Who Really Built This Blog Post?
As the U.S. presidential race nears the most intense period of campaigning, heated clashes between the camps of Barack Obama and Mitt Romney are inevitable. We promise you that we won’t cover most of them.
But this week’s flare-up touches on a topic—business formation—that’s so Druckerian, we couldn’t resist a closer look. The bare essentials are these:
President Obama, speaking to an audience last Friday, said the following: “Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business, you didn’t build that.”
In response, Romney, highlighting the line “if you’ve got a business, you didn’t build that,” has called Obama’s words “insulting to every entrepreneur, every innovator in America.”
To insinuate “that Steve Jobs didn’t build Apple, that Henry Ford didn’t build Ford Motor, that Papa John didn’t build Papa John’s Pizza,” Romney added, is “wrong.”
So what did Peter Drucker think? In The Age of Discontinuity, Drucker declared that “development is . . . largely a matter of the dynamics of individuals and of local community. . . Government can stimulate them—or stifle them. But it cannot provide the energies.”
A big key to this stimulating or stifling, Drucker suggested, is tax policy. “In the United States, for instance, the tax collector treats monies realized by selling or liquidating a business or a product line as income,” Drucker noted in Innovation and Entrepreneurship. As a result, “businesses prefer not to abandon the old, the obsolescent, the no-longer productive.
“What is needed in an entrepreneurial society,” Drucker added, “is a tax system that encourages moving capital from yesterday into tomorrow rather than one that, like our present one, prevents and penalizes it.”
Beyond that, Drucker called for even more radical steps: “For the first few years of its life the new and growing venture should be exempt from income taxes.” In fact, he asserted, start-ups should be allowed “to charge the government for the costs of regulations, reports and paperwork” that exceed, say, 5% of the new venture’s gross revenues.
What do you think: What’s the best way for the government to foster entrepreneurship?
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11 Comments
Fred Pieplow
July 20, 2012The gap between the talent companies need and what job hunters have seems to be getting larger. The extended unemployment compensation does not provide incentive for people to get training and get employed. Employers are doing more with less and postponing hiring. Governments are giving incentives to add jobs. Legislators just don’t seem to understand how businesses work.
John Hunter
July 20, 2012I think far worse than any of the taxes is the extremely bad job that has been done with the health care system. Deming noted this as one of the 7 deadly diseases over 3 decades ago and it is in much worse shape today. Costing twice as much as other rich countries with no better results is bad. Since the costs are so large they are huge barriers to entrepreneurs. Even worse for entrepreneurship though is the poorly designed system where 1 employees medical expenses can cause serious damage to small companies. And the poorly designed system that makes it difficult to get coverage for previous conditions – which greatly increase the cost (in risk) of changing jobs, starting your own new business…
The recent reforms did help some, but it is an extremely small step after 3 decades of failures and making things worse. There is so much more that needs to be done.
The costs and uncertainty related to health care are likely the most critical problem for entrepreneurs. Another contender is liability costs (yet another one of the decades old deadly diseases). The next contender is the broken patent and copyright system (which I think of as one of the new deadly diseases – along with excessive executive pay). http://curiouscat.com/management/sevendeadlydiseases.cfm
I would put all of these far ahead of tax system issues for entrepreneurs. The biggest thing government can do is fix the 3 deadly diseases I mentioned above.
People like Jobs (and Wozniak), Henry Ford, Larry Page and Sergey Brin are extremely valuable to a society. They make great contributions. Thinking they are therefore the reason for Apple, Ford and Google’s success is ludicrous. They contributed. They contributed a lot. Dump them in Mali when they were born and they would not have created those companies as adults. Saying that society doesn’t play a huge role is false (a failure to understand systems thinking).
Saying governments role is the same as societies also shows a poor ability to reason.
Inside those companies many others helped make the organizations a success. Certain individuals do have an amazing ability to create successful systems. Again they can’t do it themselves. They need other people.
Granted a few of these leaders are extremely special. 95% of CEO’s are decent at their jobs (or even not that good at their jobs) but replacing them with any of hundreds of other people would make little difference. But those CEO’s all think they are more like Steve Jobs – they are not.
Greg Lisovoy
July 22, 2012I think real entrepreneurs will find a way to create in every environment. However, favorable business environment of US does have a lot to do with their success.
Greg Zerovnik
July 20, 2012Peter was, of course, quite right. And current tax policy really is awful. It would be nice if either party would listen to John Taylor (Stanford) and Michael Spence (NYU) on this issue. Right now, it seems clear that both candidates are being poorly advised.
