Pitched battles against the consequences of entrepreneurial activity are currently raging on three fronts.
Due to the upsurge of underage vaping, the federal government, several states and cities are moving aggressively against Juul and other companies in the e-cigarette industry, and the company has removed its CEO. (A recent spate of deaths associated with vaping has greatly raised the stakes.) Due to the opioid addiction crisis, Purdue Pharma and its founding family the Sacklers face massive lawsuits and possible criminal prosecution, and the company has declared bankruptcy. Meanwhile, on both sides of the Atlantic, government agencies as well as scholars, politicians and even some former tech executives are going after Facebook and Google for allegedly misusing private data, undermining democracy, spreading extremism and engaging in monopolistic practices. Some politicians are calling for their breakup.
And those are just the front-page stories. Many others are local, like the scourge of motorized scooters being strewn across sidewalks, causing a surge in serious injuries among riders and leading cities like Indianapolis, Denver, San Francisco and Nashville to ban them.
Entrepreneurs creating dire consequences—often unintended—with their innovations is a phenomenon as old as civilization itself. Today those consequences multiply at warp speed, which is all the more reason to regulate (and in some cases punish) entrepreneurs and companies whose innovations result in intolerable situations. But we should balance that negative approach with a more positive approach designed not just to discourage bad behavior but to encourage good behavior that takes into account the well-being of everyone.
It won’t be easy. Entrepreneurs are notoriously hard to manage, for reasons that amount almost to forces of nature. First, successful entrepreneurs are driven by their deepest personal needs, desires and motivations. Such self-direction is an essential element of all successful entrepreneurial activity and innovation.
Second, to succeed, entrepreneurs must satisfy the fundamental principle of entrepreneurship—making some group of people happy enough to gladly give money in return. This principle leads entrepreneurs to take the quickest route to riches. Their innovations create rapid hits of happiness rather than delivering the kind of overall, more deeply satisfying happiness that makes us and the world healthier.
My work with entrepreneurs (and 10,000 years of entrepreneurial history) suggest that channeling their creativity in constructive ways is more effective than stifling them by prescribing what they must do. Here are four practical things that entrepreneurs themselves, with some help from government, could do to mitigate the unintended consequences of their activity—and discourage at least some of their number who don’t care about collateral damage:
Attend to the unintended. Make it a point of pride among entrepreneurs and their companies to publicly contemplate the unintended consequences of their actions. For example, their websites should feature a section devoted to discussion of the possible adverse effects of their products or services. The company should not only forthrightly engage in such contemplation but also invite the public to join in. It wouldn’t cost much. It differs little from disclosure of financial risk in money-raising activity or the disclosure of potential side-effects with medications. Most importantly, it might act as an early warning system for the company and the public, enabling the mitigation of damage before it becomes catastrophic.
Keep their eyes on the prize. Entrepreneurs and governments should fund prizes for products that mitigate important social and ecological problems. The XPRIZE Foundation already does this on a small scale, sponsoring public competitions intended to encourage technological breakthroughs that benefit humanity. The Wendy Schmidt Ocean Health XPRIZE was one of several prizes funded by entrepreneurs or their companies that specifically focused on creating a product that could help mitigate a problem initiated by past entrepreneurial action.
Pay it forward. The profits made by Google, Facebook, Juul and other new product categories dominated by a single company exceed $100 billion a year. These virtual monopolies, which have their roots in innovation and some of their fruits in harmful consequences, should voluntarily push for a one percent tax on those profits. The government would earmark that revenue (upwards of $1 billion today) for the funding of prizes and grants to incent worthy entrepreneurial product development.
Create a National Academy of Entrepreneurs. To maximize the impact of such proposals, entrepreneurs could bring them under the umbrella of a national organization intended to pre-empt adverse, unintended consequences of their activity and encourage socially beneficial start-ups. Such a body could take its cues from the National Academy of Sciences and the John D. and Catherine T. MacArthur Foundation.
The National Academy of Sciences was established by an Act of Congress and signed into law by President Lincoln in 1863. Its mission is to “provide independent, objective analysis and advice to the nation and conduct other activities to solve complex problems and inform public policy decisions.” It also encourages education and research, recognizes outstanding contributions to knowledge and seeks to increase public understanding in matters of science, engineering and medicine.
The MacArthur Foundation “supports creative people, effective institutions and influential networks building a more just, verdant and peaceful world.” Founded in 1970, the foundation makes annual grants totaling more than a quarter of a billion dollars—what it calls “big bets that truly significant progress is possible on some of the world’s most pressing social challenges.” Its MacArthur Fellowships (popularly known as “genius grants”) provide five-year, no-strings-attached grants to individuals who show great promise in their work.
A National Academy of Entrepreneurs, run by and for entrepreneurs and perhaps funded by a “pay it forward” tax, could help educate entrepreneurs and the public about the likely consequences of entrepreneurial activities. It could bestow recognition on founders whose efforts promise socially beneficial outcomes. And such a body could administer truly significant prize money and grants to entrepreneurs and their companies.
These four practical and tactical steps could yield major benefits. They would initiate discussions and debates on potential problems caused by innovation rather than waiting until actual problems are raging out of control. Significant prizes and grants, underwritten by a small tax on enormous monopolistic profits, would encourage the creation of socially beneficial products and services and result in measurably fewer destructive products emerging. The hope of eventual election to a National Academy of Entrepreneurs by accomplished peers, much like election to the American Academy of Arts and Letters today, could be a long-term motivation for many entrepreneurs.
No matter how innovative, individual entrepreneurs cannot overcome the fundamental principle of entrepreneurship, which makes no distinction between worthy and unworthy activity. But acting in concert, and with a bit of help from government, they can find a way forward that is driven not by constraint but by inspiration.