Josh Lerner


On his book Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed—and What to Do about It

Cover Interview of October 11, 2009

The wide angle

The financial crisis opened the door to massive public interventions in the Western economies.  In many nations, governments responded to the threats of illiquidity and insolvency by making huge investments in troubled firms, frequently taking large ownership stakes.  Many concerns can be raised about these investments, from the hurried way in which they were designed—and by a few people behind closed doors—to the design flaws that many experts anticipate will limit their effectiveness.

But one question has been lost in the discussion.  If these extraordinary times call for massive public funds to be used for economic interventions, should they be entirely devoted to propping up troubled entities, or at least partially designed to promote new enterprises?

In some sense, 2008 saw the initiation of a massive Western experiment in the government as venture capitalist, but as a very peculiar type of venture capitalist: one that focuses on the most troubled and poorly managed firms in the economy, some of which may be beyond salvation.  There is a keen awareness we also need green shoots, for growth after the recession.

Meanwhile, the venture industry in many nations is on life support, struggling for survival.  It is natural to wonder whether there is a public role here.  And indeed, governments from London to New Delhi have announced venture initiatives in the past few months.  Moreover, the historical and emerging global hubs of entrepreneurial activity—for instance, Silicon Valley, Singapore, and Tel Aviv—all bear the marks of government investment.

Yet, for every successful public intervention spurring entrepreneurial activity, there are many failed efforts, wasting untold billions in taxpayer dollars.  When has governmental sponsorship succeeded in boosting growth, and when has it fallen terribly short?

We need to know why some public initiatives work while others are hobbled by pitfalls.  I offer concrete suggestions for how public ventures should be better implemented in the future.