Boulevard of Broken Dreams

Josh Lerner (2009) Boulevard of Broken Dreams: why public efforts to boost entrepreneurship and venture capital have failed–and what to do about it, Princeton University Press, Princeton

Discussing the complex history of Silicon Valley and other pioneering centers of venture capital, Josh Lerner uncovers the extent of government influence in prompting growth. He examines the public strategies used to advance new ventures, points to the challenges of these endeavors, and reveals the common flaws undermining far too many programs–poor design, a lack of understanding for the entrepreneurial process, and implementation problems. Lerner explains why governments cannot dictate how venture markets evolve, and why they must balance their positions as catalysts with an awareness of their limited ability to stimulate the entrepreneurial sector. For more information on this book.

This is an interesting book on an important topic: how governments can boost entrepreneurship. Lerner is right to highlight the failures of government in this field, while stating the case for government intervention.

While the book is a little too focused on venture capital for my tastes (albeit an essential element for the promotion of entrepreneurship) it provides some valuable lessons and advice. Among these are the following “rules of thumb”:

• Remember that entrepreneurial activity does not exist in a vacuum (the role of other players and entrepreneurial business environments);
• Leverage the local academic scientific and research base (think carefully about the way in which technology transfer is being undertaken, the incentives being offered, and their consequences);
• Respect the need for conformity to global standards;
• Let the market provide direction;
• Resist the temptation to over-engineer (don’t limit the flexibility and responsiveness of entrepreneurs);
• Recognise the long lead times associated with public venture initiatives – “building an entrepreneurial sector is a long-run endeavour, not an overnight accomplishment” (pp.184-185);
• Avoid initiatives that are too large or too small;
• Understand the importance of global interconnections;
• Institutionalise careful evaluations of initiatives;
• Realise that programs need creativity and flexibility: “nations that have been most successful in public programs have been willing to end those that are not doing well, and to substitute other incentives” (p.187);
• Recognise that “agency problems” are universal and take steps to minimise their danger;
• Make education an important part of the mixture.

Of equal interest to the above rules of thumb and the things to avoid. Don’t, says Lerner:

• Go domestic — the success of dynamic markets is largely driven by global markets; too much domestic funding can flood the local market and distort the role of finance;
• Set-up immediate tax breaks — these are often unhelpful for entrepreneurial start-ups;
• Bring in hired guns with poor incentives – intermediaries can distort critical investment decisions.

Boulevard of Broken Dreams provides interesting cases that present good practices and bad. It synthesises these well and provides solid advice to policy makers. While much of the advice presented will help policy makers in developing countries, there are other issues that are not directly covered in this book that require attention. Lerner is clear that his book is not focused on the “subsistence” business, which typically allow the “owner and his or her family to get by, but little else”. Although he does later cite examples of micro-finance in Peru and other similar example. Instead, the focus is on “high-potential new ventures and the policies that enhance them” (p.6). This is an important distinction. But more attention needs to be given to how these high-potential firms can be chosen, especially by government actors. While private venture capital is best placed to make these decisions (because they take these risks), the problems with poor information and the distortion of government incentives make this role more difficult for public policy makers. Developing economies generally suffer from a dearth of venture capital that can be used to stimulate entrepreneurial efforts. Many developing country governments lack the resources to inject significant volumes of funds into this field and, as Lerner points out, to implement these programmes effectively. Many cases are drawn from developed countries (e.g., Australia, Canada, France, Israel, New Zealand, USA), but there are also good examples from Malaysia, Singapore and Taiwan.