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Growth Through Innovation

Article by Robert Asahina February 13, 2013 //   4 minute read

"American capitalism is becoming like its European cousin," writes Schumpeter in The Economist. "Established firms with the scale and scope to deal with a growing thicket of regulations are doing well, but new companies are withering on the vine or selling themselves to incumbents." In "Better Capitalism: Renewing the Entrepreneurial Strength of the American Economy," Robert Litan, a former Bush Institute Fellow, and Carl Schramm, a current Bush Institute Fellow,  provide what Schumpeter calls "admirable ideas" and "detailed answers" that address "the everyday problems of real-life entrepreneurs instead of drifting into academic abstractions." Among the proposals in "Better Capitalism" are:

— recruiting skilled immigrants to study science, technology, engineering, or mathematics in the U.S. through an expanded green-card program; — letting shareholders in new and small-cap companies decide whether to opt out of Sarbanes-Oxley  and its burdensome auditing requirements; — allowing new and small-cap companies to opt out of belonging to exchange-traded funds, which are vulnerable to the volatility of high-frequency trading; — breaking up university control over the intellectual property rights of researchers, thus giving individuals more freedom to exploit their innovations.

"We argue that the 'better capitalism' the United States needs now more than ever," Litan and Schramm write, "is one that fosters continuous entrepreneurial revolution — the economic equivalent of what Thomas Jefferson called for when he famously uttered, 'Every generation needs a new [political] revolution.'" A "better capitalism" that unleashes entrepreneurs and innovation is the key to generating the economic growth necessary to overcome our current deficit and long-term debt problems and to avert future financial crises. "Entrepreneurs and the new firms they create and grow," Litan and Schramm write, "are the lifeblood of our economy and its future prospects."

Government can help or hurt the growth process, but ultimately the culture of entrepreneurship is sufficiently infused in our society that it will continue under any circumstances to be the driving force for improvement in living standards, here and abroad.

Praise for "Better Capitalism"

“Entrepreneurship is a key virtue of the U.S. economy, which has the potential to lift us out of our current economic malaise. This book provides a thoughtful recipe for encouraging this critical activity.” —Josh Lerner, Harvard Business School and author of "Boulevard of Broken Dreams" “To get out of its economic quagmire, America must end the debate over stimulants. It needs to renovate the economic system. In this book, Robert Litan and Carl Schramm make the case that the best way forward is to pave the way to faster formation and greater support of early-stage high-growth companies.”—Edmund S. Phelps, Director, Center on Capitalism and Society, Columbia University and the Winner of the 2006 Nobel Prize in Economics “Enabling entrepreneurs to flourish can both grow the economy and make the world a better place. I hope Better Capitalism inspires a new generation to stretch the reach of market forces and create new businesses that drive economic growth while also helping solve the problems of the world’s poorest.”—Bill Gates Robert Litan and Carl Schramm will appear at the American Enterprise Institute's Book Forum on October 18. Buy the Book