

Company size: Big is back - mrduncan
http://www.economist.com/printedition/displayStory.cfm?Story_ID=14303582

======
lkrubner
I am concerned by the public's changing mood, in regards to entrepreneurs. In
the 1970s the American government began the process of deregulation, which
allowed some important innovations in the industries that were deregulated.
Transportation was probably the first big industry effected, followed by many
others.

My impression was that there was a stretch when some combination of the public
mood and the government's emphasis conspired to encourage small startups. The
1980s and 1990s were clearly good in this respect.

The mood of the last decade has been increasingly punitive. An increasingly
harsh attitude toward flexibility in the law has been evident elsewhere for
some time, but in the last 10 years that attitude has increasingly been
expressed in the field of business. The Sarbanes-Oxley Act is the most evident
expression of the new trend - what once would have been treated as a civil
matter is now treated as a criminal matter.

At some point during the next 30 years I expect breakthroughs in biology to
allow for a new wave of startups, if the government and the public allow those
startups to exist. In matters relating to health, it is worrisome to consider
what a punitive legal attitude means - a medical treatment that fails to
perform leads to jailtime, rather than a lawsuit.

I think it is urgent that everyone who cares about entreprenurial culture in
America to make the argument, to their friends and to strangers, that
innovation in business depends in part on tolerance, and that, in practical
terms, this means most matters of conflict should be treated as civil rather
than criminal cases.

Once upon a time, before the mid 1800s, most Western countries treated
bankruptcy as a criminal matter, rather than a civil one. The liberalization
of bankruptcy law was one of the factors that allowed our modern economies to
gain the dynamic nature they now enjoy. I would guess that most of us know
someone who has tried to do a startup, failed on their first attempt, and then
later met with greater success on successive tries. Tolerance of failure is
the first pre-requisite of a dynamic economy.

Since the public seems at risk of forgetting this fact, we all need to make
that case, to whoever is willing to listen.

~~~
jakarta
When you cross the line into experimenting with medical treatments, you're not
gambling with other people's money, you're gambling with lives. You can't just
equate it to any other kind of start up, it has to be held to a higher
standard.

~~~
lkrubner
Regarding medical innovation.

Other fields also threaten people's lives. If you build a new kind of jet
engine, which gets through testing but which then is responsible for a
spectacular crash, then your product has killed a few hundred people. And yet,
unless there was fraud in the documentation of the tests, there have not been
criminal cases in the past. I worry that in the future there will be criminal
cases. Again, the trend that I worry about is that what used to have been
treated as a civil matter will, in the future, be treated as a criminal
matter. We do not need to focus on the medical field. Many other fields can
cause people to die - industrial automation, the transport and disposal of
toxic chemicals, the construction of buildings (which could then fail and kill
people). All industries are in need of innovation all of the time, yet
innovation brings with it risk, including the risk of death. How much
innovation will we get if we make these matters criminal?

I should emphasize, just in case people forget, that fraud has always been
criminal. It has been criminal for centuries. So the move to criminalize more
aspects of business is not a move to make fraud criminal. If you think that
the Sarbanes-Oxley Act made fraud criminal, then you are mistaken. Fraud has
always been criminal.

Sarbanes-Oxley is representative of the new trend. The overall goal was to
encourage greater accuracy in the reporting of a company's financial health.
This goal could have been reached through a variety of methods, including both
the carrot (rewards) and the stick (punishments). Rewards could have included
tax breaks for meeting some additional level of compliance. Punishments could
have included fines levied against companies that failed to meet a higher
level of compliance. These approaches would not have raised the risk of jail
time for CEO's. Instead, Sarbanes-Oxley decided to go with the heaviest kind
of punishment of all - to treat infractions as criminal offenses, potentially
meriting jail time.

This punitive attitude is going to have a chilling effect on the amount of
innovation we can expect in any field.

~~~
pyre
The problem can be that punitive matters are handled as a 'cost of doing
business.' Who cares if we kill a few people with our products if our profit
will be more than the costs of any punitive settlements/fines? The problem
really comes in when there is willful negligence or malice in the process.

If an engineer comes to you (as a manager) and tells you the your product will
fail in certain circumstances and cost lives. Then you say, "I'll take that
'under advisement'," and completely ignore it because to take that into
account would cause the project to run over deadlines and you want to look
good to your bosses. Then the product is deployed in the field it fails under
those same circumstances. Lives are lost. Lawsuits are filed. The 'company'
loses and/or settles with the grieving families and pays out some money. But
the _real_ cause of those deaths is _your_ willful neglect just to please some
corporate masters in the hope of a promotion. I personally think that you
_should_ be held legally responsible in such a case. But the prevalence of
'not me syndrome'... aka Diffusion of Responsibility
(<http://en.wikipedia.org/wiki/Diffusion_of_responsibility>).

Once a sufficiently large group of people start to function as an entity, that
entity can do things that no normal person would be allowed to do... and no
one is held responsible.

~~~
kiba
Killing a few people will be more than just punitive settlements/fine, it will
also lower overall revenues in the long term because consumers now have
reasons to fear a certain company's product.

That, and your competitors will hawk their wares _and_ point out that their
product never killed anybody, in addition to big suspicions from consumer
magazines.

~~~
pyre
This kind of stuff happens all the time in the auto industry. Don't narrow
your view to just medical companies.

~~~
kiba
What do you mean by this? Is my conjecture wrong?

~~~
pyre
When was the last time that you heard a car company bashing a competitor's
safety performance?

------
pmorici
"Netscape and Enron promised to revolutionize their industries only to crash
and burn"

Hard to believe they compare those two in the same sentence. Netscape made a
great contribution to the early days of the consumer internet where as Enron
was a complete scam through and through.

~~~
kiba
Apache killed netscape, not microsoft. Netscape's bread and butter is
webserver, not a web browser.

Or so I heard.

~~~
pmorici
What's your point?

~~~
kiba
I was pointing out one possible reason why Netscape crashed and burned.

