Even recession can’t stifle entrepreneurs

“Can capitalism survive? No. I do not think it can,” wrote none other than Joseph A. Schumpeter, the economic patron saint of the entrepreneur.

Schumpeter anticipated that innovation would become so routine and occur so naturally within the setting of large firms that entrepreneurs would find themselves out of work, much like “generals would in a society perfectly sure of permanent peace.

“Socialism of a very sober type would almost automatically come into being,” he predicted.

For the past eight years I have shared these views with my college students on the last day of every entrepreneurship class, ending with a simple challenge: “We have proven the old man wrong for 60-odd years. Don’t let capitalism die on your watch.” It must have seemed an odd warning, as capitalism was healthy and strong — on the march at home and around the world — as more countries and peoples sought to unleash their entrepreneurial energies.

This semester, however, it is clear that the global economic crisis has seeped into our underground classroom in the Ronald Reagan Building in Washington, D.C. As I do at the start of every class, I gave my students an initial assignment. I asked them to introduce themselves as entrepreneurs. It is an exercise in inhabiting another guise as well as a mindset: a conduit for walking the walk, as they talk the talk.

This year students’ reactions were much different. Many said they were being discouraged from even thinking about pursuing a new venture, while others were peppered with questions from friends and family. How could they possibly succeed now, with the economy crumbling around us? Many were warned off the entrepreneurial path before they even had a chance to share their idea, as if no idea could possibly be worth pursuing in the current environment. One actually wrote that she felt “guilty … that I would dare to think about starting a business right now.”

I came to see these negative reactions as the purest sign of Keynes’ “animal spirits” at work in the economy. Every idea should be heard and considered, its potential evaluated within the context of the prevailing economic setting. Thankfully, my students didn’t need me to tell them this. They offered a prime example of how no American could long feel guilty for being hopeful.

So much the better if their friends and relatives are gloomy — more people sitting on the sidelines means less competition if they end up deciding to start their ventures. The more I heard about their ideas — a new, surcharge-free ATM network; furniture designed for our restless mobile lives; or a bike shop in Prince Georges County, Md., that would give jobs and training to middle- and high-school kids in need of skills and mentoring — the more hopeful I became. Not because any single one of these ideas would solve the economic crisis, put Detroit back on its feet or put a floor under the mortgage meltdown, but because within our classroom, the next New Deal was taking shape. I was again reminded that our best hope for keeping “socialism of a very sober sort” at bay, the true source of our enduring strength, lay within these new ideas and the creative heads that produced them.

At that moment, across Pershing Park, the Treasury secretary was probably conferring with his staff. Up Pennsylvania Avenue, leaders of the House and Senate were debating how best to jump-start the American economy. And in the White House, not 1,500 feet from our classroom, President Barack Obama and his economic team were planning the New Deal for the 21st century. No doubt these efforts are critical and essential and warrant the attention they have received. But if you really want to know the answer to the question, “Can capitalism survive?” — ask my students.

David A. Kirsch teaches entrepreneurship at the University of Maryland’s business school.