My impression is 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. Sarbanes-Oxley is the most clear example of this. What once would have been treated as a civil matter is now treated as a criminal matter. Entrepreneurs are now faced with jail time instead of lawsuits. This can only have a chilling effect on innovation. I think it is urgent that everyone who cares about entreprenurial culture in America to make the argument 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.

A comparison might be made to the evolution of bankruptcy law. 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. The public's mood changed during the 1800s as it became more obvious that many times entrepreneurs failed with their first venture. They needed a second chance, when they were often more successful. John Bayer, who created what became Bayer aspirin, is an outstanding example of this - at first he tried to build a liquor business, but it failed. His father-in-law was suffering arthritis, and therefore drinking large amounts of willow bark tea - the only known source acetylsalicylic acid. John Bayer then put the willow bark tea through the distillery equipment he'd bought for his liquor business - and thus asprin was created. The point is, he needed a second chance to become successful. Many entrepreneurs are in this category.

Since this is Hacker News, I would guess that most of us know someone who has tried to do a startup, and failed on their first attempt. Many of us also know entrepreneurs who tried again, and met with greater success on successive tries. Tolerance of failure is the first pre-requisite of a dynamic economy.

More so, if you have any friends who have attempted to launch a startup, ask yourself under what circumstances you think your friends should go to jail.

I posted a similar comment some months ago, and I mentioned how many lives might be saved by the next wave of medically-focused startups. Someone responded:

"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."

I want to repeat, many, many industries can lead to people's deaths. There is nothing unique about medical innovation. 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. Right from its creation, decades ago, the FAA has taken a strong line against criminal - the feeling has always been that criminal prosecutions would stifle the free flow of information, and the only way to save lives over the long-term is through the free flow of information.

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.