Carl J. Schramm, Ph.D.
President and Chief Executive Officer, Ewing Marion Kauffman Foundation
It would seem to be a safe bet that Ewing Kauffman was
unfamiliar with the works of Joseph Schumpeter and Max Weber. Both were dead
when Mr. Kauffman began Marion Labs, and Schumpeter's work was nearly forgotten.
But these three men have played an important and ongoing role in the evolution
of capitalism.
Schumpeter was the theoretical champion of the entrepreneur;
he forced economists to understand the entrepreneur's importance in keeping
capitalism self-renewing. Weber was the first to see clearly the way bureaucracy
establishes itself within expanding firms, stifling the creative,
entrepreneurial energy of their early years. Mr. Kauffman was the first
philanthropist to see foundations as important adjuncts to preserving and
supporting the entrepreneurial genius of American capitalism.
At one time, the perspectives of these men seemed discordant
with the direction in which American society was headed. Following the
disruptions of the Depression and World War II, the emerging power of economic
analysis, alloyed with regulatory government, promised that we could experience
steady growth. But this industrial capitalism—dependent on balancing the power
of unions, business, and government—ultimately failed. During the period of
stagflation in the early 1980s, we experienced a transformation in the nature of
American capitalism, through actions that reduced the government's regulatory
role in the economy. Will Baumol, acclaimed economist and Kauffman senior
advisor, Bob Litan, Kauffman's vice president of research and policy, and I have
characterized what emerged as entrepreneurial capitalism in our book, Good Capitalism, Bad Capitalism.
The Kauffman Foundation has played a role in the development
of entrepreneurial capitalism, and we have an even more critical role to play in
the future of capitalism. As the patrimonial legatees of Mr. Kauffman and, I
think, the intellectual descendants of Schumpeter and Weber, it may fall to us
to describe and grapple with the changing nature of capitalism as a necessary
predicate to advancing it.
Toward a New Capitalism
To speak of the advance of capitalism may seem incongruous at
this particular moment. The fruits of entrepreneurial capitalism over the past
three decades have been undeniable and, in a comparative lens, startling.
Personal computers, cell phones, the Internet, medical procedures—these and many
other innovations are now so ingrained into the fabric of daily life that it is
difficult to appreciate how new they are. Together, they add up to a remarkable
achievement: the average American today is two-thirds wealthier than in
1980.
Yet as the financial crisis of 2008 clearly demonstrates, the
system that brought forth such growth is unpredictable, uncertain, and, in a
very real sense, messy. The essential features of our market system remain
stable over time: supply and demand, price signals, government regulation, small
firms, large corporations, etc. The nature of these features, however, is by no
means stable. The ways in which technological innovation proceeds, the methods
by which companies finance their activities, the size and scope of consumer
markets—each of these is far different today from a century ago, and will be
different a century hence.
This fact—constant tumult beneath a surface of
stability—points to the fundamental tension we are experiencing today. The
messiness of entrepreneurial capitalism generates economic growth, but we
instinctively seek protection by a larger force in the face of that messiness.
This tension appears to be pushing us toward a new form of capitalism in the
future, and people from all corners of the world are already seeking to lay
claim to it. It will, in these variegated claims, be "social" capitalism or
"sovereign" capitalism or "creative" capitalism.
It is all too easy in times of crisis to reach for
abstractions like "greed" and "venality," and to turn to government for a
solution, thinking that the absence of government led us into the crisis in the
first place. Inevitably, we over-rely on government's ability to tame human
nature, threatening the very source of capitalism's capacity for self-renewal.
That source is not government, nor a label of what one thinks capitalism ought
to be—it is, and ever will be, the creative actions of individuals pursuing an
idea of how to do something better.
Growing the Economy in a Lab
If there is to be a new capitalism, then, it is most likely
to arise from the platform of expanding entrepreneurial activity and evolving
economic institutions. While we operate in an ecosystem currently composed of
entrepreneurs, universities, large companies, and government, I believe it is
likely that a new form of institution will emerge that will accelerate growth,
most likely by being a boundary-crossing organization that will fuse resources
with a new mission. It is my hope that our emerging plans around a new entity
that will train entrepreneurs in a wholly different way—what we've been
referring to as Kauffman Laboratories for Enterprise Creation—may be
an example of just such an institution. (See the Thoughtbook 2009 essay on the Kauffman Labs concept.)
Kauffman Labs is premised on the view that America should
pursue and can attain a higher rate of economic expansion. Where once upon a
time a 3 percent growth rate in GDP was seen as better than satisfactory, we
must think in terms of annualized growth of 4 percent or even 5 percent if we
are to advance entrepreneurial capitalism, eradicate global poverty, and address
our most persistent national problems, such as the lack of health insurance, the
coming failure of Social Security funding, and our nation's woefully
underperforming schools. (There is, in fact, precedent for such a goal. In 1956,
Nelson Rockefeller helped form the Rockefeller Commission on National
Priorities. In its 1958 report, Prospect for America,
the Commission called for the United States to reach for an annual growth
rate of 5 percent.)
