America Has Had an Entrepreneurial Edge From the Beginning

The authors of a new book, LAUNCHPAD REPUBLIC: America’s Entrepreneurial Edge and Why It Matters, contend that the United States has encouraged entrepreneurialism since before we named the place the United States, and that this particular national trait has never faded.

The co-authors, Howard Wolk, an experienced entrepreneur, company builder, investor and former senior fellow at the Harvard Kennedy School’s Mossavar-Rahmani Center for Business and Government, and John Landry, a business historian, writer, and a former editor at Harvard Business Review, argue that America really is the land of second chances, which is why failing at business is not the disgrace here that it is most other countries. We have from the beginning favored government that mostly allows business a free hand, and is less protective of established wealth than the monarchy we rebelled against.

We sent the authors some skeptical questions and got these patient answers from John Landry.

Grit Daily: Your book poses the question, is entrepreneurship an act of rebellion? Is it? From what I have seen it is just as much an act of masochism and a vow of poverty.

Yes, it is all of those things.  A recent study found that if entrepreneurs calculated the return on their labor at an hourly rate, on a strictly material basis, they would be better off avoiding the risks and getting a mid-level job at a big company.  But it turns out that a lot of people want to be on their own or in small groups, creating their own destiny rather than following a hierarchy, even if it means masochistically living in poverty for years.

Entrepreneurs are rebellious when they dare to do things differently. Many if not most of us already have a pretty comfortable life with only minor material annoyances. It’s easy to go along with what big companies offer, but entrepreneurs resist the status quo and explore a new path, even if it means incurring the displeasure of those giants.

One of our favorite stories in the book is about the entrepreneur Marc Lore.  He quit a comfortable job in investment banking to build a series of startups. He eventually hit it big with 1-800-DIAPERS, later Diapers.com and Quidsi.com, where he succeeded with an approach different from Amazon. Amazon started to drive him out of business with a price war, so Lore gave up and sold Quidsi to the e-commerce giant for $545 million. He became a high-level executive at Amazon, but soon quit for another startup, Jet.com, a kind of Quidsi on steroids. After two years, Walmart bought Jet for $3.3 billion and put Lore in charge of its entire e-commerce division. But once he integrated Jet, he quit again, and now he’s building an online meal preparation service, Wonder.com. He hasn’t lived in poverty for a long time, but the money doesn’t satisfy him.

Grit Daily: You argue that America has been uniquely welcoming to entrepreneurs since the beginning. What have other societies been doing since the 18th century to discourage entrepreneurism that we are not?

It’s mostly what they aren’t doing that matters. Most countries have maintained social structures and government interventions that discourage entrepreneurship in all sort of ways. The most obvious is the prevalent culture that sees business failure as shameful, whereas we Americans see failure as a learning experience and are much more willing to give people a second chance. The other issue, which was just demonstrated in China, is that governments in other countries are much stronger and are tempted to tax heavily or extort wealth from successful entrepreneurs. As part of our revolution in the 1770s and ‘80s, we developed a deep cultural and political distrust of governmental and elite power. We prefer our governments weak.

Grit Daily: You concede that the US enables high levels of wealth inequality but contend that  people who become extraordinarily wealthy here have a more challenging time maintaining that across generations, resulting in fewer people with entrenched fortunes & social superiority. The Fords and the Rockefellers have been rich for generations, and now someone who has $11 million can leave it to their kids with no inheritance tax. What are these challenges to intergenerational wealth you are referring to, aside from having raised feckless children?

It’s much harder to set up companies that maintain strong returns over generations. Most wealthy families have preserved their wealth not with their original company, but by investing wisely in capital markets. In other countries, once you’re wealthy, your descendants are more likely to be wealthy too, because those countries are more static, less competitive. They also have rigid class structures. Another example from the book is Uber. Here we let Uber spread rapidly, despite hurting taxicabs companies, because we favor consumers. Other countries shut Uber down, because they favor producers. Wealthy families and their businesses, often with strong political connections, enjoy protections that last for generations.

Grit Daily: You warn against government resorting to aggressive antitrust, redistribution of wealth, or heavy regulation. Let’s break this into three parts.  How is weak anti-trust enforcement good for startups? For instance, the FTC is trying to block Meta from acquiring a virtual reality company called Within. Are you contending it is better for entrepreneurialism in America if the government steps aside and allows the acquisition?

Generally, yes. We’re comfortable with a degree of antitrust in order to clip the wings of big companies that compete unfairly. Yet the current push for antitrust goes beyond protecting consumers and starts to resemble the European approach of protecting producers. Also antitrust has a tendency to lock in technologies and markets in ways that end up benefitting many incumbents.  So we need to be very careful about intervening with government’s heavy hand. As we’re seeing with Meta now, markets generally do a pretty good job of undermining supposedly dominant tech giants over time.

Grit Daily: For about a year during the pandemic families with children were receiving $300 per child each month, which was a clear redistribution of wealth. How did that hurt American entrepreneurialism? And how did it help entrepreneurialism that it ended?

The temporary child credit by itself probably had little effect on entrepreneurship. The bigger issue is that once we start relying on governments to take care of social problems, we end up with sprawling bureaucracies and concentrated power. Instead of going into entrepreneurship to address problems, talented, energetic people start looking to work in or lobby government. Instead of economic dynamism, we get a lot of cronyism and creeping socialism – which, as we’ve seen with socialist countries generally, kills entrepreneurship. Governments, not markets, become the source of prestige and wealth. My co-author and I are centrists, not libertarians, and we’re comfortable with a degree of government intervention and a limited welfare state. We just think some current proposals take us too far toward big government and protecting incumbents.

Grit Daily: Which heavy regulations are you worried about? Increasing the minimum wage? Workplace safety?

Economy-wide regulations worry us a lot less than regulations for specific industries, such as the ethanol boondoggle for agricultural giants.  Much of what governments do involves favors for specific interests, either through rules or subsidies, to protect incumbents against entrepreneurs.

Grit Daily: You argue that instead of all that anti-trust enforcement, wealth redistribution and heavy regulating, we should “encourage the post-pandemic flowering of entrepreneurship.” What is stopping this flowering? What should be done differently?

Nothing is stopping this flowering – we just need to trust that entrepreneurs, in tandem with big companies, will deliver on the astounding improvements in living standards that we’ve seen in the past few centuries. We’ve been laying golden eggs for a long time, and we just don’t want to kill the entrepreneurial goose with well-meaning but dangerous policies. The pandemic was an emergency that required special government action, but now that it’s fading, we need to get back to our successful approach of the past few decades.  Entrepreneurs can help us with major challenges such as climate change and inequality, if we let them.