One still might ask, So what? Well, without vibrant domestic entrepreneurship to constantly disrupt and re-create America's markets, the source of such disruption is more likely to be foreign companies. And when those foreign companies destabilize one of America's placid oligopolies, it's the foreigners who benefit from the creation, and America that absorbs the destruction.
We need only look across the Atlantic to observe the perils of suppressing the economic churning. The causes of Western Europe's abiding double-digit rates of unemployment are manifold, but at their root is the European governments' near-complete obliviousness to the wealth-creation process. Public dialogue tends to focus on how to apportion output equitably rather than on finding ways to let enterprises create more of it. France may lower its retirement age to 55, and several European countries are toying with a mandated four-day workweek--all with the notion of getting the "starters," as it were, out of the game to give the young unemployed some playing time. Those admittedly well-intentioned endeavors would require a massive welfare state, whose taxes and regulations would end up dampening entrepreneurial activity and, ironically, worsening unemployment.
Europe's technocrats might well benefit from a conversation with Donald Hicks. "These data tell us that the economy is in continuing motion, like a children's top," says Hicks of his study. "As long as it's in motion, that's when it's healthy. As soon as you try to protect what you have, it will fall over."
Our understanding of the economy urgently needs to catch up to the reality of what it has become. Only then will we start to hear more sensible interpretations from America's politicians, economists, and journalists. Until then, there may be a lot of happy talk--empty incantations about fostering entrepreneurship--but precious little concrete progress.
A year ago Peter Drucker warned in these pages that America's sense of entrepreneurial superiority was "lulling us into a dangerous complacency--not unlike our complacency about management in the early 1970s." If we don't find ways to better comprehend and stoke our entrepreneurial economy, his ominous prophecy may catch up to us faster than we think.
Jerry Useem is an associate editor at Inc.
Resources
Any inquiry into evolutionary theories of economics must inevitably begin with the famous chapter 7 of Joseph Schumpeter's Capitalism, Socialism and Democracy, which was first published in the United States in 1942--now available from HarperCollins (800-331-3761, 1962, $16). Also worth reading is Schumpeter's earlier work (1911), Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest and the Business Cycle (Transaction Publishers, 908-445-2280, 1983, $19.95), which deals more explicitly with new firms and entrepreneurship.
On a more contemporary note, Schumpeter's modern-day disciple Paul Romer has attracted considerable attention with his controversial new growth theory, which holds that new ideas are the ultimate source of economic growth. (To download Romer's papers, visit his Web site). Then there's Bruce Kirchhoff's Entrepreneurship and Dynamic Capitalism: The Economics of Business Firm Foundation and Growth (Praeger, 800-225-5800, 1994, $59.95), which takes the empirical approach of measuring company formation and growth.
As for works by noneconomists, there's Michael Rothschild's Bionomics: Economy as Ecosystem (College Board, 1995, $17.95). Rothschild gets bogged down in his analogy of economies as rain forests, but his central point is on the mark: that economies develop, test, and select innovations in much the same way that biological evolution selects species. See especially chapter 4, "The Mythical Machine," an attack on Newtonian physics--and mechanical metaphors--as the basis for economics. Or visit Inc. Online to read senior writer Edward Welles's interview with Rothschild.
For those willing to wade through dense academic prose, the most illuminating read of all may be chapters 2 and 3 of The Sources of Economic Growth (Harvard University Press, 800-448-2242, 1996, $39.95), by Richard R. Nelson, the first post-Schumpeterian economist to revive the evolutionary perspective. A self-described quasi inductivist, Nelson advocates the intellectually unfashionable route of taking observable phenomena and trying to explain them. He rails against the tendency of economists to glorify abstract mathematical virtuosity for its own sake.
Nelson notes that the steady march of economic growth can be misleading because it obscures the tremendous turmoil underneath. "Thus the regularity and the order that the analyst sees in economic growth," he hypothesizes, "may be analogous to the 'spontaneous order' highlighted by the new work on dynamic systems...." If this sort of stuff turns you on, pick up Nelson's book.
DONALD A. HICKS, School of Social Sciences, University of Texas at Dallas, Box 830688, Richardson, TX 75083-0688; 972-883-2733; dahicks@utdallas.edu 25
BRUCE KIRCHHOFF, New Jersey Institute of Technology, Newark, NJ 07102-1982; 201-596-5658; fax, 201-596-3074; kirchhoff@njit.edu 25
RESEARCH INSTITUTE FOR SMALL & EMERGING BUSINESS, Regina Tracy, 722 12th St. NW, Washington, DC 20005; 202-628-8382; fax, 202-628-8392; rise@bellatlantic.net 25
