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Building Entrepreneurial Economies

By Carl J. Schramm
July/August 2004
Article Summary and Author Biography

The "Washington consensus" approach to development -- which urges other countries to emulate American capitalism -- misses one vital ingredient: the role that entrepreneurs play. Jump-starting growth in the developing world will require an understanding of the American entrepreneurial system, which involves four sectors of the economy.

Carl J. Schramm is President and Chief Executive Officer of the Ewing Marion Kauffman Foundation.

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POOR IMITATION

The United States, using its own direct-aid programs and its influence over development agencies, has encouraged other nations to adopt the features and institutions of post-Cold War American capitalism. But this approach -- the so-called Washington consensus -- has often yielded disappointing results. Many economies in Latin America, eastern Europe, and elsewhere are stagnant or backsliding, and most of the world's poorest economies show few signs of new life. Going forward, the American economic model should not be abandoned, as some development economists advocate, but it must be improved. The current template is incomplete. In particular, it fails to reproduce a vital element of the U.S. economy: support for entrepreneurship.

Not only does the United States have a high rate of new business starts, it breeds a constant flow of new high-impact firms -- the kind that create value and stimulate growth by bringing new ideas to market, be they new technologies, new business methods, or simply new and better ways of performing routine tasks. These firms do not appear automatically, as a natural by-product of having free-market institutions. Nor are they the result of any single factor. Rather, the United States has evolved a multifaceted "system" for nurturing high-impact entrepreneurship -- a system that, with the right development policies, might be cultivated in many other countries as well.

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