Really, what I'm saying is that we're in a much better position if the whole world is trading and creating wealth like ours. To the extent that it makes domestic America richer, it makes the rest of the world richer. We're running faster and have a huge lead in institutional support, entrepreneurship, and a huge amount of human capital. We don't have the same numbers as China's 1.3 billion to our 300 million [population]. But we outrank everybody in the highest-quality PhD.s raised in American universities. We're [also] producing highly skilled, technically trained people for industrial positions.

BW: You say that by fostering the means to create wealth in every country it will make the world more stable. But doesn't that also mean more competition for America?

Positively, it means more competition for the U.S. Then it again comes to the question of imperative. America has to understand that it's in a much more competitive environment [than it was before], but it can sketch out a future that continues to create wealth and be more entrepreneurial than any other country.

I think America is up to the challenge. We have the infrastructure and the cultural preconditions to be much stronger at entrepreneurship.

BW: You say that business schools are failing us. Why?

They still operate, teach, and research on an Old Economy [model] predicated on big government, business, and unions. I don't believe they've moved to the 21st century. They're caught in a mid-20th century model. There's no economic context that's contemporary. They're still preparing graduates for a life of being a consultant to a [big] company.

BW: One of your key themes is that entrepreneurship should be the key to our foreign policy, how so?

Simply put, if our job in foreign policy is to propagate democracy […] we have plenty of evidence that the application of military force isn't always successful. Advancing a model of our economy doesn't need a concentrated state effort.

In the past, we helped governments in developing countries by shoring up regimes. This [new] model goes directly to individuals. Where it touches the state is in engendering institutions of entrepreneurial capitalism. Essentially, it has never been tried, and it hasn't even been tried as a point of foreign policy. I think it could be an adjunct or a collateral part of our strategy.

What are we doing in Iran to engender a free-market economy? [What are we doing to] widen the base of creating a sense of new economic development, one that isn't imposed but a new, indigenous culture? A species of entrepreneurial capitalism can grow up with a little urging, spending, and technical assistance of the right kind.