Start-ups and Safety Nets

October 30, 2011
Posted by Jay Livingston
Cross-posted at Sociological Images.

Is socialized medicine the road to serfdom, a snare that will sap people of their independence?  Or is it liberating?

James Wimberly had a great post yesterday at The Reality Based Community (here), and I’m neither too proud nor too ethical to steal his data and summarize his idea.

George W. Bush did not really say, “The problem with the French is that they have no word for entrepreneur.”  But that statement does fit with the American tendency to view our country as the land of entrepreneurship (literally “enterprise”).  America is, after all, the land of opportunity, where anyone can become rich.  And the way to get rich is to be an independent, risk-taking entrepreneur and start your own business.  That’s what we do here in the US, and we do it better than most.  At least that’s what we think.

But look at this chart showing the rate of start-ups per working-age population.

The US ranks 23rd.  That doesn’t quite square with all those photo-ops where the president (Obama, Bush, Clinton – they all do it) goes to some small successful company out in the heartland.  What is it about these other countries that makes for more risk-taking?

Wimberly has an answer: the safety net.  He makes the point with an analogy – his own photos of kids on a rope-walk – a single rope hung between two platforms in what looks like the Brazilian rain forest.  (It’s really just a replanted hillside, formerly the site of a favela). The kids have safety devices – hard hats, a safety harness, guide-ropes to hold on to.  Without these, only a few of the most f oolhardy would try a Philippe Petit walk.  But the safety devices allow lots of kids to take a risk they would otherwise avoid. 

The same logic applies to small business.

How many Americans are locked into jobs they hate by the fear of losing health benefits? No Dane ever has to worry about losing her right to medical care by quitting her job to go it alone

Safety devices cost money, but they pay off.  On the rope-walk, you can see the reward in the expression on the kids’ faces when they reach the other platform.  In the national data, you see it in the those start-ups.

The countries with significantly higher startup rates than the USA are those with stronger, more comprehensive, and more centralised social safety nets, along with correspondingly higher taxation.

See Wimberly’s entire post – with the photos, footnotes, and comments – for a fuller explanation.