The Continental System

Arnold Kling has written a good article for the TCS Daily where first he defines his own view of
entrepreneurship, then goes on to examine the difference between the U.S. system and the Continental European system which Edmund Phelps had written on after his award of the Nobel Prize. I choose to make a defense of the Continental system after the Phelps article, and because Arnold has presented such a clear articulation of the American system, I will take a more direct look at the two systems.

The American system provides an extended financial structure, allowing entrepreneurs to quickly find capitalization for their Startups independent of serious Review or outside evaluation of project success. It is at this Point where Creative Destruction sharpens a vicious edge. Advocates of the American system never mention the financial losses entailed in Business Fold-ups, duplication of Capital investment, and the flow of Investment Funding to areas of high Profitability in successful ventures. Losses from Business failures remain concentrated among the entrepreneurs and their immediate Prime Investors, they lacking high publicity though their financial reserves are seriously depleted, if not wiped out. I have long ranted against the 80(?) Types of bar soap retailed in this Country, but consider the 16-18 different Beta-Blockers currently marketed. Other Business, like Small Farming and Leatherwork, find it impossible to achieve new Start-ups; Agribusiness gained power because new small farmers cannot finance Startup Costs considering Land and Equipment price, and when did your shoes last contain the tag ‘Made in America’?

The Continental system, on the other hand, insists on an outside Review of entrepreneurial ideas conducted by trained Professionals in the Banking industry, controlled by evaluations of Market share potential, sound Business project construction, a good Marketing policy, available labor assets, and effective capability of proposed Management. Investment funds flow into areas of evident economic need, irrespective of immediate rates of Profitability. Business failures are reduced, and bad Investments are re-channeled; this Process saving of Jobs, entrepreneurial talent, and Investment funds. The Continental system invests less than the American system, making fewer though more solid investments, and European Consumers still find an emulative assortment of Products to the American mix at less Cost. Which is the better system? lgl