Entrepreneurship Is The Opposite Of Politics: No Hate, All Love.

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Increasingly, it seems, we are surrounded by and immersed in hate. It is inherent in our political system. Electoral democracy results in parties, those parties are invested in polarization, in winning versus losing, in domination, and in humiliation of the other side. Those who rise to the top in parties are those who can articulate hate most persuasively and most effectively. Angelo Codevilla called the 2-party system a “logic of mutual hate”.

It’s going to get worse, not better. Political parties don’t become more polite, more accommodating, more friendly, less rabid, more rational. They prefer to drive their supporters further apart from those of the other side, rather than bring people together. Now that both the corporate media outlets and the vast majority of the independent media are nakedly partisan, they can’t play any role of amelioration. They cheer on the hatred and throw gasoline on fires.

Happily, there is a different world, with different players, different attitudes, and different motivations. It’s the world of entrepreneurship – a unifying, elevating energy that’s the opposite of the mutual degradation of politics.

Entrepreneurship is ethical and open.

There’s an ethic of entrepreneurship. It’s not just the hard work and dedication and long-term focused effort – important though those undoubtedly are. It’s the service ethic. The entrepreneurial task and commitment is to serve others. To understand their needs and wants and desires and preferences and dreams, and to respond to them by delivering goods and services that deliver them. 

Empathy is the skill that makes this possible. To quote Adam Smith, entrepreneurs want to be loved – that’s what triggers sales and revenue – and to be lovely, i.e. clearly and obviously being deserving of the customer’s love. Empathy is the emotional interchange for this beautiful reciprocity. Empathy enables the entrepreneur to feel what the customer feels, share their dreams and aspirations, and imagine what’s in their imagination for the future.

To enable empathy, communication must be clear and open. There can be no lies or deception or dissembling, otherwise the entrepreneurial ethic could not operate. Misinterpretation is in neither party’s interest – quite the opposite, as understanding exactly what customers want and communicating exactly what the entrepreneur is offering are the essence of free-market exchange. Political communication is too often the opposite: deliberately dissembling and obfuscating.

Entrepreneurship is promises made and promised kept.

Entrepreneurs make promises. Having discovered and carefully and precisely defined the nature of the customer’s need and their preferences about the way it should be fulfilled, the entrepreneurial business designs the right solution and, when the fit is perfect, seeks out the customer to let them know their need can be met. The way of communicating is to make a promise – a promise that the customer’s life will be better through the experience the entrepreneur can deliver. This is a weighty promise, and it must be kept, otherwise there’ be no second chance, and no repeat business. The entrepreneur goes to great trouble to monitor the understanding of the promise, and whether the customer experience matches the expectation that was created by the promise. A failure to keep a promise is a major business setback. If expectations aren’t met – if a delivery or a service call is late, or an item is mis-shipped or a repair is imperfect or software does not run as it should – the business leans over backwards and deploys extra resources to make things better. not only is a reputation with the customer at risk, but also with others that the customer might talk to or with whom they share experiences. Word-of-mouth is a powerful force the entrepreneur wants to keep positive, and keeping promises is the best way to do that.

Politicians make promises too. However, they’re usually meaningless or, worse, deliberately deceptive. Politicians don’t make promises in order to keep them. They make promises in order to get elected. Once they are, they feel released. They could never keep the promise in any case, because they don’t have that much power. They’re just one cog in the party machine. Promises made at the party level are similarly ditched – they can blame changed circumstances, or the opposition or conjure up a thousand other reasons why the promise can’t be kept. Or they just forget their promise, or claim they never made one.

The culture of entrepreneurship is collaborative, helpful, and civilizing.

Entrepreneurs have a heart – a lot of heart. Not only are they devoted to helping people as customers, but they are also collaborative with suppliers, fellow entrepreneurs, and everyone who works with them directly or indirectly. Entrepreneurs realize the value of interconnectivity and sharing. They sense that all entrepreneurs and customers and suppliers are in the system together – the technosphere, the economy, the industry, the local community. They participate in nested networks and systems within systems. It’s collaboration, exchange, and sharing that make systems work. 

