Friday, September 25, 2009

Op-Ed from Prof. Aaron K. Chatterji

The Rahm Doctrine

By Aaron K. Chatterji

In the words of Rahm Emanuel, President Obama's Chief of Staff, the current economic crisis provides a unique "opportunity to do things you think you could not do before."

While critics have seized on his remark as a signal of an impending government takeover of the financial and health care industries, they might be missing the bigger picture. If the Obama Administration does manage to meaningfully reform these sectors, bankers and physicians may well be the ones with new opportunities to create greater prosperity for us all.

The upside of an economic downturn is that it reduces the opportunity cost of starting a business, since employment at established firms becomes less secure and lucrative. Indeed, iconic companies like GE, Microsoft and FedEx were all founded during recessions. Our current economic malaise, paired with reforms in the financial and health care sectors, could generate an entirely new class of entrepreneurs: bright and ambitious people whose abilities and aspirations initially led them to lucrative careers in finance and medical specialties.

It is this disproportionately large group of our best and brightest students who make tremendous candidates for entrepreneurship. They include the nearly 50 percent of Harvard's 2007 graduating class who went into finance and the rising number of medical students pursuing lucrative fields like plastic surgery and dermatology rather than primary medicine. Their individual decisions to start businesses could produce a massive reallocation of talent in the American economy, which could lead to the creation of enormous economic and social wealth and, potentially, lead us back to prosperity.

What, you might ask, would cause someone to leave a successful professional career to start a new company? First, the economics of these two professions may soon undergo radical changes. Lower compensation and increased regulation may motivate many bankers and specialist physicians to consider new careers. Already, this crisis has spawned a series of policy prescriptions designed to ensure that financial institutions take fewer risks, potentially making banking less exciting and less profitable.

Furthermore, the debate over how to reform our health care system has led to a renewed focus on physician pay, with specific proposals to increase the payments to primary care physicians at the expense of specialists.

Talented financial professionals could create significant social value by advising non-profit organizations on how to manage their budgets, helping community credit unions acquire new customers, even teaching financial literacy in our high schools. While it might be idealistic to think that many ex-bankers will take the massive pay cut required to become social entrepreneurs, far more could transition into fledging start-ups in emerging sectors like alternative energy. By untangling the complex financial puzzles around funding clean energy technologies, these ex-bankers might be more likely to generate innovations that actually create wealth.

Moreover, as American physicians grow weary of the endless paperwork and frivolous lawsuits endemic to industrialized medicine, more doctors are pursuing MBAs and founding start-up companies that aim to bring an innovative medical device to market or improve the flow of electronic patient records. My research on medical innovation finds that physicians are a valuable source of technology breakthroughs such as coronary stents, which they often pass along to large companies in return for a consulting or licensing fee. If health care reform does mean less remuneration for specialist physicians, increasing numbers may start to develop their best ideas on their own.

Policymakers also can do their part to encourage entrepreneurship, perhaps by providing subsidized entrepreneurial training to the unemployed bankers and dissatisfied doctors who might be our best bets to become tomorrow's Bill Gates or Sam Walton.

More entrepreneurship by intelligent, experienced and well-trained individuals would be a tremendous boon to the American economy. In the end, the "Rahm doctrine" may turn out to be prophetic, as the current crisis nudges some of America's most talented people to create economic and social value through entrepreneurship. That would contribute to a more prosperous future for us all.

Aaron K. Chatterji is an assistant professor at Duke University's Fuqua School of Business and a fellow at the Center for American Progress.

Howie Rhee, MBA
Managing Director
Center for Entrepreneurship and Innovation
Fuqua School of Business, Duke University
Room E167J
919-617-1123 mobile

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