Robert
July 21, 2012these both comments are wrong – seems everybody interpret my good friend Drucker as
he understand or misunderstand him….a bit of brain and gut feeling is a useful thing to have…
Robert
John Karayan, JD PhD
July 21, 2012In the passages cited, Peter was not just talking about taxes. He understood that most start-ups do not pay income taxes. This is because most start-ups have negative taxable income. Similalry, they do not pay a great deal of most other taxes because start-ups usually do not have a great deal of property, payroll, and sales which form the base for such taxes.
Instead, Peter was talking about regulatory costs in general. He was well aware of the highly disproportionate effect such costs can have on start-ups. He also was aware of the secondary effect of increased levels of regulation on career choices: capable people chosing careers in law and accounting, rather than engineering or entreprenuership. (As a lawyer-accoutant, I resemble that remark.)
Mike Grayson
July 21, 2012Contrary to popular belief, entrepreneurs, don’t like uncertainty. You might say, wait a minute, becoming an entrepreneur is loaded with uncertainty, well, from your perspective that might be true, but from their perspective, they believe, with all their heart, that they will be successful, and they can beat the odds by doing what they know how to do.
The uncertainty that they don’t like is changes in healthcare costs for their employees, changes in the amount of taxes they will pay, changes in regulations, and other changes that are outside of their control. When they analyze the decision as to whether or not they are going to start a business, they don’t like the idea that it can fail because of actions by the government, having nothing to do with their own efforts. And, they would much rather wait for a time of more certainty.
So, in answer to your question: “What’s the best way for government to foster entrepreneurship?” The first step would be to stop with all the changes and facilitate a stable environment that reduces uncertainty.
Alba Patricia Valencia
July 21, 2012We have one way with two abscissas.
First, the entrepreneurship is fostered through the education system not from the government. Specifically, we should improve our pedagogical modality and learning content. Instructing awareness of the profound nature of the opportunity and transformation based on the development of organizational culture, and not only in competitiveness.
Second, the government can stimulate entrepreneurship through tax system. Right now, they have only promises, dreams and discussion.
When we will found to union and harmony between these two abscissas, we can start to foster entrepreneurship.
Tenemos un camino con dos abscisas.
Primero, el emprendimiento se fomenta desde el sistema educativo, no desde el gobierno. De manera que debemos mejorar nuestra modalidad pedagógica y los contenidos didácticos. Instruyendo a conciencia acerca de la profunda naturaleza de la oportunidad y la transformación basadas en el desarrollo de la cultura organizacional, y no solo en competitividad.
Segundo, el gobierno debe crear un sistema impositivo estimulante para favorecer la capacidad empresarial. Ellos ahora solo tienen promesas, sueños y debates.
Cuando encontremos unión y armonía entre estas dos abscisas, podremos empezar a fomentar el espíritu empresarial.
Tara Imani, AIA, CSi
July 23, 2012I disagree with the President’s statement on who built our nation’s infrastructure. In recently reading author David McCullough’s book The Great Bridge, I learned how both private and public entities came together to build The Brooklyn Bridge, for example.
Through taxation, planning, engineering ingenuity and hard work, the American people built our current infrastructure, roads and bridges.
I agree that our infrastructure needs to be repaired, rebuilt anew, and in some cases completely redesigned to ensure our nation’s renewal and survival.
Lastly, I agree that the current U.S. tax code must be thrown out and rewritten. And regarding escalating healthcare costs: corruption and greed in pricing is the root of the problem.
2two
July 23, 2012Whoever is elected as president this November, I hope he will see to it that the American people once again rebuild and construct new infrastructures of all varieties to ensure our nation’s renewal and survival.
This will only happen if wealthy people pay more taxes. Government currently does not have the $ to pay for more infrastructure. Most of what we have that was paid for by government spending was built at a time when we had 50% and 60% tax rates for our wealthiest citizens. In California, it was also built at a time when property taxes paid by business comprised a much larger percent of total property tax revenue. The idea that we can just decide to go out and build a bunch of stuff without new revenue is false.
When Is Tax Dodging Dodgy? | The Drucker Exchange | Daily Blog by The Drucker Institute
April 12, 2013[...] every penny of operating surplus to stay alive.” For this problem, Drucker recommended a fix that we’ve highlighted previously: Exempt these young businesses from any income [...]