209. Lipton Matthews: A 5-Way Global Perspective on Innovation and Entrepreneurship in the USA

/in /by

Entrepreneurship and innovation are the keys to economic growth and higher standards of living. The USA has long enjoyed leadership status on these dimensions — people see the USA as the land of entrepreneurs and the source of new ideas and advances in business. Is the reputation still deserved? Or is it being eclipsed as part of the general decline in standards and capabilities that we observe? Lipton Matthews is a global economic and geo-political analyst who brings deep knowledge and expertise to address our concerns.

Knowledge Capsule

Borrowing a framework from the Global Innovation Index published by the World Intellectual Property Organization, we can examine the state of entrepreneurship and innovation in the US relative to both other countries and its own history, under the headings of institutions, human capital and research, infrastructure, market sophistication and business sophistication.

Institutions: The private sector institutions of the USA continue to excel for entrepreneurship and innovation.

When we think of American institutions for the encouragement of entrepreneurship and innovation, we must examine private sector institutions, not those of government. Ordinary people in civil society build the institutions that promote innovation. Private scientific research is robust in responding to market signals of consumer and business needs. Financial institutions such as venture capital and angel investors support innovative development. Policymakers mistakenly believe they can conjure up a creative economy by fiat, but they’re wrong. It’s private institutions that support and cultivate innovation. Even if the public sector tries to encroach, the private sector maintains its innovative edge.

Professor Sam Gregg warned us recently that the United States of today more closely resembles a European social democracy than many Americans are willing to admit, but Lipton Matthews is confident that America is still winning the entrepreneurship contests because the forces of democratic socialism can’t overpower the higher-energy force of the private sector drive for creative innovation in return for market reward.

Human capital and research: The ability to execute overcomes any shortcomings in education.

If we look through the declinist lens, it’s easy to become gravely concerned about the state of education at all levels in the US, which directly impacts the development and deployment of what economists refer to as human capital. Do we under-allocate resources to teaching schoolkids business and entrepreneurship skills and tools, and at the college level, do we turn out too many English and philosophy grads compared to market needs, and not enough engineers and STEM grads?

Lipton Matthews cautions us against worrying about the wrong things. The educational qualifications of the products of American schools and universities matters less than their executional and implementational capabilities. America is a nation of do-ers, and that type of expertise is embedded and innate, from the time of the founding fathers and early immigrants who built the America economy. We prize innovators more than inventors — the ones who successfully turn ideas into marketable products and services. Entrepreneurship is action, and American business capitalizes the talent for execution, combining scientific learning with creative action to generate innovation. Executional capacity comes more from a market orientation than from formal learning.

A concern about the research component of the Global Innovation Index’s “human capital and research” classification is, perhaps, more justified. Government-directed research dominates formal research budgets — directed to fields such as climate change — for universities in the US, and the historical evidence is clear that this pool of research is inappropriate for the support of entrepreneurship, despite European aspirations to an entrepreneurial state. Brilliant scholars and researchers who could be entrepreneurs and innovators are diverted into unproductive activities.

It’s difficult to quantify private sector R&D; we must hope that it is sufficient to counter-balance the state’s diversion of research funds. In fact, Lipton Matthews points out, we must expect the state and innovators to be in competition. The former prefers control and stability versus the latter’s pursuit of disruption and change.

Infrastructure: Think local and regional, not national.

We are frequently presented with stories about the crumbling of US infrastructure. That’s the wrong level of focus, according to Lipton Matthews. First we should compare US infrastructure to other countries, where the quality of engineers and engineering may be lower, and so roads, bridges and communications networks are inherently superior in the US. Second, we should focus on infrastructure in our localities and regions. Local communities can manage infrastructure well in support of local businesses. Some towns and cities will have better-managed and better-maintained infrastructure than other parts of their state, and businesses will be attracted there.

Market sophistication: capital flowing to best entrepreneurial uses.