Competition has been turned into an ugly word by the dog-eat-dog crowd. It’s part of the hate. Competition is made to seem win-lose, destruction rather than creation. But that’s absolutely the wrong interpretation. Entrepreneurs’ goals are for there to be no competition: to be so unique that the customer will consider no alternative for the very specialized, very personalized service the entrepreneur delivers. Maybe it’s the best quality, maybe it’s the lowest price, maybe it’s the best integration with the customer’s processes – maybe it’s some combination of these that adds up to uniqueness. Maybe it’s exhibiting the deepest understanding of the customer’s business or daily life. In all cases, becoming uniquely qualified in the eyes of the customer is the objective entrepreneurs pursue. Whatever rivalry occurs all accrues to the benefit of the customer – better experiences and better outcomes as a result of the entrepreneurial system.

This entrepreneurial effort and entrepreneurial striving create and build market institutions. The internet is open so that all entrepreneurs can use it. Would political parties have built it that way? Amazon builds a third-party seller platform that any digital retailer can use. Apple builds an app store that any software developer can qualify to join. Google builds a search bar that we all use and we all make more useful the more we use it. True there’s some hate creeping in around the edges of some of these institutions, but it’s not entrepreneurs who are causing it.

The institutions of entrepreneurship are the bedrock of civilization. In Gallup polls of national confidence, small business (a proxy for entrepreneurs) is rated at 70% (i.e. people say they have a great deal or a lot of confidence in small business as an institution), compared to Congress at 12%. The average US institution stands at 33%. Entrepreneurs must earn people’s trust every day, and they clearly do a better job of it than politicians. 

Entrepreneurship is positive and inspiring. It’s problem-solving. It’s generous and giving. It’s also busy and industrious with no time for politics and the hatred that comes with politics. Let’s promote a culture of entrepreneurship. Let’s teach our kids in school from the earliest age. Let’s teach them creativity and empathy and risk acceptance. Let’s teach them to be entrepreneurs. Let’s encourage everyone to be entrepreneurial. We’ll enjoy a better world.

The 6 Principles For Managing Continuous Innovation.

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This post is based on Managing Continuous Innovation In A Rapidly Changing World by Annika Steiber (Springer) and utilizes some of that book’s language and phraseology.

The economy, and every system and sub-system within it, including all markets, are continuously changing. Customer preferences change, technology changes, competitors change, regulation changes, new creative ideas change what’s imagined and what’s expected, new research delivers new possibilities, politics changes the parties in charge of government, nothing is static or fixed or stable.

One of the contributors to continuous change is innovation: the application of new inventions or new combinations of resources or implementations of new ideas in commercial markets to serve customers in new, different or better or cheaper or faster ways. Innovation improves customer value. Since the best value and the greatest satisfaction are what the customer most desires, innovation will make them switch, change their behaviors, select new suppliers and vendors, and make their sovereign contribution to the rate and degree of change.

The task of firms and their management teams is to deliver this continuous innovation flow to the market. The process can never stop, and its tendency is to accelerate, as the evolution of technology opens up new prospects for customers to imagine new ways for their goals to be reached, their needs to be met, and their dissatisfactions to be removed. On the supply side, new startups are emboldened, growth is lavishly funded, and new business models are tested. There is no rest for business managers.

This poses an existential problem. Our thinking about business management has historically reflected a preference for stability and predictability. We look for stable earnings from our public companies. We look for companies with a stable structure and strong organization based on hierarchical models with a dominant CEO. We look for well-established brands that command customer loyalty and generate reliable cash flows.

Annika Steiber is the Director of the Rendanheyi Silicon Valley Center at Menlo College. Her position provides an immediate clue to her unconventional thinking about firms and their organization. Rendanheyi is a new idea about companies and their structure, indeed their entire rationale, originated by the Chairman of Haier, Zhang Ruimin. Here’s how he describes the import of Rendanheyi:

It’s now time for every employee to be his or her own boss. Even Peter Drucker told us that ‘everyone can be a CEO’. And if everyone acts as a CEO, we will grow collectively as an enterprise, and no longer be dependent on a few key people.

So, with the RenDanHeYi model we move away from being like an empire (with a traditional, closed pyramid) to be more like a rain forest (with an open networked platform). Every empire will eventually collapse. A rain forest, on the other hand, can be sustained.

