The Entrepreneur is the True Face of Capitalism in America

“Joe the Plumber” has gotten a lot of media attention over the past week. Depending on which side of the political fence you’re on, he is either a phony who is not even a registered plumber or a symbol for the unintended consequences of wealth redistribution policies. A Rasmussen survey taken on October 19th showed “Sixty-nine percent (69%) of Democrats think [Obama] is right on [spreading the wealth], but 78% of Republicans disagree.”

It is easy to rail against corporations like Exxon-Mobil while surging gas prices force average Americans to make tough choices with the family budget. In 2007, they reported $39.5 billion in profits which represented 11.4 percent of revenues – up 9.3 percent over 2005.

Not surprisingly, building popular support to tax windfall profits is easy politically. So, too, is the idea that these taxes should be redistributed to working families. On the other hand, making the case that profits will spur new energy development and reward shareholders seems almost impossible.

CEO pay, and especially bonuses, are also easy targets for populists. In 2007, major financial firms in New York paid $39 billion in bonuses to themselves. Overall, CEO bonuses increased 27.1 percent in 2006 according to Business Week. The public has trouble understanding how the CEO at Lehman Brothers can make almost $450 million since 2000 and provide millions of dollars in “golden parachutes” to executives even as the firm was failing.

But the media and the electorate often miss a key distinction. CEOs are not entrepreneurs. They are high paid managers who run the companies that true entrepreneurs built generations ago. Many are graduates of elite business schools who have extensive networks of contacts in business, government and among the “movers and shakers” of our nation. Quite a few are from the nation’s wealthiest families.

On the other hand, “Joe the Plumber” is a symbol of entrepreneurism – the “little guys” with big dreams. They want to be their own boss. They feed off the soft underbellies of corporations too big or too inflexible to react to changes that create opportunities. Most are hard-working and honest. They don’t have stock options, bonuses or golden parachutes at retirement. In fact, most have many payless paydays when building their businesses.

Entrepreneurs are America’s job creators. According to the Small Business Administration, from 2003 to 2004 companies with less than 20 employees created roughly 1.6 million net new jobs. Companies with 20 to 499 employees created around 275,000 net new jobs. Meanwhile, employment at companies with more than 500 employees shrank by 214,000.

The University of Michigan and Florida International University study entrepreneurial activity in America. The metric they use is the number of people who start new businesses or manage firms less than four years old. In 2005, they reported that 23 million people were in this category. Some of the demographics of this group are interesting:

• 18- to 34-year-olds account for about 44 percent of new firm creations.
• 57 percent of those starting a new business have high school education.
• Only 23 percent have finished college.

Entrepreneurs are the risk-takers in America who know that they are bucking long odds in pursuing their dream. In his book Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By, Professor Scott Shane compiled data tabulated by the Bureau of the Census produced for the Office of Advocacy of the U.S. Small Business Administration and found that only 29 percent of business ventures that were started in 1992 where still around in 2002.

The entrepreneur is the embodiment of the American spirit and validation of the American dream. Bill Gates epitomized this in the last few decades. He is now using his tremendous wealth for good by funding education and world health programs. On the foundation’s website, Gates lists 15 principals about the role of philanthropy. Principal #7 reflects Gates’s entrepreneurial roots: “We take risks, make big bets, and move with urgency. We are in it for the long haul.”

The legacy of entrepreneurism can be seen in university buildings, hospital wings, libraries, research centers, foundations and companies that bear the names of entrepreneurs. Most started with a vision to do something new or make something better or more efficiently than ever before. Sadly, many of these institutions, particularly universities and non-profit foundations, seem committed not to fostering more entrepreneurs, but rather to teaching that capitalism is inherently unfair.

When candidates rail against CEOs and corporate greed they need to be careful that their anger and the populist policies that grow out of it do not spill over into entrepreneurism and extinguish its flame.

Let’s punish those whose greed for short-term profits has nearly destroyed our economy whether or not they are on Wall Street or in a corporate suite. But we must keep in mind that if we let our anger spill over to extreme new regulation and a new regime of higher taxes, we will also be targeting those “little guys and gals” who want to chart their own course to success. America needs its entrepreneurs perhaps now more than ever before in our history.

Dennis M. Powell is president and CEO of Massey Powell an issues management consulting company located in Plymouth Meeting, PA.