The GreenStalk

Five (underrated) things that make America great

Posted in Uncategorized by Paul Grana on November 18, 2012

After a divisive election season, it’s worth a moment to remember what makes our country great.  If you ask the average person what makes America exceptional, the answers are usually, “Our freedom & human rights,” “Our democratic system,” or “Our right to carry a gun.”  But there are a lot of behind-the-scenes factors that are also critical for making this country special, particularly when it comes to entrepreneurship.  Here are my favorite five. 

1)      Bankruptcy laws

Our bankruptcy laws are very lenient for the debtor (the person or entity in debt).  In corporate law, for example, the primary objective of Chapter 11 is to keep the company going, allowing it to renegotiate many of its contracts and survive intact.  By contrast, the British common law system (on which many other countries are modeled) is extremely harsh on debtors – its objectives are to get the creditors their money back as quickly as possible. 

This is a big factor in encouraging the entrepreneurship and risk-taking that has made this country such a dynamic, vibrant place to do business. 

2)      Research dollars going to young researchers

The American university research system is built around a very distributed research model: most PhD students are encouraged to perform their own research, and will generally receive funding in order to perform that research. 

By contrast, European universities are largely based on a more hierarchical German model: PhD students are expected to perform research in the lab of an established professor, and most of the research is funneled to the large research labs under these professors. 

There are pros & cons of each approach, but I like the American philosophy: it encourages young researchers to pursue new and novel ideas, which leads to more innovation (as well as more failed ideas). 

3)      Faster depreciation schedules

The US has the highest marginal corporate tax rate among the G20, but also has the fifth-lowest effective taxes.  A big reason for this is that we give a lot of tax breaks for investment, particularly accelerated depreciation on capital expenditure. 

This, I would argue, is why a lot of our everyday facilities (office space, restaurants, stores, etc.) are so nice, not to mention the things we don’t see, like industrial/manufacturing equipment or distribution systems. 

This has an indirect benefit for product innovation.  When the manufacturers or store owners are on a 5-year purchase cycle rather than a 10-year cycle, manufacturers will have a higher ROI from investing in next-gen technologies. 

4) At-will employment

At a time when unemployment is so high, the ability to easily fire employees is a bittersweet virtue. But it’s much better than the alternative, such as in France, where it is extremely difficult to fire employees.  In the US, our companies are more nimble.  This is critical when the world economy changes so quickly., And a counter-intuitive benefit is that employers will more readily hire people when they know the decision is not a multi-year commitment.  When the economy eventually turns around, this factor should be a big driver of future hiring. 

5) Right-to-work laws (CA only)

California has a strong track record of preserving an individual’s right to work –this usually means corporate non-compete agreements are rarely enforced.  Many successful Silicon Valley companies are built by people who leave their employer to try and “do it better.” 

Again, this is a law that helps innovation – encouraging individual entrepreneurs to pursue the best ideas rather than funneling the ideas into R&D departments of large corporations.  In some cases, the corporation can embrace this model, dubbed by some as “open innovation”.  The result is more experimentation, and more innovation. 

Further reading: http://www.amazon.com/Open-Innovation-Imperative-Profiting-Technology/dp/1422102831

Conclusion

Based on the above, everyone has the ability to live the modern American dream:

  • Go to a research institution and fund your own research project
  • Work for a big company while you’re refining your own ideas in your garage – and leave the large company as soon as you’re ready to strike out on your own
  • Hire people freely, not worrying about whether you need them for life
  • Pursue a risky opportunity, knowing that failure and bankruptcy will not ruin you personally
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