The Accelerating Ascendancy Of Austrian Economics.

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We are entering an entrepreneurial age. Colleges and universities are teaching entrepreneurship, professors are researching it, and children’s books are being written about it. Policy-makers are appreciating it as a better way out of poverty than welfare. Large companies are striving to be more entrepreneurial. More and more young people are creating new entrepreneurial business models, utilizing easily accessible infrastructure from Google and AWS. Entrepreneurship is the zeitgeist.

In a recent article at entrepreneur.com, Per Bylund, who teaches entrepreneurship at Oklahoma State University, suggested that every entrepreneur should become familiar with Austrian economics. What is that? It’s the method of economics that recognizes entrepreneurship as the driver of prosperity and provides the design blueprint for the system that best unleashes potential economic growth for everyone to enjoy.

Austrian economics is an unfortunate brand name. It reflects the origins of the tradition in the University of Vienna, but that’s a long way in the past. A better brand name would be entrepreneurial economics. However, we’re unlikely to be successful with that re-branding, so we won’t attempt it for now.

More important than the brand name are the knowledge, insights, and business tools that Austrian economics can deliver. Austrian economics is on-trend for business in the digital age.

Management Science Is Moving In The Direction Of Austrian Economics

in an essay titled The Logic Of Entrepreneurship, Mohammad Keyhani of the Haskayne School Of Business points out that traditional business school teaching of strategic management is based on the old economics, usually called neo-classical. This is an economics of mathematical models, with no sense of humanity. It studies non-existent states referred to as equilibrium, where theoretical competitive structures can be analyzed to identify whether any firms have an “advantage”.

The new management science is replacing mathematical modeling with human modeling: how do people act to create value for each other? This is not math, although it can be simulated in computers by giving virtual economic actors human values and projecting the outcomes. The new entrepreneurial business thinking draws from Austrian economics: human, creative, and focused on value creation. The entire business discipline is moving in this direction, replacing the concept of management with the concept of entrepreneurship.

In an earlier paper, the researchers Stephen Vargo and Robert Lusch were among the first to suggest that entrepreneurship should be elevated over management in business school. Management is a product of the now-past industrial age, tending to give us large bureaucratic firms driven by efficiency (avoiding waste) than effectiveness (creating new value), and emphasizing control in existing markets rather than the exploration of new ones. It’s time to abandon this whole way of thinking and organizing. Entrepreneurship gives us innovation, new value, and progress.

Austrian Economics Is Systems Thinking.

The newest advances of science in all fields are products of, or related to, systems thinking. This is true for economics, and Austrian economics has been called a type or branch of systems thinking. Brian Arthur of the Santa Fe Institute, the epicenter of the study of complex adaptive systems, developed the concept of Complexity Economics. The economy, industries, firms, and economic institutions are complex systems. They can’t be managed. there are too many elements, interactions, combinations, creative initiatives, and emergent outcomes for anyone to manage. He has documented the antecedents of this new economics, in which he includes the research work and theories of prominent Austrian economists F.A. Hayek and Ludwig von Mises, and the Austrian school in general.

Core Principles Of Austrian Economics Are Recognized In The Mainstream

The first principle of Austrian economics for entrepreneurs cited in Per Bylund’s article is consumer sovereignty. This term refers to the insight that the consumer or customer is the ultimate determinant of what is produced, what is profitable, what sells well and what doesn’t. The mechanism is buying or not buying. This simple insight explains why Google is the dominant search engine, why Amazon drives so relentlessly towards greater convenience, and why the conversion away from fossil fuels is not going as fast as the government wants.

Yet major corporations and their management teams have been utterly confused about this simple principle. They talk about shareholder value and stakeholder value and put them in conflict with customer value. Leading business writer Steve Denning is one of the leading edge commentators who is setting things straight and asserting that top management must change their fundamental assumptions and take the Austrian approach to the primacy of the customer.

Human Action And Human Values

Rather than the algebraic symbolism of the mathematical models that make up mainstream economics, Austrian economics deals with human action and human values. What do people do and why? How do they feel their lives can be made better, and how do they identify and choose the best means to attain that goal? Austrian insights into the human values that drive human behavior and collaboration can be applied in multiple areas. Business management is one of them. The old mental is summed up by Derek and Laura Cabrera in their management book Flock Not Clock as Plan, Command, Control, and Utilize. In this traditional view, management produces rigid plans, which they communicate through the hierarchical organization with the command to the lower levels to follow, aided by control mechanisms such as process flow charts, and look upon the workforce as a resource to be utilized. The Cabreras offer a more human alternative that revolves around the sharing of a beloved vision and understandable mission in everyone’s mind, building the capacity for everyone to help execute the shared mission, and the learning loops from the market to continually improve. This is human values in action.

