As the U.S. presidential race nears the most intense period of campaigning, heated clashes between the camps of Barack Obama and Mitt Romney are inevitable. We promise you that we won’t cover most of them.
But this week’s flare-up touches on a topic—business formation—that’s so Druckerian, we couldn’t resist a closer look. The bare essentials are these:
President Obama, speaking to an audience last Friday, said the following: “Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business, you didn’t build that.”
In response, Romney, highlighting the line “if you’ve got a business, you didn’t build that,” has called Obama’s words “insulting to every entrepreneur, every innovator in America.”
To insinuate “that Steve Jobs didn’t build Apple, that Henry Ford didn’t build Ford Motor, that Papa John didn’t build Papa John’s Pizza,” Romney added, is “wrong.”
So what did Peter Drucker think? In The Age of Discontinuity, Drucker declared that “development is . . . largely a matter of the dynamics of individuals and of local community. . . Government can stimulate them—or stifle them. But it cannot provide the energies.”
A big key to this stimulating or stifling, Drucker suggested, is tax policy. “In the United States, for instance, the tax collector treats monies realized by selling or liquidating a business or a product line as income,” Drucker noted in Innovation and Entrepreneurship. As a result, “businesses prefer not to abandon the old, the obsolescent, the no-longer productive.
“What is needed in an entrepreneurial society,” Drucker added, “is a tax system that encourages moving capital from yesterday into tomorrow rather than one that, like our present one, prevents and penalizes it.”
Beyond that, Drucker called for even more radical steps: “For the first few years of its life the new and growing venture should be exempt from income taxes.” In fact, he asserted, start-ups should be allowed “to charge the government for the costs of regulations, reports and paperwork” that exceed, say, 5% of the new venture’s gross revenues.
What do you think: What’s the best way for the government to foster entrepreneurship?