Literally, “Ren” refers to each employee, “Dan” refers to the needs of each user, and “HeYi” refers to the connection between each employee and the needs of each user.

https://medium.com/work-futures/evolution-of-the-platform-organization-3-haier-rendanheyi-and-zhang-ruimins-vision-d8afceef7f5e

There are no managers calling the shots at Haier, and no-one telling employees what to do. The spirit is self-organization. Small entrepreneurial teams run their own businesses, petitioning for internal venture capital when they need it to initiate a new innovation.

Haier represents one form of organization for continuous innovation. Professor Steiber, via a global multi-corporation study of innovative companies, including US-based examples such as Google and W. L. Gore, has developed a set of 6 principles by which firms can maintain continuous innovation in a fast-changing world environment.

Dynamic Capabilities

This is the company’s ability to integrate, develop, and reconfigure internal and external competencies to meet rapidly changing surroundings. Dynamic capabilities are seated in firms that accept that change is continuous, and firms that change continuously can be more profitable than those that prefer stability. The basis for dynamic capabilities lies in sensing subjective value, i.e. what customers and customer groups value and how this is changing, and developing innovative new pathways to customer-perceived value, and seizing the opportunity to bring the innovation to market quickly. Dynamic companies are able to quickly reallocate resources to these new innovation pathways.

A Continuously Changing Organization

Continuously innovative companies must continuously change their organization – not just when the need arises, but via a constant, continuous, proactive process of change. This process is not orderly. It involves self-organizing, where there is no central governance directing people or business units how to act. Employees have freedom to improvise based on data from the marketplace, adapting when conditions and the environment change. The organization is not structured. The binding agents are the shared understanding of objectives, a shared culture, and shared information. There is collaboration, but no top-down direction. Teams can form and disband and re-form. Projects can be initiated by small teams close to the customer. New solutions arise out of synergy between teams and units, even while those teams and units are changing.

Continuous innovation companies are conscious of three time horizons simultaneously: history, the present, and the future. Time-axis thinking involves experimentation to obtain knowledge from each horizon: examining previous experiences for future value, adapting to relevant real-time experiences, and launching multiple experiments to determine what will work and what won’t in the future. Leadership and management communicate the overarching objectives so that employees and teams can use them as the basis for their own independent decisions on each time horizon. Management may also be able to play a synchronization role by identifying and sharing patterns that may emerge from the analysis of multiple experiments across multiple units and teams.

A People-Centric Approach

Traditional management focuses on control, especially control of people: telling them what to do and how to do it. Continuous innovation requires the opposite approach: belief in individual creativity and in releasing the inherent innovative powers of every employee. Innovations can arise anywhere in a company, and it should be organized as a river system, enabling ideas and initiatives to flow unencumbered to the endpoint of marketplace implementation and customer satisfaction. Control gives way to implicit guidance – values and guidelines and shared orientation. There is a direct positive correlation between the treatment of employees and the innovation performance of the organization. People are the most important asset.

An Ambidextrous Organization

Continuous innovation might sound like chaos to traditional managers. In fact, close to chaos and far from equilibrium are happy places for innovators. But the everyday business of the company must continue in a disciplined fashion: producing, delivering, serving customers, gathering data. Continuous innovation companies are good at both the everyday and the futuristic. Some companies separate the two, and establish an innovation arm, but that is not a necessity. The two parallel missions can co-exist in the same company so long as there is a shared objective.

An Open Organization That Networks With Its Surroundings

A lot of business thinking entertains boundaries – the boundaries between a firm and its suppliers and partners, for example, and the boundaries between industries. Modern systems thinking emphasizes openness – the permeability of systems that encourages interaction with the environment and is a source of the active, continuous and often unpredictable change called emergence. A company must be an open system if it is to thrive over the long term. An open system searches beyond itself for innovations that can increase revenues, accelerate growth and contribute to robust commercial health. Networks and alliances with customers, suppliers, start-ups, universities, and sometimes even with competitors can serve as crucial resources for a company’s innovations. The flow of ideas must include those originating outside the organization.

A Systems Approach

Management theories have been built on foundations of structure, process, competitive advantage, resources, industry “forces”, and many more. None of these is adequate for the digital age. A systems perspective is required. A systems view focuses on the connections between and interactions among its components and characteristics. Systems viewed in this way can generate emergent results and emergent capabilities, whereby the output of the whole system is greater than merely the capacity of its components.