Lipton Matthews interprets the Global Innovation Index’s category of market sophistication to refer to the financing of startups, scale-ups and innovative entrepreneurial businesses. American deployment of venture capital and the widespread networked access to investment funds are examples of market sophistication in practice. Ordinary people can invest in startups and innovation, and entrepreneurs at every stage of their journey can arrange access to investors.

While these investment funding networks may not be perfect, and while we may encounter some challenges in moving capital to the bottom of the pyramid, nevertheless, the private financial sector in the US is effective in directing funds towards innovation. While there may be some erosion of purpose, from long term funding of innovation to making money via short term trading in-and-out of markets, this does not detract from America’s lead in market sophistication.

Business sophistication: The ability of business to absorb new knowledge and use it to innovate.

Bart Madden called knowledge-building proficiency the central differentiating function of the successful firm. Our businesses are learning machines, continuously generating new knowledge via R&D, marketplace experiments, interactions with customers and feedback from all business activities. While it’s possible that Americans might be eclipsed by some other countries in the race to produce patents, this is not a relevant measure. Marketplace innovation is the test of business sophistication, not patent registration. Knowledge accumulation must be accompanied by knowledge application.

America’s entrepreneurial nation of doers not only engages in eternal learning but in the adaptive entrepreneurial method of act-learn-improve. The rest of the world has not fully caught up.

Summary

In Lipton’s eyes, America was oriented for entrepreneurial success by the founding fathers and early immigrants, and will continue to innovate and grow as a result of entrepreneurship. Only if we get in our own way through excessive statism, regulation and government intervention that misdirects our energy and resources will we break the well-established historical track record.

Additional Resources

Global Innovation Index: Mises.org/E4B_209_Index

“For Now, Entrepreneurship And Innovation Still Hold A High Place In The USA” by Lipton Matthews: Mises.org/E4B_209_Article

100% economics, zero percent politics. It’s the way forward.

/0 Comments/in /by

So much money and energy have been poured into politics in the last years and decades. What has it achieved? Dysfunction, debt, deficits, disrespect for America and its institutions, disdain for its politicians, and division between Americans.

Politics is poison. It is corrosive acid persistently poured onto the faces of a prostrate and powerless citizenry. It is evil, and it corrupts all the people who practice it.

Our proposal is for an end to politics and a replacement with the thought processes of economics, the science of human thriving. We’d prefer everyone to stop thinking in political terms and start thinking in economic terms. Here are five principles to begin with.

Economics is about creating value for others. Politics is the destruction of value.

In thinking economically, we investigate how we can create value for others. This is the definition of productivity and it’s the way we earn. The nexus of value is the mutual voluntary exchange. It must be an exchange – we receive reward in return for giving valuable service. It must be mutual – both parties feel they are better off as a result of the exchange, that’s why they enter into it. And it must be voluntary; force and coercion have no place and make no sense in the assessment of value.

Politicians produce nothing. Governments produces nothing. They either destroy value through regulation and restriction, or they confiscate it for their own purposes, which include redistribution of the value produced by others to those who vote for them.

Economics operates on empathy. Politics operates on disagreement and antagonism.

To design a mutual voluntary exchange requires empathy, or what Adam Smith called fellow-feeling. Since value is subjective – a perception on the part of the buyer in the exchange – it is necessary for each participant to understand the subjective preferences of the other. Empathy is getting inside the other’s head, walking in their shoes, understanding how they feel. Ultimately, this produces sympathy for their situation and understanding of their way of thinking. It breeds tolerance.

Politicians seek to divide. There must be losers so that their side can win. They identify what their own supporters dislike in the policies and communications and style of the other party, and then they focus – relentlessly, viciously, hurtfully – on those differences. Successful politicians generate hate among 50% of the voters, and, although they don’t care about it, among the majority of citizens, since most don’t vote. Hatred and mutual antagonism are their stock in trade.

Economics succeeds through the natural collaboration of people. Politics succeeds by exercising power over people.

