Building an entrepreneurial economy: lessons from the United States. (Professor Bill Bygrave)(Transcript)

In the second of the 1998 Stockton Lectures, Professor Bygrave argues that the secret of US economic success has been and continues to be its innovative and entrepreneurial culture. He identifies the industries, companies and individuals which most typify entrepreneurial innovation in the US and discusses the reasons why they succeeded. He concludes with a case history of Massachusetts, the cradle of the US industrial revolution more than a hundred years ago and still at the leading edge of US competitive advantage.

The basic thesis of this article is that entrepreneurship plus innovation are the foundations of US prosperity while entrepreneurship is the United States' most important strategic advantage. Other advanced industrial nations are able to do everything that the US does; where the US excels them is in entrepreneurship.

The two most telling pieces of evidence for this are the data on new start-ups and the importance of small businesses. On a typical day in the US, a new business is started every two seconds: about 3.5m start-ups each year. According to the latest data, 58% of all households in the US contain at least one person who is in the process of starting a new venture: not just thinking about starting a new venture; actually having taken practical steps such as talking to a lawyer, a banker or a landlord. A quarter of these say they want to start a high-growth venture. Take another statistic: 24% of all households contain someone who is involved in a business start-up or owns a business or is an informal investor in a startup situation - a business "angel". The angels are everywhere. Although often only small-scale, informal or angel investments are much more pervasive in American society than most people

Entrepreneurial role models abound in American society. No less than 40% of all US households contain at least one person who has been involved in starting or running a small business at some time in their careers and even more contain someone working in a small business. Small businesses are prominent in the US economy: 80% of companies have seven or fewer employees, and small businesses employ half of all workers. Back in the late 1970s, in a key piece of sociological research, David Birch at MIT uncovered the relationship between job creation and small business. He found that most of the new jobs in the US economy were coming from small businesses. Twenty years on, the importance of this is evident. Since the early 1980s, the number of firms with fewer than a hundred employees has risen by nearly half, and in the early 1990s, most of the new jobs were in small businesses. About half of the nation's jobs and more than a third of its GDP are accounted for by its 20m small businesses. If US small businesses were a separate nation, they would rank third in the world by GDP, behind big business in the US and, second, the whole Japanese economy. That is an impressive number.

Birch's data ensured that small business caught the attention of politicians. Nothing concentrates the mind of a politician more powerfully than job creation. Bill Clinton pointed out recently that the US created at least 300,000 jobs in January - in just one month of this year. He also claimed that this was more jobs than had been created in the whole of Europe in a decade. Whether or not this is fair to Europe, 300,000 new jobs in one month is an impressive number. Any American political manifesto today should start off by saying: "I will do no harm to small business". The National Federation of Independent Businesses (NFIB) has 600,000 members which means about 1,000 members in every Congressional District: political power indeed. Six years ago when Bill Clinton ran for President against George Bush, his advisor said his slogan should be: "It's the economy, stupid". An alternative slogan might be: "It's small business, stupid". Today, both the main political parties are interested. As in Britain, they are both moving towards the middle and entrepreneurship is a critical issue for both.

How does the new US economy, driven by entrepreneurship and small business, relate to the old? The old economy can be subtitled "The Manufacturing Era". Driven by classical economics, it was based on a zero sum game: what you win, I lose. It was driven by a security mentality: preservation of jobs and regulation of industries and subsidies. Tom Peters once remarked that for those running a business in that period the underlying assumption was that tomorrow would be the same as today plus 0.01%. Dominated by mature old industries at the later stage of their fife cycles, in the old model, companies are operating at the latter end of the maturity curve. The old model was typified by books like Samuelson's great classic 1940s economics text and John Kenneth Galbraith's 1960s book, The New Industrial State.

As recently as 1985, very few economists …