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Entrepreneurial Fallacies

Jonathan B. Wight

The idea that innovators mainly work for money was an idea dismissed by Adam Smith. He noted that prestige, or other unknown urges, led entrepreneurs to make extraordinary exertions.

But to hear Republican leaders, the only thing that drives economic success is the incentive of money. That dissipates one of the strongest arguments for capitalism, which is a flexible system that allows people to realize their dreams, achieve meaning, change the world for the better, and many other aspirational goals that may have little to do with financial reward. The financial reward that comes from success is certainly welcomed, but the motivation for creativity is often something else.

James Fallows takes up these points in his critique of the Daily Show interview with Edward Conard (former partner at Bain Capital). This is a long quote, but worth reading:

"In the interview Conard took something about America that is important and true, and linked it to an explanation that (in my view) is profoundly destructive and false.

"The important and true point is that America remains uniquely favorable as an environment in which the Microsofts, Apples, Googles, and Facebooks of the world continue to arise. Plus the Disneys, the NBAs, the Harvards, the FedExes, and whatever example you choose. Our ability to foster the creative parts of "creative destruction" is fundamental to our prosperity and influence. Therefore America must be very careful to preserve the environment that makes such continued innovation possible.

"The destructive and false part was his assertion that the only causal factors worth talking about are tax rates and income share for people at the top of the economic distribution.

"I think any fair-minded observation of the world shows that other factors matter more in America's pro-entrepreneurial climate. My list would start with: openness to immigration and outside talent; strong university-based research systems; world's largest domestic market as incubator; rule-of-law and culture of venture capital (as opposed to absolute income share for venture capitalists); supportive "innovation in a garage can lead to glory" concepts and the related ideal of mobility and opportunity; and so on. A lot of my recent writing has been about why China, in particular, will have trouble matching this range of advantages -- and why America will be at risk if we neglect or throw away the pillars of our ongoing wealth.

"Moreover: there is no plausible evidence that income inequality like today's is necessary for this creative climate. How could it be, if most of the success stories on Conard's list -- Microsoft, Apple, Google -- in fact got their start when tax rates were higher and income inequality was lower than today's levels? Does any sane person think that Bill Gates and Paul Allen would not have started Microsoft if Gates had thought he would end up with $20-some billion rather than $50-some billion? That Steve Jobs was driven mainly by money? That Sergei Brin and Larry Page would have given up on Google if they thought they'd end up as only minor rather than major billionaires? That Mark Zuckerberg is quitting Facebook because the IPO is making him a lot less rich than he might have hoped?"

The John Stewart interview is well-worth watching, in three parts (start here). It is enlivening to listen to two extremely bright people with differing views have a debate about capitalism.

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