In the pursuit of mutual voluntary exchanges, and in building firms and supply chains to bring better products at lower cost to more and more people, economics builds on the natural collaboration of mankind. It’s how we built a system that has raised the standards of living of so many billions of people, including transcending poverty for most.

Politicians do not want people to rise. They want them to be dependent on government welfare, government bureaucracies, and government education. They want power over people, and to that end, they must divide people and disallow collaboration. They create antipathy where it never existed before. They make us live in political slavery to a government we don’t want and rules we never agreed to.

Production is the economic measure of success. Politics is consumption without production.

The wealth of an individual, a family, a neighborhood, a town, a state or a country is what it produces. We exchange what we produce for other goods and services, many of which we consume, but production comes first. Production is what we live for, and what we work for. We sacrifice leisure time and other consumption opportunities now, in order to produce and lay down a store of savings that we can consume in the future when we hand the reins of production to another generation. Ultimately, we aim to produce happiness. We certainly don’t aim to consume it – otherwise it would quickly be gone.

Politicians don’t produce, and they don’t want citizens to focus on production as their primary activity. They want us to consume, and to be dependent consumers. By producing money out of thin air, by redistributing the fruits of production of a minority of citizens to a majority of citizens, they create a culture of consumption. Economists call this high time preference: politicians want a citizenry that is dependent, complacent and slothful and will demand everything now without working for it. That way, politicians can exploit their monopoly over money and their unconstrained debt and deficit spending in order to create a mirage of consumption without production. Whereas economics prizes the future, believing in an ability to make it better, politicians fear the future and focus completely on the present. Their scheme can not last, so they can’t even contemplate the future.

Prices and profits are the information signals of the free market. Politicians suppress both.

The system of economic freedom is quite simple. Prices are the signals that consumers send to producers to indicate that they perceive value. If a producer receives a price that more than covers the cost of production, we call that profit. It’s a signal that the producer has created value with the resources he or she has used. If there is no profit, the producer will rearrange production until there is a positive profit signal, or move on to another business to try a new way to create value. These two signals keep the economic system based on creative entrepreneurship humming. They have produced all of human economic progress.

Governments and politicians try to suppress both signals. They won’t tell us the price of TSA, or  the FDA, or nuclear weapons, or a President’s travel on Air Force One. They also want to control prices in markets such as that for labor (via minimum wage legislation), pharmaceuticals (via regulation) and many more. And they certainly would not operate on the profit principle in their monopolistic supply chains of education or building roads or managing national parks or invading Afghanistan.

100% Economics, Zero % Politics.

The mantra of 100% economics and zero percent politics may seem idealistic and distant. But we are focused on the individual. If one person can start thinking and living this way and making progress towards the goal, then another can, and another and pretty soon we have a movement. Let’s at least start contemplating the possibility.

208. Melissa Swift: Human Action To Build A Powerhouse Workplace

/in /by

What can economics tell us about designing fulfilling jobs and productive workplaces? Quite a lot if we apply the economics of subjective value and empathy. Melissa Swift is the author of Work Here Now: Think Like A Human And Build A Powerhouse Workplace. She discusses her research on the Economics For Business podcast.

Knowledge Capsule

Poorly designed jobs and workplaces are dangerous, dull, annoying, frustrating and/or confusing.

The results of academic research have confirmed how alienated many workers are from their jobs, and the trends in these findings are worsening, not improving. During the pandemic, many of us had the opportunity to stand back and survey this situation, and realize that it’s a problem that we need to address.

We can do better by applying Austrian economics principles of subjective value and empathy.

The economics of subjective value should point employers in the direction of asking how employees feel about their jobs and the sense of purpose and meaning they derive from them. Why do these considerations not arise, or why are they insufficiently acknowledged? Melissa Swift sees what she calls a wall between how human beings operate and how the world of work operates. We think in discrete terms about “work” on one hand, and “people” on another, and don’t integrate them well.