We clearly face a challenge, too, around growth and
environmental degradation. Some years ago, however, an economist suggested that,
rather than viewing environmental problems as a chasm to be avoided by slamming
on our economic brakes, we should seek a higher growth rate that allows us to
leap across that chasm. Thus, we must continue to engage the entrepreneurial
genius of our country on this question as new challenges arise. As one example,
the Kauffman Foundation's Lesa Mitchell is examining a "clean-tech" initiative
for future grantmaking. This area holds great excitement for us going
forward.
Kauffman Labs will contribute to increased growth by seeking
three unequivocal goals: the nation must prepare more entrepreneurs, those
entrepreneurs must anticipate the highest possible rates of success, and their
success must include the creation of larger numbers of new businesses that help
create wholly new industries. In fusing the practices and ideas of several
embryonic, nonconventional ways of teaching entrepreneurs with the best
synthesis of business accelerators, we aim to create the test bed on which to
build a systematic knowledge base for teaching entrepreneurship. Kauffman Labs
will propagate this knowledge base, which we might refer to as the "science of
startups." Used as the base of a new type of training facility at the local
level—a kind of entrepreneurial academy—Kauffman Labs will seek to help propel a
movement of entrepreneurship throughout the economy.
Addressing the Challenges
Such a vision returns us to the question of capitalism's
future evolution. In this vein, one of the central foci of our work ahead
relates to how big firms operate in the face of two fundamental challenges.
The first is the decreasing need for capital as human capital
displaces physical capital. This relates to our thinking about firm size. It is
not clear that large firms will be held together in the future by artificial
forces in capital markets. This condition may be exacerbated by the continuing
advance of technology, especially information technology. I look forward to our
efforts to stimulate entrepreneurship inside larger firms.
The second challenge is health care for individuals, who we
know will be employed more and more by themselves and in small, entrepreneurial
firms. It is important that we have a system of rational and affordable health
care coverage that aligns with people's changing career profiles. This is the
Gordian knot of policy issues but, once again, it may be entrepreneurs, working
with technologies as distant to health care as networking software, who provide
a new way of reordering health care and its financing. We must engage in
thinking and possible grantmaking around this issue as well.
If the steps we take to accelerate growth are effective, the
nation and the world will have the resources to eliminate poverty. With this
potential in hand, we must open a discussion about a different kind of poverty,
one where those with fewer resources are systematically excluded from the
ability to engage in entrepreneurial activity with all its promise for
self-definition and self-respect. We have committed ourselves to the notion that
the big dreams of entrepreneurs can be the province of anyone. As we build
toward instigating a grassroots, city-centric movement for entrepreneurship
through Kauffman Labs, we will be taking the promise of entrepreneurship to
those seen by others as hopelessly locked in chronic, unshakable poverty. Mr.
Kauffman would not have stood for any commitment less than this.
Of course, this takes us to the role of other institutions
and what they must do to help make an entrepreneurial future for America and the
world. Already we have begun to tackle American jurisprudence as it encounters
the capacities of a nation that is producing marvelous technologies whose
development seems inhibited by law. Bob Litan further describes this promising
area in his Thoughtbook 2009 essay.
We already are a not-always-welcome presence inside our
university system. Our message is that, if universities fail to change in the
way they prepare students for an entrepreneurial culture and in the way they
share their inventions and innovations, they will lose their authority and
credibility as economic contributors.
Finally, we must help government to understand its next
evolutionary steps. In at least two periods over the last century, foundations
have helped to shape government. In the post-war era, foundations lay claim to
having taught government how to become the big central grant-dispensing agent
that it is. The National Institutes of Health traces its roots to the designs of
foundations. Likewise, in the period of the Great Society and continuing to this
day, many foundations behave as if their role is to fund pilot studies of new
social programs that government must adopt and expand to scale. In a time when
individuals control more wealth, perhaps foundations should lead a discussion
about reorienting government, making it more sensitive to the entrepreneurial
culture that is growing up throughout the land and is clearly at odds with the
bureaucratic mindset.
Our recent decision to take responsibility for entrepreneurship.gov, and its mirrored site at entrepreneurship.org, may prove to be an initial step
with enormous ramifications. It may be an example of how government can
efficiently delegate needed new services to organizations—services that
stimulate growth through making specific knowledge readily accessible.
I believe the Kauffman Foundation stands at one of the most
exciting moments of its life. We are involved in new research and partnerships that we hope have the potential to
make an impact on every citizen on earth. We are a small band of ninety people,
yet we are compelled to contemplate this ambitious vocation. Mr. Kauffman's
vision and his monetary endowment are, of course, our touchstone. It was he who said that a group of common people working together
could achieve uncommon things. Our group includes the brilliant associates of
this foundation and our wonderfully talented and committed partners and grantees
with whom we are privileged to work. Their individual ideas, their reputations,
and their social networks are our living assets, which we leverage in the cause
of the Kauffman Foundation every day.
Working together, we strive to make history by changing the
world for the better, which is just what Ewing Kauffman hoped his successors
would do.
