Treating Consumers As Means Not Ends Is A Fatal Business Model Flaw.

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Recently, some of the Big Tech companies of Silicon Value have been caught in anti-market behavior. They have censored or even banned some of their own consumers. Since value lies in consumer experience, and since capital is the net present value of future claims to revenue streams from consumers, these firms are destroying value and consuming capital. Why? How can this happen?

Where Is the consumer? 

The goal of business – the end, to use means-ends language – is to facilitate an experience for the consumer that they value. Using Austrian economics as its foundation, the Economics For Business project has built an innovative business paradigm and a complete business model framework on the principle of consumer value. Entrepreneurs are those who create new value, and they submit to evaluation by the consumer to determine their success. They maintain a clear line of sight to the consumer at all times, from the very first step in imagining a new business, new product or service or any improvement in their offering, all the way to the consumer’s ultimate usage experience.

Technology-driven means not thinking about the consumer.

The histories of many Silicon Valley tech firms reveal that they don’t have this line of sight to the consumer. Many started out to build a technology, one that performs efficiently, automates effectively, and exhibits cool features. There’s a pride in engineering, as there should be. But even the most beautiful technology can’t succeed without consumers in mind. The technology-driven approach to innovation must not contravene the principles of the consumer-driven approach to value.

When consumer value is not the business model.

Facilitating consumer value is a business model. Value is a learning process for consumers, of which exchange value (paying in dollars for value anticipated) is a component part. The revenue model for the entrepreneurial firm consists in earning this exchange. It’s all integrated. Some Silicon Valley companies (Google, for one) accepted investor funds and began operations without a business model in place. When consumer value is not integral to the firm, it’s quite possible that they lose their grip on the concept. They don’t create value for consumers, or for the economy. Or for investors, for that matter – they’re using investor funds in ways the consumer does not value.

In many Silicon Valley models, consumers are creators of content for the technology company to control, analyze and re-sell as data to the advertiser. Consumers are creating value for the platform, not vice versa.

Monetization as an afterthought.

We often hear the word “monetization” in descriptions of Silicon Valley business models. The word itself is quite revealing. It certainly doesn’t connote a commitment to serving the consumer. Monetization is the search for a revenue model after the technology is launched. Many of the monetization schemes are advertising-based, which can be problematic. They are often value-destroying for consumers, especially in the “interrupt and annoy” formats that are common on the internet today. Advertising is certainly not innovative – it’s been around for a very long time, long before Silicon Valley came into existence. When firms are selling consumers to advertisers, their commitment to consumer value becomes secondary.

It’s not that B2B business models are any less valid than B2C. They key is to remember the Austrian principle that value in any stage of the production chain is made possible only if there is consumer value at the end of the chain. Microsoft, for example, is a technology company primarily focused on B2B value propositions in areas like business productivity. They always have an eye on the next stage in the value chain: improved business productivity and efficiency enables Microsoft’s customers to, in turn, produce lower cost consumer services and enhanced consumer experiences. Microsoft has its eye not only on the immediate B2B customer, but also the next stage of the value chain.

A cultural problem.

Ultimately, the kinds of Silicon Valley companies to which these observations apply face a cultural problem. Consumer value and consumer service are not a sufficient part of their DNA. They were founded and developed to nurture technology – in some cases, brilliant technology, in others more mundane; they found technical ways to reach mass distribution based on the new power laws of digital networks; they found bolt-on monetization schemes that responded to mass reach. Culturally, the idea of consumer value has never been central to them.

Perhaps that’s why, today, we see Twitter censoring its users and throwing them off the platform, angering many more.

Generative products versus central control.

The value promise of today’s digital products and digital markets is exciting for consumers. The term “generative” has been coined to describe the new characteristics of products that give consumers leverage – make their jobs easier; that provide adaptability so that consumers can change them to suit their own purposes; and that are easy to master and easy to access. The spirit of generativity lies in unleashing end-user creativity.

Some Big Tech companies don’t seem to believe in the generativity of their products and their consumer relationships. They prefer centralization and control. They want to collect and control consumer data and turn it into their own closed products. That’s why they need so many engineers to build the algorithms and the data banks. That’s why they need so many content monitors to project their control. They are centralizers in a world of decentralization. This leaves them open to disruption by the next generation of entrepreneurs who start their journey from the point of view of what consumers value.

Mike Masnick’s proposal: Protocols, Not Platforms.

Our Knowledge Graphic: Silicon Valley Is Bad At Entrepreneurship

 

 

Your Attitude And My Attitude Are The Sources Of Economic Growth And National Prosperity.

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Who are the drivers of prosperity? Economists would say it’s them. At least the ones who work for the Federal Reserve and the US Treasury and numerous think tanks and lobbying firms in Washington DC would say that. They capture economics in mathematical models, with variables like money supply, government spending, workforce participation, and mysterious forces like technological advance. By tweaking their variables, they believe they can forecast outputs such as GDP and employment levels. The economy is a mathematical machine and they are the geniuses in charge.

Bezos, Zuckerberg, and Cook would say it’s them. They run the tech companies that dominate global commerce, employ people, provide retail platforms for minion companies that sell apps and gadgets and groceries. Without them, there’d be no economy and no prosperity.