Managers have demonstrated a penchant for intensifying work (doing more in less time and with fewer resources) and for pressing for over-collaboration (too many reports, checkpoints, meetings and interactions and exchanges, and belonging to too many teams) with the ultimate result of detracting from an individual’s capacity to get things done. Managers don’t necessarily tie the design of work to impact delivered or value created.

In fact, much work is performative, putting on a display of work that is not necessarily productive (writing impeccable but essentially useless reports, for example).

Managers should be actively looking for and rooting out problems of bad jobs and poor work environments.

Melissa Swift’s formula is to be humble and curious in asking how work feels to those who are doing it. Employees know their work better than managers do (an observation which, of course, turns management science on its head).

There are a couple of “monsters” that can be identified and tamed. One is the anxiety monster – we all feel anxiety about whether we are productive enough, or doing good enough work, or being viewed in a favorable light. Anxious managers stand over people, telling them to work harder and faster. We must shut down all the anxious stories that are in our heads.

Employees can be over-anxious about customers, too. We may tend to over-deliver on customer care and customer expectations, to the point where we train them to be so demanding that they go beyond the point where the corporation is capable of fulfilling its own promises.

Once “monster” jobs — those that generate excess anxiety — are established, there’s a tendency for the HR “copy machine” to copy-paste them throughout the company, so that more employees become stressed.

Listening for job stress and devising better ways of working is an entrepreneurial task.

The entrepreneurial mindset is to listen to customers (in this case, job incumbents), to identify unmet needs, which are aways based on emotion and can never be articulated perfectly clearly, to creatively design new solutions to the customer’s felt problem, and to institute positive change using the new solution. This implies continuous adaptive change in job descriptions, performance expectations, structures, team and tasks.

The entrepreneurial approach is often hard to apply in the corporation. One reason is that incentives are lined up to favor what Melissa Swift calls “smooth”. Management incentive schemes are often designed to encourage “smooth” — no drastic changes or turns, steady progress. Yet the adaptive entrepreneurial system does not promise smooth, and can’t delver it. Innovation in response to changes in customer preferences or competition can be bumpy. And many organizations suffer from autoimmune disease — the defenses go up as soon as something unknown or unprecedented is encountered.

Good leadership can counter the auto-immune response — but it’s leadership that does less rather than more, relaxing constraints and letting those closest to customers and markets to make any needed adjustments and to respond at the rate of change that the market demands. Business school concepts of leadership have goaded executives into over-managing and over-controlling, and reversing the over-active concept of leadership is one of Melissa Swifts core prescriptions.

The HR Department is a big part of the problem.

The deep history of HR is dark. The function was founded to quell violence between labor and management. HR was to stand in the middle and to keep a lid on a boiling pot, as Melissa picturesquely expressed it. Performance management — mechanically measuring humans’ output in these toxic adversarial environments — was never a warm or supportive concept. As big business became more centralized, HR simply became more empowered and widened its scope. There was never much humanism in HR.

HR departments are not typically thinking about work and how work is changing and how to make it a better experience for people. If they were, they’d be thinking differently about matching talent to jobs, thinking more deeply about how alienating and constraining automation technology can be to those who have to use it. They know they are being monitored and measured and assessed.

Melissa recommends couples therapy for technology and those who work with it — to stop each party from driving the other crazy.

Asynchronous work, deconstructed work, transparent work.

Melissa’s book has 90 strategies for organizational level and team level problem solving actions and adjustments. We discussed three directions for better work.

Asynchronous work: fewer meetings, which provides greater flexibility for workers, it naturally de-intensifies (you don’t have to have the report ready for the regularly scheduled Thursday meeting), and it makes for more relaxed collaboration across time zones. Asynchronous work tends to be better documented and more permanent.

Deconstructed work: start with tasks to be done rather than job descriptions; assemble the optimum combination of humans and technology to get the tasks done; let talent flow to the work, i.e., it doesn’t matter if it is full time employees, part-timers, project specialists or gig workers or agencies or consultants doing the work, so long as the tasks get done by the best-qualified talent.