Guidance is provided by the long-term mission and human purpose of continuous innovation. The system culture is common to every individual and every division and unit. The system is committed to learning and adapting. The system’s purpose is innovations and surprises. The energy is provided by creative individuals, unleashed to innovate, each guided by the shared orientation. A system can’t be managed but it can be guided by an intent to generate customer value and an aspiration to make a better world.

Principles And Practices

Annika Steiber’s 6 Principles are translated into a set of practices that can act as practical guides to any company seeking to achieve continuous innovation. I’ll try to summarize them in a future post. In the meantime, you can find Professor Steiber’s book here.

The Fairest Society Is The One Which Most Energetically Promotes The Entrepreneurial Creativity Of All Its Members.

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This post is based on – and utilizes a lot of the language from – The Theory Of Dynamic Efficiency by Jesus Huerta De Soto, an essay that highlights with great clarity some of the essential differences between Austrian economics and mainstream economics.

It seems as though those of us who favor free markets and the unleashing of the creative power of entrepreneurship have lost control of the language.

Take the word fairness as an example. In today’s perceptions of social justice (which, in itself, is an other term we’ve lost to irrational interpretation), fairness is deemed to require equalized outcomes for all. No-one should have more wealth or income than anyone else. Any institution or process or arrangement that tends towards an outcome that can be deemed unequal is unfair. 

Is this way of thinking good for society? There is an entirely different way of thinking, one which will lead to a much more dynamic and productive society that advances with great agility and energy towards a better future for all.

Economist Jesus Huerta de Soto calls this way of thinking “dynamic efficiency”. Efficient is another word that is typically misused in economics. It has been made to mean something like using fewer resources in order to achieve a given output. The point about dynamic efficiency is that output is never given. Thanks to individual human creativity, especially in the form of entrepreneurship, output is always changing, improving, becoming more effective and more useful and more valued by customers. The question should not be how to use fewer resources, but how to use resources in a good way to produce better outcomes.

Neither resources nor technology are “given” in real life. They can vary and actually do vary continually – as a result of entrepreneurial activity. This is the essence of dynamic efficiency – continuous change for the better. When so-called welfare economics calls for redistribution of resources in order to address perceived inequality, it is based on a static view. Interpersonal comparisons of what economists call utility require a snapshot to freeze data in time in order to analyze and decompose It. Meanwhile, time and economic conditions and entrepreneurship and innovation continue apace, and whatever comparisons are made are rendered irrelevant.

Such comparisons completely ignore dynamic efficiency, the capacity to foster entrepreneurial creativity and co-ordination and collaboration, and to seek, discover and overcome any maladjustments or unmet needs in society and among its members. The most important goal is to apply these dynamics and continually shift possibilities to a new higher level.

The driver of this creative and dynamic energy of improvement is entrepreneurship. This can be understood as the typical human ability to recognize opportunities for profit that appear in the environment and to act accordingly to take advantage of them. Entrepreneurs are alert to these opportunities. They are creative in producing new knowledge, new solutions, and new possibilities. The entrepreneurial process never stops or ends. There are always new opportunities to be seized, whether in the form of new ends (things we achieve that we never thought we’d be able to) or new means (better ways to reach goals for which we may have been striving for a long time).

Will there be waste as all these new opportunities are pursued? Probably. Can perfect equality or static efficiency be reached. No – because the dynamic creation and discovery of new outcomes is never balanced, it’s always tilted towards change and towards a better future.

What, then, can we say of the ethics or the social justice of this dynamic and creative economy? We address that question from the perspective that every person possesses an innate creative capacity that enables them to perceive and discover the profit opportunities that arise in their environment, and to act accordingly to take advantage of them. Entrepreneurship is the typically human ability to perpetually create and discover new ends and means. The ethical principle is that each person has the right to the results of their entrepreneurial creativity. Whatever they create, they keep. It’s not a matter of redistribution, but it is a matter of equity. Earn it, keep it.

That’s why de Soto says, “the fairest society is the one which most energetically promotes the entrepreneurial creativity of all its members” – a society in which no authority will expropriate the results, partially or totally, of the creative entrepreneurial process. Social ethics hinge on the private ownership of that which is entrepreneurially created and discovered, based on the voluntary exchange of all goods and services. 

Regulation and state intervention in pursuit of redistribution or restriction of entrepreneurial activity impedes creative action, limits people’s creative capacity , and the new knowledge and innovation that moves society forward. State intervention is both dynamically inefficient and ethically reprehensible.