Diana Jones has captured this principle in her term Leadership Levers. The levers for management to generate high performance from an organization are not plans and commands and control mechanisms, but relationships, emotion, and empathy. These are the same elements that Austrian economics studies to understand systems like the economy, industries, firms, and customer groups. Empathy, for example, is identified as the number one skill of the entrepreneur, a tool to understand what customers want. Value is understood as an emotion, a feeling about whether an experience was valuable or not. And the relationship between producer and customer is a collaboration, a way to co-create those valuable experiences. Jones’ levers are Austrian levers.

An Ascendant Future

All these instances suggest a future in which more and more practitioners in more and more fields take inspiration from or draw ideas from Austrian economics and incorporate its principles into their thinking. As we say: Think Better, Think Austrian.

The End Of Employment: The Emerging Economic Structure Of Networked Entrepreneurial Businesses.

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The existing socio-political framework is a backward-looking structure that evolved to protect the economic arrangements of a bygone age. It’s no longer useful, and gets in the way of progress.

We can take socio-political framework to mean the accepted way of doing things, the accepted social and political arrangements under which we all live and about which we don’t think too much. Big government, big corporations, employment, the welfare state for those who aren’t employed, government-run education, physical infrastructure, central banks, Wall street and its associated financial architecture. All of these grew up to support the industrial-age economy of manufacturing, economies of scale, trade in physical goods between countries, and the financial engineering required to actualize them.

In Carlotta Perez’s monumental book Technological Revolutions And Financial Capital the author points out that technological revolutions (such as the Victorian Industrial Age or the internet technology and communications revolution of the end of the 20th Century) precede social and political change. Entrepreneurs and innovators discover new ways to create value for customers and users, and people happily adopt these new ways. Only afterwards do politicians recognize the change and rush in to promise to “protect” their voters from exploitation by the new industries. Only afterwards do we get anti-trust laws and the SEC and labor relations laws and OSHA and new layers of the welfare state.

The new political rules are not only for the benefit of parasitical politicians. By the time the politicians have woken up to the availability of their new opportunity to regulate and tax, there are already incumbents who have emerged from the technological revolution. In the early part of the 20th century, it was the big steel, railroad and manufacturing companies. In the middle of the century, it was the big auto companies and durable and industrial goods manufacturers. In the last part of the century, it was the big banks and financial companies and energy companies. Today, it’s the big digital companies, and healthcare. They got big and, once established, they worked with politicians for the socio-political framework to protect their incumbency and discourage or exclude innovative startups and revolutionaries.

In this way, according to Professor Perez, a self-perpetuating ecosystem evolves, linking government, institutions, technology, corporate forms, financial engineering, and the legal system, in order to support and preserve the status quo. What started in innovation coalesces into preservation. She traces several cycles of this type in the last few hundred years of economic and social history.

Carlota Perez: Technological Revolutions And Financial Capital: The Dynamics Of Bubbles And Golden Ages

The other half of Professor Perez’s story is that, just as the new order is cementing itself in place, the next revolution is starting. On the fringes, and in the very early stages, experimentally-oriented entrepreneurs who are not associated with the incumbency are trying out new ideas and launching new initiatives. On the blockchain, on new technology platforms, and within new networks, some of them cyber-protected from external view, these ideas and initiatives will be tested, adapted, revised, renewed and, eventually, scaled. Some will succeed, some will fail, and there will be an accelerated learning that fuels the early phase of a new techno-economic S-curve cycle. What’s harder to predict, according to Prof Perez, is how the new socio-political framework will emerge, because it is a lagging phenomenon. We can’t predict, but we can surmise about what institutional replacements will be made in the next cycle phase.

The end of scale

Big government, big corporations, big finance, big data. The sclerosis of the current socio-political and techno-economic structures is exacerbated by the once-prized but now disdained properties of scale. The theory of economics of scale was a product of the industrial age. Entrepreneurs like Andrew Carnegie built giant manufacturing companies and economists, following dutifully behind, observed cost efficiencies and wrapped a theory around them. Today neither the centralized manufacturing process, the size of the company, nor the concentration of physical capital are required. The network has replaced the monopoly, and whatever efficiencies are to be found lie in connections, speed, and agility. “Big” is no longer relevant or necessary.