Transparent work: make all information available to all employees at all times, nothing hidden or out-of-bounds. As a result, employees and teams have all the information they need to do their jobs, with no need for hierarchical or administrative intervention. Accountability and empowerment are enhanced, and new talent may emerge when you don’t hire for information but for skill in using it.

Additional Resources

Work Here Now: Think Like A Human And Build A Powerhouse Workplace by Melissa Swift: Mises.org/E4B_208_Book1

Bullshit Jobs: A Theory by David Graeber: Mises.org/E4B_208_Book2

207. Erik Schön: The Art Of Strategy

/in /by

What is strategy, and is it useful for business? Business schools want you think it is the critical factor in competitive success or failure. They teach structured markets, divided up by market share, with boundaries and external and internal forces to be assessed and countered. “Where to play and how to win.” They see strategy through their lens of financialization and utilize fictitious economic calculations like discounted future cash flows and market capitalization. There’s very little Austrian flavor in their view — no acknowledgement of subjective value and the qualitative drivers of value, customer sovereignty, empathy, constantly changing customer preferences, no role for the entrepreneur in helping customers learn what they can want in an evolving world.

Our guest Erik Schön provides us with an entirely different view of strategy, which he arrives at via a synthesis of three great strategists: Sun Tzu, John Boyd, and Simon Wardley.

Knowledge Capsule

Strategy is how to survive and thrive and, for a business, the key tool is harmonization.

Sun Tzu identified Purpose as the fundamental factor that keeps people united: customers, producers, suppliers, partners, owners, executives, employees, supporting each other without fear through success and failure.

In Sun Tzu, there are four more fundamental factors:

  • Landscape — your business environment.
  • Climate: the forces acting on the environment.
  • Doctrine: ways of operating.
  • Leadership: actions, decisions, choices, and gameplays.

Master all five to succeed, or else fail.

John Boyd added the dynamics of continuously changing intentions within the pursuit of the realization of purpose. (We find reflections here of Mises’ concept of constant flux — everything changing all the time.) Boyd’s definition of strategy Is a mental tapestry of changing intentions for harmonizing our efforts to realize purpose in a world that can be bewildering.

The purpose of strategy is to improve our ability to adapt: a vision that magnifies the strength and commitment of its adherents, and a grand ideal or noble philosophy providing a binding paradigm for all.

Boyd’s famous framing of the learning process to develop the ability to adapt is the OODA Loop.

John Boyd’s OODA Loop

For Wardley, strategy is the art of moving in and manipulating an environment using tools such as positioning and technological innovation. Wardley’s major contribution is to visualize strategy in the form of a map where the X-axis is movement in the environment in predictable steps:

Genesis: a new technology or solution or brand is introduced; it’s unique.
Custom built: a company identifies ways to serve customers with constructed products and services from the new origin.
Product: move from custom built to standardization, including sourcing standard parts from suppliers
Commodity: there’s nothing left that’s unique, many companies can be producers.
Evolution: a new genesis emerges.

The automobile industry provides an example.

Genesis: the first internal combustion engine.
Custom built: the first car brands, often from craftsmen and small workshops.
Product: Many suppliers, competitive differentiation (Ford versus GM).
Commodity: ICE automobiles produced in many countries (Japan, South Korea, China, Italy, etc.) with limited customer differentiation.
Evolution: the beginning of the EV era.

Wardley’s approach is that all markets exhibit this evolution. It’s important to know the current landscape and predict the future landscape, moving through it with “the why of purpose” (to survive and thrive) and “the why of movement” (taking a particular action that moves you through the landscape). Everything evolves through supply and demand competition.

Climatic Pattern

The Sun Tzu, Boyd and Wardley approaches to strategy can be combined in the concept of the Strategy Cycle, Strategists move continually through the phases and components.

the Strategy Cycle

The reference to these strategy masters enables businesses to move beyond business school strategy.

Move beyond strategy as wars, battles and combat for market share, towards strategy as individuals, teams and organizations fulfilling their shared purpose.

