In the battle over what qualifies as a human right, health care, a job and education have gained the most attention. But many increasingly view as entitlements a different category of intangibles, such as pursing aspirations, personal dreams, and creative ambitions, particularly among younger generations and the progressive left.
The result is a push for policies that enable people to pursue their desires without the burden of caring for their own responsibilities such as health care, education, or saving for retirement. This distorts our understanding of an integral driver of innovation and prosperity: risk-taking.
Many have come to see risk as an individual taking steps to realize a personal goal — such as a business venture, a charitable initiative, or a personal dream — without having to suffer the full effects of failure. But the downside of risk — suffering the consequences of loss — also plays an important role in channeling progress, while minimizing wasteful tinkering. Government-supported safety nets that distort risk by softening the repercussions of failure destroy this important factor in innovation and entrepreneurship, undermining societal progress.
A Case Study: Obamacare
While there is always a temptation to blame the “coddled” and “entitled” millennials, this shift has top-down origins from the progressive left. In making the case for the Affordable Care Act (ACA), then-House Speaker Nancy Pelosi stated: “Imagine an economy where people could change jobs, start businesses, become self-employed, whether to pursue their artistic aspirations or be entrepreneurial and start new businesses, if they were not job-locked because [of] … constraints that having health care or not having health care places on an entrepreneurial spirit.”
The Obama White House propagated this poor logic with false data by promising ACA would have the benefit of “encouraging job mobility and entrepreneurship.” The document, issued four years after the ACA passed, admits that while “the empirical evidence on the magnitude of these types of responses is incomplete (and in some cases mixed), there is no doubt that job lock presents an economic challenge.”
However, evidence to contradict this assumption does exist. For example, CNNMoney reported: “Only 452,835 firms were born in 2014, according to U.S. Census data. That’s well below the 500,000 to 600,000 new companies that were started in the U.S. every year from the late 1970s to the mid- 2000s.”
The Rich Are Advised to Cut Off Their Kids Early
It doesn’t appear that safety and security lead to entrepreneurship, and there is strong evidence that coddling reduces the grit and drive to do really hard things. In fact, this threat worries many wealthy parents. The internet is loaded with articles advising the wealthy on how to raise children to grow up to be just as hardworking and successful as they are.
One tip that pops up repeatedly: Take away the safety net as soon as possible. Not only does personal finance expert Suze Orman recommend parents “cut your kids off as soon as you possibly can” but Kevin O’Leary, the “Shark Tank” star and millionaire businessman, says of parents, “If they don’t kick their kids out of the house and put them under the stresses of the real world, they will fail to launch.”
Knowing that a safety net is there to catch these adult children, whether they succeed or fail, erodes their ambition. Without the real threat of facing the consequences of failure, the drive to succeed at all costs is blunted. These are not the conditions that drive innovation. Instead, they enable wasteful ventures like Solyndra.
Risk Is No Barrier to Real Innovators
The reality is, entrepreneurs and innovators are driven by belief in their idea, and big government politicians don’t understand that safety and security are not barriers to the ambition and persistence of an entrepreneur with a goal. Take a look at some of the most iconic entrepreneurs today. Mark Zuckerberg, Bill Gates, Michael Dell, Steve Jobs, and Elizabeth Holmes all dropped out of college to pursue their business ideas. Richard Branson even dropped out of high school to start his first business.
Before choosing to take another path, each certainly considered the repercussions of not having an academic degree for his or her job prospects and economic status. They chose to take a calculated risk, as did Jeff Bezos when he left his comfortable job as vice president of a hedge fund to start Amazon.
Bezos took a big risk to launch his online book selling business and notes his boss’ response to the idea: “I think this is a good idea, but I think this would be an even better idea for somebody that didn’t already have a good job.” Bezos is now the richest person in the world, worth $141 billion, showing us the well-deserved reward of taking a well thought out risk.
Risk Is a Huge and Necessary Motivator
Bezos and the innovators above debunk the fallacy that security spurs innovation. Clearly these innovators were not held back by fear of loss of health insurance. Once an entrepreneur has taken that step to quit her job, throw herself all-in on her idea, and lose the guarantee of money coming into her bank account, the real presence of financial discomfort or embarrassment is a critical motivator to work punishingly hard to succeed. That element of risk makes us individually better and leads to better outcomes for society.
Those who say less stress leads to more innovation misunderstand what drives an entrepreneur and the factors necessary to produce a stellar product: They believe in their ideas and are aware of the risks (i.e., potential immediate and long-term loss) involved in pursuing it.
Furthermore, risk reduces the huge waste generated by people who are “free” to quit their jobs and try something. Embarrassment and financial ruin are important checks on the innovation process, forcing potential innovators to think through every possible stumble point, hurdle, or barrier, and correct at a point when damage is minimal!
People with skin in the game plan to minimize risk. Eric Ries offers several examples in “The Lean Startup,” explaining the process of testing an idea small to minimize loss, troubleshooting early, and then scaling up when prudent.
No Risk, No Reward
Operating in an environment of risk is good for us. It makes us better and pushes us to our limits. Unfortunately, society has been trending towards reducing stress for the next generation, which will only lead to a generation that retreats when faced with discomfort rather than rise to the challenge.
Recent news of Montgomery County Schools eliminating grade point average rankings and professors at Davidson College and the University of Georgia allowing students to choose their grades if they “‘feel unduly stressed’ by the ones they earned” will only lead this generation toward mediocrity, at best. There is also growing criticism of meritocracy because it values hard work and places “emphasis on individual achievement instead of collective cooperation.”
In this “everybody gets a trophy” world that millennials and Gen Xers have grown up in, they’re praised for trying things, rather than for succeeding. Their failures are distorted because they are rewarded anyway or their shortcomings are ignored.
Pelosi and the progressive left’s steps to extend this fiction into broader society will only degrade the grit and mental toughness required to drive progress and bring about the work of fearless innovators like Bezos, Zuckerberg, and others.
O’Leary is right. Stress is a tremendous motivator, and a factor in meeting our individual peak potential. Efforts by progressive politicians and educators to eliminate stress and the consequences of failure will contribute to complacency, mediocrity, and stagnation. This attitude has distorted the concept of risk into easy steps toward personal self-fulfillment. Properly understanding risk, and celebrating those who take it, is critical to fostering a society of entrepreneurship and innovation.