Cross-posted at Montclair SocioBlog.
George W. Bush did not really say, “The problem with the French is that they have no word for entrepreneur.” But that statement does fit with the American tendency to view our country as the land of entrepreneurship (literally “enterprise”). America is, after all, the land of opportunity, where anyone can become rich. And the way to get rich is to be an independent, risk-taking entrepreneur and start your own business. That’s what we do here in the US, and we do it better than most. At least that’s what we think.
But look at this chart showing the rate of start-ups per working-age population:
The US ranks 23rd. That doesn’t quite square with all those photo-ops where the president (Obama, Bush, Clinton – they all do it) goes to some small successful company out in the heartland. What is it about these other countries that makes for more risk-takikng?
James Wimberly has an answer: the safety net. He makes the point with an analogy – his own photos of kids on a rope-walk – a single rope hung between two platforms in what looks like the Brazilian rain forest. (It’s really just a replanted hillside, formerly the site of a favela). The kids have safety devices – hard hats, a safety harness, guide-ropes to hold on to. Without these, only a few of the most f oolhardy would try a Philippe Petit walk. But the safety devices allow lots of kids to take a risk they would otherwise avoid.
The same logic applies to small business.
How many Americans are locked into jobs they hate by the fear of losing health benefits? No Dane ever has to worry about losing her right to medical care by quitting her job to go it alone
Safety devices cost money, but they pay off. On the rope-walk, you can see the reward in the expression on the kids’ faces when they reach the other platform. In the national data, you see it in the those start-ups.
The countries with significantly higher startup rates than the USA are those with stronger, more comprehensive, and more centralised social safety nets, along with correspondingly higher taxation.
See Wimberly’s entire post – with the photos, footnotes, and comments – for a fuller explanation.
Meghan O'Connor — November 10, 2011
It's too bad, because it would have been a great example of his ignorance. Entrepreneur IS a French word, having been coined by a French economist in the 19th century. Plus, there are 5 or 6 synonyms in French for it.
Anonymous — November 10, 2011
Absolutely agree that the link between health care and employment needs to be broken to encourage not only entrepreneurship, but the free movement of labor. People are artificially chained to jobs they hate in industries that are declining, away from the growth areas of the US labor market because they are scared of losing health coverage.
The break of the link does NOT require nationalized health care like in these other countries, but does require that we encourage and tax personal health care plans the same way that employer health care plans are treated (employer provided health care is paid with pre-tax dollars, but if you buy an individual plan you pay with post-tax dollars, thus encouraging the proliferation of employer provided health care instead of individual plans.)
Noemail — November 10, 2011
"The countries with significantly higher startup rates than the USA are those with stronger, more comprehensive, and more centralised social safety nets, along with correspondingly higher taxation."
Well, not necessarily. In Austria you pay between 45 and 50% of taxes and yet it ranks low..
Jenn — November 10, 2011
yay, go New Zealand! In NZ we have public healthcare, so no one would worry about that at all in relation to not having a job. I wonder if we pay more tax than America? (around 20% for first tax bracket up to 30% then 40% for the highest earners.) We also get heavily subsidised university education and interest free student loans, among other things.
We also have a 'entrepreneurial' discourse that surrounds us - from our (recent) settler times, when we had to make do with what we had, being so far from everywhere else, so American is not the only place with this sort of national mentality.
Yrro Simyarin — November 10, 2011
The law of economists - "For every economist, there is an equal and opposite economist."
Summary of the above - self-employment is poorly associated with economic success and entrepreneurship. Only large scale entrepreneurship (ie, a company growing into Yahoo or Google) grows an economy significantly, not founding "Joe's Window Cleaning LLC", and this should be measured separately. While the US has lower rates of self-employment, the number of rich people in the US who became rich by starting a new company is extremely high.
I'm not sure that creating a new LLC is the best measure of entrepreneurship. Also, much of the conservative argument is that in the highly developed areas of the country, starting a business in the US is in no way an easy process, due to a long line of government regulations, even if the laws are easier on a federal level.
As an aside, I don't actually mean to dispute his point - that safety nets are good for entrepreneurship. They probably are, although secondary to the ability to strike it rich. I just don't think his data supports that as well as he thinks.
The U.S. Ranks Only 23rd In The Density Of Start-Ups, Behind Countries With Strong Safety Nets | Hub Tank - True knowledge lies in knowing how to live. — November 10, 2011
[...] is increasingly difficult for Americans to start their own businesses and prosper in the economy. Sociological Images points out today that the United States now ranks a paltry 23rd in the rate of “start-ups per working-age [...]
jqgill — November 10, 2011
So true. I started a (successful) one-person design studio in the UK. I couldn't have done that when I still lived in the States.
Start-ups and Safety Nets » Sociological Images | Upstarta.biz — November 10, 2011
[...] http://thesocietypages.org/socimages/2011/11/10/start-ups-and-safety-nets/ [...]
Lori — November 10, 2011
The social safety net alone can not produce a satisfying explanation. Germany and Austria for example have a well developed safety net, yet both have fewer startups than Japan which has a weak social safety net.
Gilbert Pinfold — November 11, 2011
Many LLCs are created in high tax welfare states specifically because they offer tax advantages. Just being Jim the plumber may be feasible in the U.S., but any accountant in the UK for example would advise Jim to incorporate into at least one LLC and likely a trust fund too.
When it comes to high-end entrepreneurs, the kind who actually employ lots of people, the safety net is insignificant. It's ludicrous to think that highly motivated, power business types would see a poverty line dole cheque as any kind of factor in any serious decision to venture into a business. Business failure at that scale tends to result in a nightmare of downward mobility, foreclosures, bankruptcy, children forced to change schools, and family breakdown. These things are not realistically mitigated by the promise of a couple of hundred bucks a week and a free place on the waiting list for hip replacements.
David Ivory — November 13, 2011
One other advantage, in additional to the free health care, for New Zealand is ACC - The Accident Compensation Corporation. http://www.acc.co.nz/
"The Accident Compensation Corporation (ACC) provides comprehensive, no-fault personal injury cover for all New Zealand residents and visitors to New Zealand."
This is another safety net for start ups as the cost (a levy on all companies and tax payers) is spread over the entire economy and not just individuals or companies.
Terry Mcintyre — November 13, 2011
You'd want a full correlation to even begin to answer the question of whether it is the "safety net" which makes the difference. Considering that there are countries with generous "safety nets" at the bottom of the table, and that China is not even listed, color me dubious.
One of the factors in America is that local and state governments demand a great deal of paperwork and taxes of any startup. If you want to start a business in your home (as most startups do), you are probably violating local zoning laws in most municipalities.
Just discovering which laws restrict your activities may require a six-month investigation; obtaining approval may require 18 months or even longer, sometimes many years. Often, overlapping and contradictory regulations make compliance logically impossible; one must choose to take the risk of obeying one regulation at the expense of another.
Health care and insurance are two of the most heavily regulated industries in America, which drives up both prices and scarcity.
Time-honored American methods of providing "safety nets" - savings and voluntary associations - have been rendered impotent by the burdensome regulations and monetary devaluation.
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