Move beyond strategy for survival in competitive environments to sustainably thriving in a world with a high rate of change.

Move beyond strategy development as planning, metrics and data towards strategy development for a harmonized direction based on regular assessment of needs (especially customers’ needs) and the organization’s purpose.

Move beyond strategy development as execution and chasing targets to decisions and actions in a harmonized direction by everyone everywhere in the organization based on high situational awareness.

Move beyond business as maximizing shareholder value to business as succeeding together with customers and other stakeholders.

Move beyond leadership for managers and people in hierarchical leader roles to leadership as a service provided by all people in the organization.

Move beyond practices and principles for optimizing parts to harmonizing the whole.

The art of strategy is to succeed by securing harmony among stakeholders, and keeping competition off-balance through evolving better capabilities to influence, adapt and map.

The three strategists offer complementary views of strategic success.

Sun Tzu:

Unite society rather than divide.
Unite the organization rather than divide.
Unite the team rather than divide.
Make the organization resilient by cultivating purpose and doctrine.

Boyd:

A grand ideal, overarching theme, or noble philosophy that individuals can shape and adapt to unfolding circumstances.

Wardley:

Know your user — know your customers and know how to create value through meeting their needs.
Set exceptional standards.
Be resilient to cope with a wide variety of extremes and changes by rapidly adapting.

The great obstacle to adaptiveness in strategy is inertia in its various forms.

Success breeds inertia, and inertia kills. It’s rarely a lack of innovation that kills companies, but rather inertia caused by pre-existing business models. Any past success with any component or element will tend to create a resistance to change. Inertia is a loss of capital — whether physical, human, social, or financial.

Strategists look to identify different categories of inertia and devise ways to counter them.

Category of inertiaCounterpoint
People resist disruption of past normsPast has evolved / lead the charge Write down cost of legacy, run more efficiently Building future agility  Already happening in the market, falling behind 
Fear of transition to the newLet’s build new skills internally Develop capabilities in-house Develop relationships with new suppliers Work on adapting practices, not scrapping them 
Are we sure we can make the new work? Don’t seek certainty, seek learning Develop new standards, use open source Use multiple vendors, use brokers Improve supplier relationships 
Changing business models is hard Avoid death spiral; new approaches e.g., ecosystem Risk mitigation; spin off the old Use rewards, education, training Perfect telling the new story 

Leading without pressure and control.

Erik uses the gardening analogy to illustrate the Sun Tzu style of leading without pressure and control. The gardener tends the garden gently, tilling and planting and watering ahead of time, and the flowers grow. Today we might call this style “self-organization”.

The three strategists are very consistent with the action-focused approach to entrepreneurship from Austrian economics. Action is learning. The path is made by walking. Try things out. Draw some Wardley maps as a trial. They’ll take you a long way.

Additional Resources

The Art of Strategy: Steps Towards Business Agility by Erik Schön: Mises.org/E4B_207_Book1

The Art Of Leadership: Purpose and Integrity for Sustainable Success by Erik Schön: Mises.org/E4B_207_Book2

Erik Schön on LinkedIn: Mises.org/E4B_207_LinkedIn

A Collection of Wardley Maps: Mises.org/E4B_207_Maps1

A Wardley Map of the Automobile Industry: Mises.org/E4B_207_Maps2

206. Dr. Samuel Gregg: Our Founding Fathers Designed An Entrepreneurial Republic. Can We Keep It?

/in /by

Entrepreneurship is by no means exclusively American. But this country has led the way in unleashing, encouraging and elevating entrepreneurship as the creative and virtuous pathway to the creation of new value for all. As a republic, we’ve established the institutional framework in which entrepreneurship can flourish, and entrepreneurs who are successful in creating value reap — and keep — the rewards. Dr. Samuel Gregg, in his book The Next American Economy, examines how this framework was designed at the founding, and discusses what we must all do to preserve it and re-animate it despite the attacks on it from the left.

Knowledge Capsule

Entrepreneurship and the founding of America are intertwined.