The end of financial engineering.

One of the many insights of Prof Perez’s book is the role of finance in the beginning and the end of the S-curve of technological revolutions. In the entrepreneurial beginnings at the bottom of the curve, the role for finance is experimental. Angel investors, seed-stage investors, and venture capitalists of the individualistic rather than institutionalized sort make capital available to the explorers and tinkerers. Some of these investments pay off and many don’t. Prof Perez calls this experimental function financial capital.

She contrasts that to production capital, which is the institutionalized capital-at-scale that arrives at the later stage of the cycle to cement the winners in place and make a return from their incumbency and their exploitation of their position in established markets. Yes, there is still innovation, but much of it is incremental and is processing, marketing or organizational innovation based on already-proven technology, rather than new or radical technological innovation. It’s what we can call financial engineering – including M&A, stock buybacks, and other forms of returns-gathering from activities that are not necessarily aimed at producing new value for consumers and customers.

Today, the emerging, networked, agile experimental corporations don’t seek financial engineering for scale. There are many ways to network into capital as needed, there’s a whole new emerging industry of fintech, and the fee-burdened financial engineering of the oligopolistic Wall Street banks and funds is eschewed as unnecessary and unnecessarily expensive and exploitative.

The end of employment.

John Maynard Keynes’s civilizational-destroying book was called The General Theory Of Employment, Interest, and Money. Employment was central to economists’ thinking back then because the giant industrial corporations had a need for masses of workers capable of performing repetitive routinized jobs. When the giant machine of finance-fixed capital – manufacturing – jobs fell out of equilibrium, employment was the first to go. At that point, governments became burdened with the problem of a disgruntled “labor force” who concocted welfare demands as their response to the dislocation of their employment. At this point, the maintenance of employment had become the very point of the economic and social framework.

In the coming digital age, employment is not the point. It’s replaced by entrepreneurship. In the networked world, every individual has unique knowledge and skills that are traceable with others, and each one of them will identify their individual entrepreneurial advantage. It might take the form of buying and selling, or of contracting for services, or gig work, or art and entertainment, but it won’t be “employment”. Jobs are not a staple of the entrepreneurial age.

The End Of Big Education

Big education emerged in the old socio-political framework to populate the employment pyramid. Government schools turned out the compliant workers for the routinized jobs of the big corporations. Community colleges provided the skilled work ad middle management layers. And the 4-year universities populated the executive levels. It was a well-functioning system, but became corrupted at the top of the S-curve, as is normal. The government K-12 schools are the most decayed, and no longer provide any valuable contribution. The other layers are similarly compromised.

The new forms are already emerging: home schooling, private schools of various kinds, online education, digital badging and certification. An enterprising entrepreneur can assemble their own educational components to give themselves the learning, skill acquisition and continuous improvement that they need for their own custom path.

Private currency

The financial system that evolved to support the big government-big business framework included the gold standard (until 1971) and the complex of national currencies created out of thin air – “printed” – by central banks. Today it’s called fiat money (and its ascent and decline are entertainingly documented by Saifedean Ammous in his latest book, The Fiat Standard).

Crypto currency, a private alternative to government fiat currency, is just now at the very beginning of its emergence at the bottom of the S-curve. It’s significant because it replaces one of the most fundamental building blocks in the socio-political framework, and that’s money. More specifically, it shifts control of money from governments to private individuals and private institutions. It’s part of the entrepreneurial revolution.

Austrian economics

The institutional binding that ties the new elements together in the novel socio-political and technological-economic frameworks is Austrian economics. The mainstream economics of today – often called neo-classical economics by the folks in academia – was compiled in support of all the big government-big business structures listed here. Its theories support government-printed money, government intervention in economic matters to subsidize employment, the legal and financial systems to support big business, large scale financial engineering, and the welfare state.

Austrian economics is the term the academicians give to the opposite way of thinking, economically speaking. Austrian economic theory is centered on universal entrepreneurship and the human value it creates. It is an economics of networks and systems, not of scale, and of individual human contribution to value, rather than “jobs”. It’s comfortable with private, competing monies, and with a stripped down legal framework that is “laissez-faire” rather than prescriptive and controlling. It’s the economics of entrepreneurship, and of the internet and value networks. It’s the economics for the coming entrepreneurial age.

