The Realities of Risk and Reward

I have come to the uneasy realization that Senator Obama is going to be the next president of the United States. Senator Obama has struck a chord with many voters by appearing likable and at ease on the campaign trail and in televised debates. I have doubts that he will serve the country well. His belief in liberal economic policy gives me great pause as an entrepreneur and a business owner.

I’m concerned about how a higher tax rate combined with an economic downturn will affect people’s ability to provide for their employees. An Obama administration will curb innovation and investment by creating disincentives for investors and entrepreneurs, which will set back the already troubled U.S. economy.

Scott Gottlieb, a physician economist and a resident fellow at the American Enterprise Institute, wrote recently for the Wall Street Journal that a Democratic Congress would pursue price and access controls for Medicare. Such controls would “cut the cost of delivering care in order to extend government-financed coverage to more people,” Gottlieb wrote. Such measures would not only impact the revenue generated by current drugs, but would distort future investment decisions. “The last time policy makers waged a concerted effort to control the price and access of to the most innovative, but expensive new drugs as part of a broader healthcare reform in the mid 1990’s, the percent of venture capital going into biotech fell by almost half in a single year. A lot of that money shifted to internet companies.”

Discussions about how much to tax often overlook the tremendous amount of risk that small business owners and entrepreneurs subject themselves to in building an enterprise. Deciding to open a restaurant, build a publishing company, or open your own medical practice is a tough decision fraught with uncertainty and risk. Sometimes that risk pays off in the form of a profitable enterprise. Often, it does not.

When the tremendous risk of initial investment is not met with the potential of significant reward, it is not just the entrepreneur who suffers; the economy as a whole also loses in terms of foregone goods and services and employment opportunities. In the case of drug innovation, the diminished rewards caused seed money to go elsewhere. Perhaps we’ve already paid the price for that dip in funding in the form of effective drugs that were never discovered. This cost affects patients who could have benefited from improved therapies.

In another recent WSJ article, Adam Lerrick wrote, “Other nations have tried the ideology of fairness in the place of incentives and found that reward without work is a recipe for decline.” Lerrick’s article paints a grim picture of the hole other countries have dug themselves with financial policies that lead to stagnation, inflation, excessive taxation, and public debt.

Under a President Obama and a democratic majority in Congress, we have the same to look forward to here. Time and again, in failed policy experiments here and abroad, we’ve seen that liberal economic policy doesn’t work. Once voters catch on, Lerrick writes, “Then a frightened electorate returns conservatives to power.” I’m just not sure we can afford to wait.

Mike Hennessy is Chairman and CEO of MJH & Associates. Click here for more Hennessy's Highlights