America remains the most entrepreneurial country in the world, even if the degree is declining. Our nation has many people willing to pursue the uncertain path of creating new economic value for customers through new products, services and businesses; and, equally importantly, people who will try and buy the new offerings.

Alexis de Tocqueville captured the entrepreneurial character in Democracy In America. He thought everyone in America was entrepreneurial. He noted that those immigrants who arrived would quickly start a business, then move on to another one. He observed the tremendous creative energy of the United States. Immigrants have already embraced change in the act of leaving one country to establish themselves in another, and business entrepreneurship is a direct expression of this same love of change.

In fact, says Dr. Gregg, America was designed by its Founding Fathers — as they plainly expressed in the Constitution, Declaration Of Independence, the Federalist papers and documents like Washington’s Farewell Address – as a commercial republic based on entrepreneurship, and not a political or military or top-down republic or mass democracy. Commerce — or what we would call business — was not viewed with disdain, as it was in aristocratic Britain, but as republican virtue. Washington’s Farewell Address refers to the importance of expanding, of national and international navigation and trading, and about the development of strong markets to give Americans an outlet for their production. Business was viewed as the height of civilizational activity. There was a commercial ethic in the vision of a commercial republic which would grow wealth for all. Economic expectations were high and political institutions were designed to be compatible with these economic expectations.

There is an increasing trend towards government and the administrative state strangling the creative energy of American entrepreneurship.

The erosion of institutional integrity shift and suppresses the creative energy of entrepreneurs. A strong tradition of property rights, in which entrepreneurs can feel confident that they will not only be able to earn but also keep the reward that come from satisfying customers and meeting demand, is an important element of the incentive structure for entrepreneurship. Similarly, entrepreneurs need to feel confidence that commercial disputes will be fairly adjudicated in courts. And they also need to feel confidence that government regulation will not act as an unreversible ratchet of restrictions on their value-creation activities.

The trends in the business environment in the US are currently running in the opposite direction: the property rights of successful entrepreneurs are being increasingly questioned and squeezed, commercial interests are viewed unfavorably in courts, and the regulation ratchet is running in the direction of more, not less, restriction on commerce.

Dr. Gregg sees the anti-entrepreneurship trend beginning in the Progressive Era and gathering pace since the days of Woodrow Wilson. Progressives seek forms of control that will suppress economic uncertainty and social turbulence. The entrepreneurial embrace of change and pursuit of new value must be suppressed. If society and the economy is to conform to their design, unpredictable creativity must be excluded. The progressive control urge took expanded form in the New Deal and the Great Society and all the successive opportunistically explosive expansions of government power.

The anti-entrepreneurial tool is regulation and the administrative state.

Dr. Gregg employs the term corporatism to mean legislators and elected politicians, government departments and their administrative bureaucracies working together with big corporations and NGO’s to impose control through regulation — “attempting to manage everything for everyone else”. Corporatism is very uncomfortable with freedom, and is more than willing to trade off liberty, and the capacity of markets for entrepreneurial competition, in favor of stagnation and the vision of engineering a specific economic outcome. Their preference is for a form of regulatory state capitalism that exerts control over free enterprise.

Recently developed constraints such as ESG and DEI are a manifestation of state capitalism with a particular ideological edge that emanates from left-leaning politics. Companies can no longer have a free choice in the assembly and orchestration of their human capital, which will seriously impair the capacity of the economy to deliver what consumers expect of it.

Most of the government’s regulation is not aimed at any “public good” (e.g., overall workplace safety) but at special protections for specific interest groups. Often, the businesses who are protecting their interests are the ones who, first, initiate the regulation, and second, write it, through their lobbying firms. If citizens were more habituated to asking who is the group behind any specific regulation, there’d be a greater understanding of this problem and a developing distaste for regulation.

Dr. Gregg sees the expansion of state capitalism and the regulatory state as cyclical and capable of reversal.