The EZones Movement Unites Entrepreneurs In Shared Citizenry Of The World.

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In a panel at the G7-G20 Group Of Nations Summit on Solutions Through Inclusivity, Dr. Dale G. Caldwell expressed concern at the division we are experiencing in today’s society. It feels, he said, as if every choice today is your side versus my side, your party versus my party, your ideology versus my ideology.

But Dr. Caldwell has an insight that points the way to transcending this impasse, and avoiding this collision. 

His insight concerns the global energy of entrepreneurship. He is the originator of the concept of Entrepreneurial Zones or EZones, place-based accelerators of economic growth and community prosperity based on harnessing the energy of entrepreneurship rather than the dependency of welfare and charity. The EZones concept can apply anywhere in the world to raise the economic productivity of communities, and to improve lives.

The entrepreneurs who supply the energy, as individuals, groups, teams, firms, and networks, are unified in the principles and practice of creating value. Entrepreneurship is a producer-customer value collaboration. In today’s interconnected world, the customer might be on one side of the globe while the producer is on the other, or the interaction could take place in a village marketplace. It’s all entrepreneurship.

The entrepreneurial citizens of the world are united not only by their common economic interests, but also by a set of shared human values. Entrepreneurship is an elevated form of interaction between people that rests on proud foundations.

Caring.

Entrepreneurs demonstrate caring for their customers. They know that their customers are seeking to improve their own circumstances, whether in nutrition, connection, access to technology, availability of services, medical care, or any other field of life improvement. Because they care, entrepreneurs can identify new ways to reach higher ground for these customers, and make them a promise of better times ahead. They supply to meet others’ demand and to help them find value in a new and better experience.

The same caring extends to the community in which they operate. Entrepreneurs raise standards so that others can raise their expectations. 

And entrepreneurs care for themselves, aiming to achieve their own highest values in the pursuit of value for others.

Concern.

What economists call demand can be characterized as people wishing that things could be better. They are dissatisfied, uneasy. Entrepreneurs feel concern for this condition, and they develop a passion to eradicate it, and take responsibility for trying to succeed in doing so.

The entrepreneurial role of improving others’ lives stems from this concern. Without it, we would not expect to see the amount of entrepreneurial energy that we do – the unrelenting effort to innovate and improve.

Empathy.

For caring and concern to be directed at the right goals and at the highest and best outcomes for customers, entrepreneurs look to their own powers of empathy – to truly understand and sympathize with the innermost feelings of others. Empathy enables entrepreneurs to identify what’s important to customers and why, and to understand what tradeoffs they’ll make to substitute a new set of circumstances for the one they experience today. 

When customers rank some preferences higher than others, or make comparisons between one choice and an alternative, it is empathy that helps entrepreneurs evaluate, and guides them in designing and shaping just the right solution to the customer’s felt but unarticulated need.

Empathy is the entrepreneur’s number one skill, wherever in the world they operate.

Humility.

To be empathic requires humility, the suppression of one’s own ego-based certainty for the process of discovery of what’s right for the customer. The entrepreneur does not instruct the customer, or impose any conditions on them, or set unreasonable requirements. The entrepreneur asks and inquires, seeking to understand, to get on the customer’s wavelength, to understand their mindset. They design their products and services in the humble desire to be of value.

Dependability.

The entrepreneur is a promise-maker and a promise-keeper. The promise to make life better and to be of value must be viewed as credible. The customer must feel able to depend on the producer. There must be trust, and a reputation must be earned. Entrepreneurs understand this, because it shows up in their P&L. What is sometimes referred to as goodwill or brand equity is, in fact, the trust and reputation that are the product of dependability. 

Universalism.

These characteristics and traits of entrepreneurs are true the world over, whatever the local history or norms or culture or institutional framework. Entrepreneurs treat everyone as a customer, and therefore they grant them the same high status, whatever physical differences there may be.

In fact, entrepreneurship itself is an institution – a set of shared global norms about value and production and trust and interactive collaboration. Entrepreneurship is a unifying code of conduct, a binding pact between producers to strive for the best way to serve customers, and among customers to collaborate in the co-creation of value by demanding the best from every producer. 

