Page 267 - ENTREPRENEURSHIP Innovation and entrepreneurship

53231_Innovation and Entrepreneurship.qxd 11/8/2002 10:50 AM Page 260

260 CONCLUSION: THE ENTREPRENEURIAL SOCIETY

To develop both the principles and the process for making “sunset
laws” meaningful and effective is one of the important social innova-
tions ahead of us—and one that needs to be made soon. Our societies
are ready for it.

IV

THE NEW TASKS
These two social policies needed are, however, only examples.
Underlying them is the need for a massive reorientation in policies
and attitudes, and above all, in priorities. We need to encourage habits
of flexibility, of continuous learning, and of acceptance of change as
normal and as opportunity—for institutions as well as for individuals.
Tax policy is one area—important both for its impact on behavior
and as a symbol of society’s values and priorities. In developed coun-
tries, sloughing off yesterday is at present severely penalized by the
tax system. In the United States, for instance, the tax collector treats
monies realized by selling or liquidating a business or a product line
as income. Actually the amounts are, of course, repayments of capital.
But under the present tax system the company pays corporation
income tax on them. And if it distributes the proceeds to its share-
holders, they pay full personal income tax on them as if they were
ordinary “dividends”—that is, distribution of “profits.” As a result
businesses prefer not to abandon the old, the obsolescent, the no-
longer-productive; they’d rather hang on to it and keep on pouring
money into it. Worse still, they then assign their most capable people
to “defending” the outworn in a massive misallocation of the scarcest
and most valuable resource—the human resource that needs to be allo-
cated to making tomorrow, if the company is to have a tomorrow. And
when the company then finally liquidates or sells the old, obsolescent,
no-longer-productive business or product line, it does not distribute
the proceeds to the shareholders and does not therefore return them to
the capital market where they become available for investment in
innovative entrepreneurial opportunities. Rather the company keeps
these funds and commonly invests them in its old, traditional, declin-
ing business or products—that is, into those parts of its operations and
activities for which it could not easily raise money on the capital mar-
ket—again resulting in a massive misallocation of scarce resources.