Entrepreneurship in Decline?

Michael Malone has been writing about the technology industry, and particularly about Silicon Valley, for a couple of decades. This recent article is not very optimistic. Although Malone identifies several emerging technologies as having great potential, he fears that the basic mechanism by which new technologies are commercialized–the formation and growth of new enterprises–is badly broken.

Meanwhile, at the other end, in applied research, all of those new discoveries are ultimately going to slow or stall because the ‘pull’ of innovators who want to put those technologies to work, is fading. Sure, some big and aggressive companies like Intel will put some these inventions to work. But the big pull has always come from the thousands of fast-moving, risk-taking new start-up companies who find unexpected (and sometimes vast) new applications for those technologies.

Those companies aren’t there anymore. The crucial center of the tech world – new and fast-moving companies – the meat in the technology sandwich – is gone. Under the press of an economic slowdown, government regulations that have handcuffed entrepreneurs and venture capitalists – and perhaps most of all, an Administration that increasingly seems actively hostile to entrepreneurship and small business – high tech is hollowing out.

Most certainly, Obama and his circle have shown a clear hostility toward business and toward businesspeople–as shown, for example, in Michelle Obama’s advice to a group of women in Zanesville, Ohio: “Don’t go into corporate America.”

Creating new businesses, products, and jobs is clearly not, in the view of the Obamas, a worthy way to spend one’s time. Evidently, the highest human calling is to be either a bureaucrat, devoting one’s life to the enforcement of detailed procedures stored in a large 3-ring binder, or to be a “community organizer,” stirring up anger and resentment and ultimately a neo-Hobbesian war of group against group.

Melissa Clouthier has a post on what the worldview of the Obama Democrats does to a society, with Detroit, Michigan as the case in point.

We are in serious danger of losing some of the primary attributes of our economic competitiveness and prosperity. This post points out that:

In most of the world, the best way to make money is not to come up with brilliant ideas and work hard at implementing them, but to cultivate a government connection. Such cronyism is bound to shape public attitudes about a country’s economic system. When asked in a recent study to name the most important determinants of financial success, Italian managers put “knowledge of influential people” in first place (80% considered it “important” or “very important”). “Competence and experience” ranked fifth, behind characteristics such as “loyalty and obedience.”

Obama/Pelosi/Reid, with their combination of statism and the “Chicago Way,” will–if they are allowed to–eventually make that same attitude pervasive in the United States.

Goose that lays the golden eggs: meet the hatchet man.

13 thoughts on “Entrepreneurship in Decline?”

  1. All too true, but don’t forget Sarbanes-Oxley’s effect on start-up capital—Sarbox makes the final move in the VC dance, the IPO, seriously problematic because of all the downsides of listing your company’s stock, and so teh whole process by which start-ups were capitalized has been struggling. I haven’t seen any numbers, but i wonderr if anyone has looked at the “jobless recovery” of 2003-2005 in terms of new business formations.

    The current administration is every bit as hostile to enterprise as you suggest, but while maybe an outlier it is hardly a total break with the past, specifically things the GOP and Bush-43 either led on or were complicit in.

    If we want an economy that produces wealth and good-paying jobs, we have to consciouslt look at teh trade-offs that make capital welcome, and most of our rulers seem not only to be incapable of that, but really to not care except fro lip-service.

    Both parties. Almost all of them by the time they get to Washington, let alone Sacramento, Albany, Springfield, Harrisburg, Lansing, Trenton…

  2. I think the left has been successful in getting people to view profit driven business as evil while ignoring that politics is driven by the lust for power and the deeply held desire to impose one’s will upon others using the violent coercion of the state. In that bizzaro world, the lifelong obsession of the Obama’s to control and dominate as many people as possible is spun as a noble endeavor.

    Of course, maybe we shouldn’t be to surprised considering that the origin of the word “noble” means having the values of military aristocrats who exploited and oppressed all others by force of arms. Compare this to “villain” which originally meant ” a person of the village” i.e. the people who farmed, made and traded.

    We’ve got the same moral inversion going on today where people who create and produce are viewed as venal and untrustworthy while those who take, oppress and attack are venerated.

  3. Marty makes a good point about SarBox. A couple of other factors to add to the mix:

    – Expensing of stock options. Expensing the “mark to market” value of employee stock options burdens the income statement of small companies. Given liquidation preferences and the market risk of early and midstage companies, the actual realized value at a liquidity event is more likely to be far lower than the expensed levels. This expense burden makes small companies look far less profitable than they actaully are, and harms their “marketability”

    – Risk vs. Reward. With the government choosing winners and losers via too big too fail, “smart” (or should I say “sly”?) money will flow to ventures which are socialized for risk and privatized for profit – all made possible by political connections. Why should anyone take the risk of earning money the old fashioned way when their buddies in DC can give them a place at the government trough?

  4. “Yeah, that makes sense. The first lady is anti-corporate”

    and the president, and the former ‘green jobs’ czar, and the manufacturing czar, and anita dunn, and the science czar, and the speaker of the house, and the senate majority leader and….

  5. newrouter:

    Currently, the financial system is in dire straits. It would be surprising if venture capitalists were active. In the future, the outrageous deficits may suck up capital, and impede growth.

    Obama keeps promising to vastly increase financial regulation. Considering how much money he has taken from Wall Street, I doubt it will come to pass. However, if it does, it would probably have a negative effect on new ventures.

    I won’t be surprised if those things happen. But they haven’t. The dominant factor in the economy is the recession, not White House rhetoric.

  6. Obama keeps promising to vastly increase financial regulation. Considering how much money he has taken from Wall Street, I doubt it will come to pass.

    Oh, it will come to pass. The regulation will create rents for the large institutions that contributed to Obama (read: Government Sachs) and will increase costs to prohibitive levels for smaller competitors as well as jacking up the barriers to entry for new entrants. This will drive out all real competition and consolidate the financial sector into an oligopoly of too big and politically connected to fail institutions beholden to their political overlords and that are free to charge more for services than they would if the environment were actually competitive.

    Regulation 101.

  7. After the government assimilated the ChryCo bondholders, and doled out GM to the UAW, would you be interested in providing capital – to anyone?
    Hmmmm. Didn’t think so.


  8. We’ve had what, 10 IPOs this year?

    TomW: Can VCs/investors continue to “over-invest” in green enterprises, knowing that the future opportunities afforded by gov’t subsidies are evaporating? How can any investor in good-conscience invest in a business that intends to live off the lie of human-caused climate change or the thievery inherent in “cap and trade”?

    ROI and exist strategy calculations now must include outright confiscation; eg, when the subsidy ceases and the alternative whatever producer fails to profitably deliver, they simply fall under the management of some regulator/Czar at the local, state or federal level. What are stock options worth in that environment? And they need to be expensed?

    Start the assessment of future business velocity with the entreprenueurial risk. An entrepreneur is someone with a clear concise vision of the future, which no one else currently shares, who intends to develop a new product/service (that isn’t another iPhone app). Their whole incentive used to be the potential to acquire life-changing wealth by building a great new business, in exchange for toiling to implement their innovation in an open market. Now? The end-result of this idiotic policy direction is the de facto creation of 10s of thousands of real-life John Galt replicants.

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