Dr. Caldwell’s insight is that all the world’s entrepreneurs share citizenship through this institution. There is no division. All entrepreneurs are striving toward the same goals, but there is no animosity in the rivalry to serve customers in the best way. There is shared learning, since outcomes are freely observable for all to analyze and interpret. There is innovation that enables one producer to leap ahead, but only temporarily until the next response shuffles the leaderboard while raising everyone’s capacity. The dynamics of entrepreneurship result from the shared energy, the shared desire for continuous improvement.

Let’s celebrate this citizenry of the world, and repress the politicians’ desire to divide us. Their incentives are not entrepreneurial, and we should isolate them in their arena of hate while the rest of us join and support EZones as a worldwide movement to nurture and cultivate the shared human values and unlimited collaborative potential of entrepreneurship.

Four Simple Rules For Initiating Entrepreneur Zones Anywhere In The World.

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Entrepreneur Zones or EZones are place-based accelerators located in economically challenged communities that result in a sustainable ecosystem creating local living wage jobs. The concept was originated by Dr. Dale G. Caldwell, the Executive Director of Fairleigh Dickinson University’s Rothman Institute Of Innovation And Entrepreneurship.

An EZone is a collaboratory that provides guidance, training and financial support to companies within a specified geographic area. Coopetition, a form of mutuality where the businesses work together while competing for clients, is the key to ensuring that the businesses have the necessary support and skills. The goal is for these businesses to become profitable enough to generate as many jobs as possible in the local community.

Dr. Dale Caldwell, Professor Scott Livengood and Hunter Hastings will discuss EZones at the G7-G20 Group Of Nations
Solutions through Inclusivity Virtual Summit on November 17th, 2021

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The science of systems-building has evolved significantly over recent decades. While recognizing that economic ecosystems emerge and grow as a result of a vast number of ongoing interactions between people, firms, neighborhoods, markets, supply chains, prices, jobs, education, health and many more, it is nevertheless possible to identify the web of causes that result in sustainability and economic thriving. Causality can be linked to a simple set of rules that everyone in the system knows and can follow; the rules become a culture and the culture nurtures successful outcomes.

The four simple rules for EZones are:

1) Through empathy, identify a desired valuable experience.

Entrepreneurs generate value for others – their customers. Value is a tricky thing to identify – it’s entirely in the mind of the customer, subjective and idiosyncratic and often changeable. EZone entrepreneurs actually enjoy a potential advantage. They live in the local community and are close to their neighbors and friends and have a better idea of the dissatisfactions people want to address. Maybe an entrepreneur knows that a mom in town would like to work at a paying job if only she could get help with cooking and laundry and babysitting or in-home teaching. Maybe the entrepreneur knows that the local quarry owner needs a special kind of driver for the under-maintained trucks that are finicky and unpredictable in their performance. Maybe the entrepreneur is aware of some artisinal craftsmanship that could find a market on Etsy. Empathy is the skill to identify others’ desires and dissatisfactions. Everyone is capable of empathy; the skill can easily be honed to apply in economic situations.

2) Translate empathy into a deliverable service.

There’s a gap between understanding another’s needs and successfully offering a solution that results in a transaction and a sale. The articulated (or unarticulated) need is never identified with perfect precision and the product or service that’s designed to meet it is never 100% accurately targeted. That’s OK. It’s normal. The task is to make the design deliverable. Can the entrepreneur bring the finished product or service to the customer in such a way that the customer can buy and the exchange can be made? Can the proposed in-home cooking and cleaning service recruit the right people that the customer will trust, train them and place them in the customer’s house on the right day for the right number of hours to perform the service in way the customer wants. This process is capacity building. How is the entrepreneur going to get the job done? What people are needed? What tools will they need? Will they be well-aligned with the mission of serving the customer? Capacity is the state of readiness.

3. Remove all barriers.

Even when capacity is built and aligned, there will be barriers to completing a market transaction – mostly in the mind of the customer. Is the price right? Are there alternatives i don’t know about or have not fully evaluated? Can I trust the entrepreneur to keep the promises made? Am I really ready to take this leap? The entrepreneur must be able to sense all these barriers (often unspoken) and maintain the energy to remove them as they arise. This phase of entrepreneurship has been likened to sharpening a pencil – the art of removing and removing until the point is as sharp as desired and ready to use for the purpose it was designed. Entrepreneurs are constantly sharpening.

