Josh Lerner on Public Policy Toward Entrepreneurship

15 January 2010 at 3:17 am Peter G. Klein 2 comments

| Peter Klein |

Speaking of public entrepreneurship, here’s an interview with Josh Lerner about his new book Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed — and What to Do About It (Princeton, 2009). Excerpt:

There are two well-documented problems that can derail government programs to boost new venture activity. First, they can simply get it wrong: allocating funds and support in an inept or, even worse, a counterproductive manner. Decisions that seem plausible within the halls of a legislative body or a government bureaucracy can be wildly at odds with what entrepreneurs and their backers really need. . . .

Economists have also focused on a second problem, delineated in the theory of regulatory capture. These writings suggest that private and public sector entities will organize to capture direct and indirect subsidies that the public sector hands out. For instance, programs geared toward boosting nascent entrepreneurs may instead end up boosting cronies of the nation’s rulers or legislators. The annals of government venturing programs abound with examples of efforts that have been hijacked in such a manner.

Thanks to Ross Emmett for the tip.

Entry filed under: - Klein -, Classical Liberalism, Entrepreneurship, Financial Markets, Institutions, Public Policy / Political Economy.

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2 Comments Add your own

1. REW | 15 January 2010 at 12:09 pm

My favorite story about this phenomenon was when the Government of Canada ended up as owner of a topless car wash outside of Ottawa. They had financed the venture, since it was a clear winner. The business plan even included purchase of two automobiles so that clients who had no car of their own could rent a vehicle and ride through the car wash and enjoy the experience. (BTW, for economists without imagination: neither the cars nor the building were topless). It failed like nearly all of the ventures funded by the program.
2. Cliff Grammich | 18 January 2010 at 7:42 pm

“Decisions that seem plausible within the halls of a legislative body or a government bureaucracy can be wildly at odds with what entrepreneurs and their backers really need. . . .”

As I recall, Jonathan Bean in his 2001 history of the Small Business Administration claimed that “knowledge of small business attitudes toward government is limited” and that exploring this topic, and what small business owners might expect from government, warrants more attention. Has anybody since done (further) research on this?

(I am aware of the quadrennial surveys the NFIB makes of its members. Those results are about what one might predict–they want fewer, simpler taxes and less regulation–but wasn’t sure whether what else might have been done, especially in the academic press.)