A dynamic and ethical society under these principles will evolve the institutions that can support them. Entrepreneurial behavior takes place best in emergent common law legal frameworks, and moral frameworks. Taxation policies can undermine entrepreneurship, as can misconceived regulation and economic intervention. The law should be on the side of entrepreneurial creativity.

Social justice concepts such as fairness and efficiency should be re-examined through the lens of economic dynamism and creativity driven by entrepreneurship. All in society thrive most in the entrepreneurial environment.

Economics In The Digital Age Is Different.

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Steve Denning is one of our most important and insightful writers at the intersection of economics, business, and management. He has been in the lead in alerting the business world to the imperative of new thinking about organization, embracing agility and the end of hierarchy, agile processes, and digital transformation. His message: management must change to keep up with technology.

Recently, he turned his attention to economics. His conclusion: economics must change to keep up with technology. Mainstream economics that is; we Austrians may claim a special position, as I’ll argue below.

A school or tradition of economics (such as “mainstream economics”) tends to be defined by stacking dead economists and their theories one on top of another and calling the resulting intellectual edifice a definitive body of work for the filling of textbooks. Later arrivals to the school limit themselves to publishing marginal elucidations. Keynesian economics continues as a set of theories derived from the conditions between the first and second world wars in socialist Britain. Keynesian economists in 2021 continue to insist that these theories still hold, and, in fact, they are the backbone of US Government economic policy today, and the reason it is so disastrous.

In his article Why Mainstream Economists Miss Digital Innovation, Denning drives home just exactly why this backward-looking process of economic theorizing takes us so far off base. Mainstream economists (he quotes Nobel prizewinner Robert Solow) had a very difficult time even recognizing the contribution of digital services to economic value. The “real economy”, Solow opined, was about physical products. Now the largest firms in the world are those delivering primarily digital services. So much for the validity of Nobel rise recognition.

Denning also calls out Robert J Gordon, who asserts that the great innovations occurred before 1970  – innovations such as electricity, household appliances that reduce work, air conditioning that increases comfort and productivity, flushing toilets that improve sanitation and health. Gordon dismisses innovation after 1970 as narrowly focused on entertainment, communication, and information technology. He referred to the arrival of the iPhone as a minor event in entertainment and communications. He failed to realize how a handheld computer in the hands of billions of people radically increases productivity and economic growth, which has been associated with the eradication of poverty, as well as changing how people are educated, given access to healthcare, and put on a pathway to higher aspirations and better lives.

Denning uses this example as an illustration for his conclusion that mainstream economics misses “that digital innovation has changed almost every aspect of human life”. Of what relevance is a field of study that is so oblivious to real life?

Fortunately, there’s a school of economics that understands the dominant role of digital innovation: Austrian economics. There are several points of difference with mainstream economics. One is the understanding that Austrians have of the market as a process and the economy as a constantly changing capital structure. Mainstream economists’ main tool is the study of equilibrium: under what conditions would the economy be perfectly balanced with no more change? Austrians understand that there is no equilibrium, and equilibrium is not a state we desire. The market is a flow of continuous, often dramatic and always accelerating change. Technologies build on technologies and change becomes exponential in terms of impact on growth and improvement. More and more customer value is generated, without limit.

Austrian capital theory recognizes capital in the economy as a flowing river of technology enabling more and more customer value, and constantly changing and improving in response to customers’ never-ending demand for betterment – faster, cheaper, more efficient, more convenient, more comfortable, more productive. Customers demand this continuous change, and technology helps to deliver it.

Another tool in the Austrian economists’ toolbox is the understanding of the role of the entrepreneur, entrepreneurship, and the entrepreneurial method. The entrepreneur has no role in mainstream economics. No one has figured out a mathematical equation to represent this most human of innovative influence. Entrepreneurs are those who look at the world and ask themselves how they can make it better than it is. That’s why Steve Denning can quote an entrepreneur like Marc Andreessen who wrote  “Why Software Is Eating The World” but can’t find any economists to quote.