4. Set up feedback loops.

Ecosystems grow and thrive as a consequence of their feedback loops. Feedback loops are a form of closeness to the customer – setting up mechanisms for monitoring, listening, data collection and adaptive response. It’s another aspect where EZone entrepreneurs are advantaged: they are in the community, naturally close to their customers both physically and emotionally, and open for communication. As they expand their markets beyond the community, including via the internet and e-commerce, they extend this natural advantage into better customer listening and customer service that will serve them well as their businesses grow.

These four simple rules – empathy, capacity, no-barriers and feedback – will guide EZone entrepreneurs in a system of networked value co-creation with customers that can scale to any level once it gets started.

How does it get started? There are 4 simple steps to energize the 4 simple rules.

Convene the network.

The “Big Bang” for the EZone ecosystem is the first convening. There are existing businesses and business owners in the EZone geography, and there are aspiring entrepreneurs who haven’t yet got started. There are community supporters who want to help – whether these be churches or associations or clubs or business roundtables. There are educational institutions, whether these be schools or colleges or universities. There may be some large firms (banks, for instance) who would like to support EZone growth. There might be non-profits and philanthropic organizations to help. There is technical infrastructure to be tapped. There may even be government support, although EZones don’t expect it and don’t want to be restricted by bureaucratic rules and impediments.

Physically bringing together all these groups to talk and begin thinking about a shared vision and mission is both necessary and sufficient to impart initial momentum to the EZone. Energy builds from this start.

Value Co-Creation Training.

Entrepreneurship is a learnable process. Professor Scott Livengood has designed a training curriculum specifically for EZones and their participants. It starts with developng the appropriate mindset, emphasizing that entrepreneurship is subjective and that the right mindset is the precursor to sound entrepreneurial judgment. The training is fun and engaging, encouraging and empowering. it imparts knowledge, skills and process and introduces tools for participants to use with immediate effect. Most importantly, it can imbue with confidence even those who are uncertain.

Let the exchange begin.

The secret to getting started is to get started. Entrepreneurship is exchange. The first exchange tumbles the dominoes. EZone training and infrastructure are in place to help entrepreneurs get everything ready to go, whether that is setting up digital or physical storefronts, initiating manufacturing, assembling supply chains, connecting to business partners, or developing sales and marketing campaigns. The checklist may be long but it is do-able. Entrepreneurs simply need the momentum to get up to – and one step beyond – the start line.

Explore and expand.

Once under way, the entrepreneurial process is relatively simple: continuously explore different elements and components of the value proposition, evaluate the customer acceptance via feedback loops, and do more of what works and none of what doesn’t. The explore and expand mechanism is a flywheel – it keeps on turning and growing and strengthening. Entrepreneurs quickly get to the point where momentum can take over and management and growth replace experimentation – but the EZone entrepreneur never stops exploring.

4 simple rules and 4 simple steps are sufficient for EZone acceleration from inception to expansion to sustainability.

Don’t Accept False Dichotomies. Entrepreneurs Exercise Integrated Systems Thinking.

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We talk about politicians trying to divide us, but personnel consultants, business advisors, HR executives, and some psychologists are often worse in wanting to divide us into dichotomies. They tell us we’re either creative or logical, but we can’t be both. We are either intuitive or analytical. We have hard skills or soft skills. Some follow the heart, others the mind. The yin is the critical thinking, executive function, intellectual and cognitive side of us, and the yang is the emotional, prosocial, interpersonal side. Those consultants who exhibit a philosophical bent might talk in terms of Apollonian and Dionysian types of thinker – logic, rationality, and analysis versus intuition, feeling, and synthesis.

Some personality tests utilize multiple variables and combine them in characterizing individuals who are subjected to their question banks. The output is said to represent our strengths (versus weaknesses) or typology (we’re this type, not that type). They’re still ultimately dichotomies, arrayed via X and Y axes or 2X2 charts or high-low graphs.

The dichotomy is false. Either/or thinking of any kind is an error, and the error is magnified when classifying human beings. People are complex systems, a dynamic integration of learning, preferences, genetics, family background, experiences, job history, health, and many, many more elements. They can’t be divided into two piles.

The alternative approach is systems thinking. According to Derek and Laura Cabrera in Systems Thinking Made Simple, we all have it in us to be:

  • critical thinkers who can analyze and solve problems;
  • creative thinkers who can see new and innovative solutions to problems;
  • scientific thinkers who can recognize biases;
  • prosocial thinkers who can work well with others and build strong communities;
  • emotionally intelligent individuals, posessing a sense of self and what we offer to the world.

