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February 11, 2005

The Party of Entrepreneurship - Part 2

Chris Charuhas

In my previous article, I showed how entrepreneurs are flocking to the Democratic Party because of Democrats' support for innovation, and because entrepreneurs dislike aristocracy. These aren't the only reasons that entrepreneurs are becoming Democrats. Republicans' support for unsound policy ideas has also played a part.

Successful entrepreneurs readily detect crackpot schemes. Contrary to popular belief, they don't "fly by the seat of their pants," or operate on instinct. They plan meticulously. To get outside funding from investors, they must show that they've considered all factors and worst-case scenarios. Above all, their cash flow projections must be grounded in reality. But these days, Republican leaders don't have much use for sound planning and reality-based finance.

Entrepreneurs know that waging war, like starting a company, is a very uncertain proposition. Military planners must consider all possible outcomes. But our Republican administration fired the generals who did. Instead, it relied on civilians' wishful thinking to guide the Iraq war.

The results have been predictably awful: the National Intelligence Council has now named Iraq the primary breeding and training ground for Islamic terrorists worldwide. Democrats (and many old-school Republicans spurned by their party) warned this would happen. Advantage: Democrats.

A more recent example of unsound policy is the president's Social Security plan, which most Republicans in Congress support. It takes a good basic idea - private retirement accounts - and wraps it in a plan that makes no sense. That is, it makes no sense for anyone but Wall Street financiers who stand to make billions from it.

The president's Social Security plan is based upon the idea that money invested in the stock market earns a higher return than government bonds. But the plan calls for borrowing $15 trillion (source: Congressional Budget Office) - a huge debt that will hobble the stock market growth it counts on. As any financial advisor can tell you, borrowing money to invest in stocks is a big no-no.

Even the president's team acknowledges that their plan's administration costs would be 10 to 30 times higher than they are now, which would eat up any gains that stock-market investment might provide. Even if there were gains, most of them would go not to private account holders, but to the government.

Real-world experience also points out the shakiness of this plan. Chile, Argentina, and the United Kingdom have all tried privatizing retirement insurance, and each of their schemes has proven to be more expensive and troublesome than the government-funded programs they replaced.

Ask any savvy entrepreneur if he'd invest his own money in this plan, and he'll laugh you out of the room. Its "fundamentals," as they say, are ridiculous. Entrepreneurs run from any party that comes up with plans as foolish as the administration's Social Security privatization scheme. Advantage: Democrats.

The Republican Party is riding high right now, but its abandonment by many entrepreneurs is a sign of shifting fortunes to come. The energetic people who start companies have found a load of reasons to become Democrats, and they're doing just that. As they point the way towards the party they've chosen, and influence others to do the same, look for the Democratic Party to start making a lot more converts.

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