He could have referred to W. Brian Arthur’s paper, Competing Technologies, Increasing Returns, and Lock-In By Historical Events, where he anticipated exponential growth and the rise of the tech titans. Brian Arthur calls his brand of economics “complexity economics”, which is a strand of Austrian economics. Denning might also have quoted Todd H. Chiles on Organizational Emergence, his theory about how firms and markets advance rapidly through stages of dramatic change and increasing value generation as a result of both technology and changing consumer preferences.

Steve Denning is right to say that it’s imperative that mainstream economics catches up with technology. He should go further and call for the widespread recognition of Austrian economics as the economics of radical economic change. It’s already the go-to theory to explain bitcoin, free software, and the economics of video games. Mainstream will never catch up.

The US Is Compounding Its Shortfalls In Innovation. Make Sure That In Your Business – And In Your Life – You Are Compounding Positively.

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Curt Carlson, the world’s leading authority on innovation and how to implement it, worries that the US is under-performing on this front – badly. 

On LinkedIn, he writes:

Almost all measures of innovative performance today are wanting.  Only 3% of patents recoup their investment; the rest are mostly waste that costs many tens of billions of dollars a year just in maintenance fees.  Only one in ten new venture-backed companies has any real success.  Most venture capitalists lose money, and 5% make 95% of the gains.  Only 20% of university tech-transfer programs break even, and those few are often the result of a new drug.  In our workshops with almost a thousand global teams from leading companies, universities, and government agencies, typically, only 25% of the projects under development would provide any meaningful new customer value if completed.  

This issue profoundly affects civilizational progress and quality of life. Innovation is value-creation and value-creation improves society for all.

Through innovation we address society’s grand challenges, create prosperity and jobs, and provide resources for social responsibility.  Consequently, one of society’s most critical opportunities is to improve our value-creation capabilities.  Improvements in value creation are exponential amplifiers of innovative performance.

He applies the term exponential in a carefully considered way. There is the opportunity for rapid, accelerated advance from where we are today to where we could be tomorrow. Problems can be solved quickly. Conditions we experience as disappointing or even dismal can become uplifting and exciting in a short period of time.

That is, if we are innovating and generating new value.

The opposite is also true, however. Compounding works in reverse. If we fall behind, the distance we have to go to recover becomes exponentially longer. If this year, we realize only 50% of our value creation potential, then next year or in the next relevant period, we’ll have 50% of the resources we would otherwise have had, and we’ll drop to 25% of potential, and so on and so on. The shortfall compounds and our level of performance declines exponentially.

Professor Per Bylund of Oklahoma State University has the same concern about our country’s economic under-performance. He gives a name to the gap between the value that’s actually created by entrepreneurial businesses and what could have been created: The Unrealized. In his book The Seen, The Unseen, And The Unrealized, he describes this value generation shortfall in economic terms, and attributes it to government regulation. Whether in the form of legislation or bureaucratic rule-making, regulation distorts the market, redirecting entrepreneurial creativity into channels favored by politicians and government departments, or curtailing it with enforcement rules, or prohibiting it entirely in some cases. The regulated economy simply can’t evolve and grow in the same way it would if unhampered.

The Unrealized is, similarly, a compounding problem. The number of regulations increases each year, so The Unrealized expands and grows each year. If the economy grew at only 50% of its potential in a base year, then the next year is constrained in the base from which it grows, and this negative compounding extends annually into the future, forever. Since regulation has been with us for a couple of centuries, the compounding of The Unrealized is incalculably high. We simply can’t imagine the dimensions of what could have been. 

Einstein famously said about compound interest that it “is the eighth wonder of the world. He who understands it, earns it…..he who doesn’t….pays it”.

Unsurprisingly, given the source, this is a very important observation. Compounding can work for us or against us. Saving and investing and re-investing can compound in our favor. Interacting more and more with smarter and smarter people can compound in our favor. Iterating a creative idea in critical forums can compound its innovativeness and applicability until it breaks into the market. Exercising and healthy eating every day can compound for us as we age, making us relatively more and more healthy than our age cohort and standard norms. 

The same is true on the negative side. As Einstein said, if we don’t earn compound interest, we pay it. If we get into debt, interest is working against us, especially if we borrow more and more. If we are not continuously engaged with other smart people and iterating our ideas with them, we are less and less likely to make a creative breakthrough. And if we permit ourselves to avoid fitness activities and if we eat an unhealthy diet every day, we are making things worse for ourselves at compounding rates. Every day we are a little less healthy and fit than we could have been – every daily sugar intake, or alcohol intake or cigarette smoke intake compounds, so that, every day, the impact of unfitness and bad diet is a little more harmful on our less-fit body than it would otherwise have been.