How do we achieve this balance? It’s an emergent property of practicing systems thinking. We can think about how we think, and therefore how we act and how we collaborate with others. Awareness about how we think is essential for the kind of balance and integration the Cabreras advise is possible.

  • Awareness that everything we think about, perceive and experience is the product of our own mental model which is an approximation of the real world. Self-analysis regarding our own mental model – how good or poor an approximation of the real world is it? – is always a good basis for integrated thinking.
  • Awareness of the role of our own emotions, motivations and preferences in the distinctions we draw, the choices we make, and the decisions we take.
  • Awareness that both our own thoughts and those of others are influenced by unique individual perspectives rather than objective analysis.
  • Awareness that there are many ways to organize and interrelate ideas and things and your current way of doing so is just one of many possibilities.
  • Awareness that cognition, emotion and motivation all influence our mental models and our behavior, and the ability to distinguish among them.

Taken together, this integrated awareness constitutes what the Cabreras call metacognition: thinking about how we think. It’s often referred to as emotional intelligence. Insight into our own thoughts is key to high achievement in all domains.

In business, we refer to the individuals who exhibit integrated, balanced, and systems thinking at the highest level as entrepreneurial. Entrepreneurs, those who think about how to create new and higher levels of value for customers, are systems thinkers at their core:

  • They practice empathy, which is the building of mental models of others – i.e. customers – and the running of imagined value propositions through these models to understand their potential to generate a preferred experience that will result in a business success.
  • They translate the insights from these models into a deliverable service, an act of design that calls for the assembly and combination of multiple components, making choices from the customer’s perspective to decide on which elements to include and which to discard.
  • For service delivery to be accepted by customers, entrepreneurs identify all the possible perceived barriers to purchase from the customer’s point of view, and remove them by conceiving of the best-performing mechanisms.
  • They set up, monitor and resond to feedback lops, which is the essence of adaptive systems thinking.

There is no dichotomy in entrepreneurial thinking. It’s not mediated by strengths and weaknesses, and it’s dominated by neither emotion nor reason, but incorporates both. It’s creative and practical, objective and subjective, empathic and self-aware. Entrepreneurs consciously build their own mental models and continuously test them against the reality of the world of economics. The only dualism that’s relevant is what works and what doesn’t in the world of commerce, and these two possibilities are processed together as learning. The goal is durable success, and entrepreneurs exhibit no ambiguity in their assessment of results.

When the consultants and psychologists want to test you to ascertain whether you exhibit the entrepreneurial personality, it’s best to politely decline. There’s nothing of advantage to learn.

Better to focus on and sharpen your systems thinking:

  • Always thinking of the customer first, assessing their system and their place in it, all of the influences on their choices, and all their desires, preferences and dissatisfactions;
  • Working to translate your customer understanding into a deliverable service, which requires you to consider all the elements and components that make up that service, and how to combine them and integrate them in a single value proposition;
  • Identifying all the potential barriers to purchase – whether the barriers are feelings, insuffiicent knowledge, better alternatives, price or lock-in to existing choices. Removing all barriers requires identifying them – and how they work together – first.
  • Setting up feedback loops and adaptive mechanisms so that you can always respond to customer inputs. Develop an adaptive system.

By focusing on these rules, you’ll build an entrepreneurial system that gets stronger and stronger over time.

There’s no dichotomy. it’s not win-lose or strong-weak or logical-emotional. It’s an integration of components and elements into an entrepreneurial system that learns and consistently improves progress towards a goal.

EZones Encourage Entrepreneurship In Order To Address The Decline In Economic Mobility.

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There is increasing evidence of a decline in economic mobility in the US. Economic mobility is the American dream: wherever an individual or a family starts on the economic ladder, the opportunity is open to ascend, and for each generation to do better than the previous one.

Economic Mobility Has Halved in 40 Years.

According to the World Economic Forum (WEF), upward mobility of the sort we associate with the American Dream is declining quite rapidly. Fewer people in the lower- and middle-classes are climbing the economic ladder, according to the WEF analysis. Whereas, at the 50th income percentile, 93% of those born in the decade of the 1940’s would out-earn their parents, the equivalent number for those born in the 1980’s decade was 45%. On this reading, the expectation of upward income mobility has declined by more than half in four decades.

Analysts at Foreign Affairs and the American Academy of Political and Social Science have made similar observations about declining economic mobility.

