I just got back from a week of lecturing in Singapore, where there is no financial crisis, no recession, and no extra economic pressure on entrepreneurs.
One of the topics that I was there to talk about was the U.S. innovation system. This is something I’m often asked to talk about in other countries, where there is a desire to imitate the U.S. system of creating high growth innovative start-ups.
Normally I don’t think much about the downside of the U.S. system. But with the current economic situation here, I thought a lot about the potential trade-offs between our system and that in other countries.
The U.S. has what some might call market capitalism. Our reliance on the market system has helped to create venture capital and IPO markets that are much stronger than elsewhere in the world and that has given us high growth innovative companies like Google. The downside of this system is that it can lead to excesses (current financial crisis) that we would have been better off preventing.
Other countries, like Singapore, have what some might call managed capitalism. They are much less reliant on the market system and much more reliant on the government to regulate and manage the economy. This approach minimizes the kind of excesses that we have seen recently, but at the expense of the kind of entrepreneurship that epitomizes the U.S. system.
I used to take the advantages of the U.S. system for granted. But now I am now wondering if managed capitalism might be better.
* * * * *
About the Author: Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool’s Gold: The Truth Behind Angel Investing in America; Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By; Finding Fertile Ground: Identifying Extraordinary Opportunities for New Ventures; Technology Strategy for Managers and Entrepreneurs; and From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company.