Curt Carlson and Per Bylund teach us to concern ourselves with the compounding of The Unrealized in value generation activities. We should bear this in mind – and, at the same time, make sure that compounding is working for us in our personal and family life.

Entrepreneurship is Real. Business Is Real. GDP Is a Fiction. The Government Is The Enemy Of Real.

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When politicians and journalists talk about “the economy”, they generally have an artificial computation in mind, typically either GDP, a computation of the amount of consumption spending in the country, or the percentage rate of change of that computation from one quarter or year to the next.

If there is such an abstraction as “the economy”, it is more properly thought of as all the businesses in the country that are producing goods and services for other businesses or for end-consumers to buy and use and enjoy. Economists refer to this assembly of businesses as the production function, but that, too, is theoretical. These are real businesses using real resources and employing real people to produce real goods and services.

With every act of production, whether a consumer good or a business or capital good, a business utilizes resources, adds value, and sells to a buyer who appreciates that value. Every productive resource has alternative uses and alternative forms of goods and services to which they could be applied, and so the most valuable use is selected. Value comes from the long progression of production and supply. The steel that is produced is dependent on the cost and effort of mining coal and iron ore, building and maintaining a steel plant, the trucks and ships that transport it, and the wages paid to steel mill workers and coal and iron ore miners. The production of everything requires an entrepreneur, natural or produced resources, work, and capital goods. It is these value-facilitating activities that make an “economy” grow and allow individuals to increase their incomes and wealth over time.

And time itself is an important contributor to production. What we produce today builds on production capacity, processes, and experiential learning of years, decades and sometimes centuries. 

This real activity and historical accumulation of capital is almost invariably ignored in the conceptual thinking about GDP, which is a measure of current consumption. 

Individual businesses are run in such a way as to produce more value than was present in the resources used in the production process. And the only way that can occur is if these businesses are operated by entrepreneurs who personally care about whether their businesses are adding value, because each individual entrepreneur’s own income will depend on whether their business earns a profit.

Actual entrepreneurs with their own personal incomes on the line worry about revenues, costs and profits. This can’t be said of government bureaucrats, regulators, and politicians. Their personal incomes are not on the line.

The real “economy” is driven from the supply side, that is, by businesses and the entrepreneurs who operate them, according to their judgment about whether or not a particular form of good or service that they produce will earn a profit. 

And this “economy” can only exist in a moral and political order in which individuals are permitted to start, run and manage businesses that make a profit, and in a reality where profit-making is not envied or resented or criticized by governments and their partisan voters. 

The “economy” can only thrive where governments do not confiscate profits and incomes through excessive taxes, don’t plunder value-adding businesses, and don’t constrain them via over-regulation, and don’t try to replace them by producing their own goods and services. The “economy” advances when it is widely recognized that everyone’s prosperity depends on allowing businesses to function as freely as they can to earn profits, in a market where the price mechanism operates without government interference and tariffs and trade taxes do not limit global competition to provide optionality and competition.

Businesses and production are real, using real resources to produce real goods and services for real buyers. Politicians and regulators don’t operate in this real world. They operate in their own conceptual world. The best illustration of this truth is their idea that the “economy” is consumption and can be measured as consumption, in the form of GDP. The computation of GDP includes government spending as a major contributor to total consumption. This false logic leads to the conclusion that increased government spending can lead to increased GDP and can therefore boost the “economy”. It has come to the point that the politicians will claim that any and all government spending, from welfare to nuclear bombs, drives economic growth.

This is, today, the state of government economics. It goes by the name of Keynesian economics. What that means is that the “economy’ is treated as an abstraction, a computation of consumption, and a numerical target at which unlimited government expenditures can be aimed without any thought of production, investment, or value.

In this sense, government is the enemy of reality. When the economy is understood as production, with real businesses producing real goods and services for real customers under conditions of real competition, then government spending and regulation is the opposite of production. It is extraction. It undermines production. It diverts and destroys. 

Politicians and regulators have no sense and no appreciation of the real-life entrepreneurs and real-world businesses sourcing and assessing real resources to run real enterprises at a real profit.