Why the U.S.A. Is Richest Country?
This article is a commentary on a post from Harvard Business Review:
“Why the U.S. Is Still Richer Than Every Other Large Country” by Martin S. Feldstein.
I have done business in many countries and I will try to comment on his opinions according to my self-experiences and observations.
” There is less penalty in U.S. culture for failing and starting again.”
Compared to other countries, starting over is hardest in the US. The Bankruptcy laws are very creditor friendly and bankruptcy courts are very strong. An exception is some Arab countries where you can be jailed if you don’t pay your debts. Especially compared to Europe, starting over is relatively more difficult in the USA.
Returning to business after bankruptcy is good for the person who failed but is it good for the economy? To my observation, the main cause of bankruptcy is bad management and bankruptcies occur mostly during a crisis. After crisis suddenly hits the economy, companies with weakest balance sheet begin to get bankrupt. Those companies were greedy during good times, made too much debt and take too many risks to aggressively expand their businesses. And then they faced an unexpected crisis which is actually getting rid of weak balance sheets. This cleansing of the economy from weak balance sheets continues until the companies with strong balance sheet can absorb the shock of crisis. But after the crisis, the majority of failed businessmen will return to business because they are addicted to it and unfortunately they will continue with the same habits and the same mindset. One can think they would learn from their mistakes and will become more experienced but to my observations, it is very unlikely that they admit their failures let alone they will learn something from their bankruptcy. Maybe, it could be better for the economy if failed businessmen cannot easily return to business. Said that, of course, bankrupt businessmen deserve a second chance.
“The U.S. has a more developed system of equity finance than the countries of Europe, including angel investors…..“
The US finance system provides tremendous support to economic growth but not because of angel investors or banking system. It is Wall Street. One can criticize Wall Street for being corrupt, leeching the economy and causing a lot of crisis which is true. But One cannot neglect that WS not only provides huge amounts of capital but also it is a watchdog over companies. To my opinion, WS’s collective intelligence is the brain behind US economy.
“U.S. universities produce much of the basic research that drives high-tech entrepreneurship.”
He is right but this is like asking “which came first: the chicken or the egg?”. US companies and government can spend on R&D more than the others because of the high revenue generated by successful companies. But the reverse case is also true: they are successful because they can spend a lot of money on R&D.
What he didn’t mention are fair competition, patent rights, and copyright protections. Those are very important for innovations. An example: The Only USA has a Bill Gates not because other countries lack on genius but they lack the ability to turn their geniuses into bill gates. The USA is not perfect but the country has some advantages. Imagine Bill Gates born in Mozambique, would be there a Microsoft?
“A culture (and a tax system) that encourages hard work and long hours“
US tax system is clearly a disadvantage. Too complicated, too risky and the rates are very high. Even some countries don’t open bank accounts for us citizens because of IRS.
“Natural gas fracking, in particular, has provided U.S. businesses with plentiful and relatively inexpensive energy.”
I would not so sure about that because fracking has some side effects on the environment. At the End, it can turn out as a very costly game. Allowing fracking was partly a political decision.
“He [Schumpeter] argued that popularly elected social democratic parties would create a welfare state that would restrict entrepreneurship.”
To my observations, relatively speaking, welfare makes more difficult to find workers. And the workers would be less dependent on their employers which make them less reliable, less loyal and less inclined to improve their work skills. But on the another hand, it would be more difficult for companies to exploit their employees.
Welfare is not an alternative to employment and it is never thought as a solution for unemployment. Welfare should enable a decent life during unemployment, protect people from committing a crime and make them easier to find a job, for example by improving their work skills. Welfare is not a threat to entrepreneurship but the welfare abuse is definitely a threat to the economy.
And don’t forget, people with life experience who saw the ups and downs of life would never be harsh against people who really need society’s help.
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