The trends are in the wrong direction, but are not irreversible. Dr. Gregg expressed great confidence in the ability of Americans to work their way around the regulatory barriers to creative entrepreneurship. He highlighted two of the optimistic themes in his book:

Capital, capital, capital: Regulation has made it increasingly difficult to match up small entrepreneurial businesses with the capital they need. It takes lots of expensive lawyers to navigate the regulatory jungle that exists for capital acquisition in the us. Yet, American entrepreneurs are proving to be just as creative in capital acquisition as in other fields. They can find their way around the regulatory system. Inventions such as crowdsourcing are a good example of new ways to access capital. The fintech industry is entirely dedicated to freer access to capital. Angel funds, regional and local venture capital funds, new entrepreneurial communities (such as Brandjectory) and new two-sided investment platforms provide more impetus.

Deregulate, deregulate, deregulate: If we want to retain the American edge in entrepreneurship, we should focus on reducing the size and scope of the regulation at the local, state and federal level. One of Dr. Gregg’s fears is that individuals become political entrepreneurs, and their efforts are directed towards finding ways to thrive in an expanding administrative state and insufficiently on creating new and improved products. Let’s find creative ways to reduce regulations, rather than creative ways to survive.

Additional Resources

The Next American Economy: Nation, State And Markets In An Uncertain World by Samuel Gregg: Mises.org/E4B_206_Book

WSJ Has No Respect For Entrepreneurial Businesses, Even When Reporting Their Success.

/0 Comments/in /by

The Wall Street Journal (June 26, 2023) reported on its front page that “small companies have been responsible for all of the net job growth in the US since the onset of the Covid-19 pandemic and account for nearly 4 of 5 available job openings”. They’ve hired a net 3.67 million people, while larger establishments have cut a net 800,000 jobs during that same time period. “Small businesses are literally holding up the job market”, said Aneta Markowska, chief economist at Jefferies, who compiled the data.

Disregarding the size-shaming of referring to these powerhouse growth-producing businesses as “small”, this should be all good news, shouldn’t it? Well, not in the eyes of the Wall Street Journal. The surge of hiring by these businesses “can be bad news for markets” (by which they mean the casino stock trading markets of Wall Street). All this hiring is driving inflation, and may complicate the Federal Reserve’s efforts to cool that inflation, according to WSJ. The Fed wants to “slow down the labor market and weaken the economy” and small business job creation gets in their way. But don’t worry, say the WSJ reporters, “The Fed has said it plans to continue to increase rates this year ….to slow the economy” and hit these pesky small businesses with a downturn that will reverse their annoying optimism.

This is all typical of the financial establishment. The growth of the financial sector in the economy comes at the expense of the productive sector. A recent Bank of International Settlements (BIS) analysis shows a negative relationship between the rate of growth of the financial sector and the rate of growth of total factor productivity. The so-called small businesses highlighted in the WSJ report are, in spite of the expanding financial sector, bringing economic growth to the nation, and creating jobs for breadwinners and their families, reducing welfare dependence. They are producing new value, which is what entrepreneurs do, and generating new sales and revenues by pleasing customers. The financial establishment can’t stand it!

The growth of the financial sector, focused on stock trading and bond trading related to the few thousand companies in the quoted market indexes is detrimental to the productive economy and the 6+ million employer businesses that comprise it. The trading has nothing to do with financing productive investment in innovation. Once a company has completed an IPO, it generally never goes back to the stock market for equity financing. For example, the only money that Apple has ever raised from the public stock market in its history is the $97 million realized from its IPO in 1980. All of the stock splits and stock buybacks since then have been for the benefit of stock traders (don’t call them investors – they’re not) and incumbent management who grant themselves stock awards and stock options. There are accounting years when Apple has often spent a sum greater than its net income on stock buybacks. In other words, it is diverting resources away from productive investment and into stock market manipulation.

While “small” entrepreneurial businesses are innovating, creating new value and new jobs, the big corporations entangled in the financial sector are destroying jobs and extracting value through their manipulation of stock markets and stock prices. The Wall Street Journal reports admiringly.