Why? Declining Entrepreneurship.

Why is this the case? There’s are many theories, one of which is related to parallel declines in the incidence of entrepreneurship as the engine of mobility. A study published by Northwestern Law showed that, of the wealthiest households, almost 60 percent of the top 1% are involved in entrepreneurship – defined as either self-employment or business ownership. Does wealth cause entrepreneurship or vice versa? The study’s results show that, “across the board, entrepreneurship – and in particular incorporated business ownership – is associated with the greatest upward social mobility”.

However, the problem that’s emerging today is that “the already wealthy are much more likely to avail of this mode of wealth-building than the poor”, and so entrepreneurship is powering less bottom-to-top mobility than in the past. Mobility requires both income and the access to entrepreneurial capital to generate it, and lower-income families are finding themselves separated from the capital needed to start and sustain businesses.

The case for entrepreneurship as the pathway to upward mobility for low-income families is complicated. There are high fixed entry costs, time lags, and the volatility in financial returns that are inherent to entrepreneurship, and so its relationship to wealth accumulation is intricate. The intricacies are well worth parsing out, especially given the disproportionate rate at which we observe business owners among the wealthiest Americans. 

The Northwestern Law study points to a definite conclusion.

We find that entrepreneurship, and in particular incorporated business ownership, does indeed facilitate social mobility. The magnitude of this effect is sizable: spending a third of one’s career as a business owner is associated with a one-decile gain in wealth standing as compared to an otherwise similar household…….business owning households which started off poor (i.e. bottom wealth quintile) are much more likely to become wealthy than those relying solely on wage work.

https://wwws.law.northwestern.edu/research-faculty/clbe/events/innovation/documents/sarada_tocoian_entrepreneurship.pdf

We Need A Resurgence In Entrepreneurship For Poor Communities And Families.

The Northwestern Law study comes to clear conclusions:

  • Business ownership predicts higher wealth, and is also associated with higher wealth mobility for disadvantaged groups such as high school drop-outs
  • Entrepreneurship …..is indeed a vehicle for wealth building, and perhaps the most effective one for the least affluent of households.
  • In addition, the legal form of the business itself is strongly associated with outcomes. Gains from incorporated business ownership outweigh that from wage work across the board. However, unincorporated business ownership is a vehicle for upward mobility for the lower half of the wealth distribution.

A challenge to be resolved is that the positive impact of entrepreneurship and business ownership is unevenly distributed by race.

In the period covered by the Northwestern Law study, 57% of White family units owned a business at some point, whereas only 28% of African American families did. For Blacks, business ownership rates increase more dramatically with education, however they remain below those of the ethnic majority even for college graduates. 

But we are making some progress, indicated by the entrepreneurship gap closing over time. The study looked at the same statistics for the parents’ generation. It appears that racial differences were even more pronounced, with only 15% of black parents having owned a business at any point. For both races, business ownership rates have increased slightly over time, mainly driven by the less educated.

EZones Are The Emerging Answer.

Dr. Dale G. Caldwell, who combines the two perspectives of an active pastor in black churches with that of his role as Executive Director of the Rothman Institute Of Innovation And Entrepreneurship at Fairleigh Dickinson University, has an answer to the dilemma of poorer families lacking access to the very institution that will help them rise, entrepreneurship. He has conceived of EZones  – Entrepreneur Zones that are physically located in distressed inner cities and other economically deprived locations, and which provide an entrepreneurial ecosystem for these economically challenged communities. An ecosystem, by definition, interconnects and stimulates many people, institutions, resources, and capabilities. EZones begin by convening a group of economic actors with shared interests in creating new value in their community: existing entrepreneurial businesses, entrepreneurs eyeing start-ups, representatives of big businesses like banks who want to contribute, universities and schools in the vicinity, and influencers who can help and support. Once the shared interest in value creation is established, the next phases include business training, network building, and continuous workshopping to highlight and extend successful initiatives and add knowledge and resources. There are processes to inject and attract capital on a “pay-it-forward” principle that has the potential to establish a permanent fund. While the EZone is physically located in an identifiable geography, it is connected to the city, region, nation, and the world via technology, internet marketing, and communications, and the principles of entrepreneurial business building. 

EZones have the potential to solve the problem of declining mobility and declining entrepreneurship. EZones provide access to entrepreneurship and to its key tools for success to precisely those individuals, families, and communities that can most benefit from it.