Larry Fink at BlackRock, Jamie Dimon at JPMorgan Chase, David Solomon at Goldman Sachs, Warren Buffet at Berkshire Hathaway, and the other titans of finance would say it’s them. They are the financial capitalists who supply the juice to keep the economic lights burning.

Edmund Phelps was awarded the economics Nobel Prize for revealing that it’s none of these. It’s you and me. You can read his theorizing in Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, And Change.

Prosperity on a national scale—mass flourishing—comes from broad involvement of people in the processes of innovation: the conception, development, and spread of new methods and products—indigenous innovation down to the grassroots. This dynamism may be narrowed or weakened by institutions arising from imperfect understanding or competing objectives. But institutions alone cannot create it. Broad dynamism must be fueled by the right values and not too diluted by other values.

Note the term “broad involvement”. Phelps means everyone in the nation: he describes a culture of innovation.

the stuff of flourishing—the change, challenge, and lifelong quest for originality, discovery, and making a difference.

Modern economies display what he calls dynamism: the appetite and capacity of “indigenous innovation”, and “original ideas born of creativity and grounded on the uniqueness of each person’s private knowledge, information and imagination”. Phelps is not an Austrian economist – he can’t afford to be, since he chooses to make his name and his living inside the academic fortress of Keynesianism, not assaulting it from the outside. But he certainly sounds like one in his invocation of subjectivity in identifying these personal, individual, and psychological drivers of prosperity.

There are great benefits for the individuals who populate and participate in a dynamic modern economy:

the mental stimulus, the problems to solve, the arrival of a new insight, and the rest. I have sought to convey an impression of the rich experience of working and living in such an economy. As I considered this vast canvas, I was excited to realize that no one had ever depicted what a modern economy felt like.

“What a modern economy felt like”! Isn’t that the ultimate in subjectivism in economics? He goes further into subjectivism by identifying attitudes and beliefs as the drivers of economic results.

attitudes and beliefs were the wellspring of the dynamism of the modern economies. It is mainly a culture protecting and inspiring individuality, imagination, understanding, and self-expression that drives a nation’s indigenous innovation.. (with) a new set of values – modern values like expressing creativity for its own sake, and personal growth for one’s own sake.

As measures of prosperity, Phelps focuses largely on survey data: people answering questions about how they feel. Among the most important of these, in Phelps’s mind, are job satisfaction scores and life satisfaction scores. He conducts a comparative analysis across (mostly Western) countries that leads him to conclude that people derive more life satisfaction from activities as producers than activities as consumers. This finding stands in opposition to many of the critics of capitalism, who deride the system for making conspicuous consumers of us all, focused on what we buy rather than what we make.

As producers, it is our individual knowledge that gives us power:

it would appear that only increasing economic knowledge—knowledge of how to produce and knowledge about what to produce—could have enabled the steep climb in national productivity and real wages in the take-off countries.

With time, the modernist emphasis on increasing knowledge—and the presumption that there is always more knowledge to come—triumphed over traditional emphases on capital, scale, commerce, and trade. But where did that knowledge come from? Whose “ingenuity” was it?

The ingenuity is yours and mine.

In a follow-up work called Dynamism: The Values That Drive Innovation, Job Satisfaction And Economic Growth, Phelps gives us more specificity about the “modern values” people in dynamic, innovative economies hold:

  • More satisfaction from non-material rewards than from material rewards;
  • An outsize desire for achieving something through one’s own efforts (and being recognized for it);
  • Huge satisfaction in succeeding and prospering;
  • Delight in the sense of flourishing that comes from life’s journey and the thrill of voyaging into the unknown;
  • Satisfaction from making a difference, making a mark.

Underlying these satisfactions are the values of individualism, vitalism, and self-expression. Modernist satisfactions are inherently individualistic: one’s own and one’s closest family. Vitalism looks to challenges and opportunities that contribute to the feeling of being alive. Self-expression is the imagination and creation of new things and new ways that enable an individual to reveal who they are. Mass flourishing occurs in a dynamic economy where these humanist values fuel the necessary desires and attitudes for innovation and growth.

Phelps fears (and presents data to support those fears) that these values are being eroded in today’s America. Opposing values are gaining ground. There is considerable dissatisfaction among many participants in the modern economy. There appears to be a falloff in the non-material rewards of work. Household surveys show losses in reported job satisfaction and life satisfaction. There is a loss in the sense of agency, of the experience of succeeding at something and the sense of voyaging into the unknown. Some sociologists point to a rising narcissism among young people that makes them self-indulgent. They place more value on trying to be someone than on trying to do something.

We may be losing the dynamism of indigenous innovation that leads to mass flourishing. Check your attitude.

 

 

Cast Down Your Bucket Where You Are: How Entrepreneurs Use The Institutions of Entrepreneurship To Thrive In The Technological Epoch

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How can institutions such as education, family, language, laws, and economy be understood as the catalysts for emerging institutions of entrepreneurship?

From an entrepreneurial perspective, institutions result from emerging social phenomena based on subjective experience and perspective. Institutions of entrepreneurship include action, technology, knowledge and learning, culture, and values. You see, institutions of entrepreneurship do not thwart marketplace initiatives; instead, they are instrumental for entrepreneurial action to advance into the near future. Many of our institutions are the result of human action and not of design, but over time, predetermined narratives tend to come into existence. From an entrepreneurial point of view, set narratives of entrepreneurship are guides toward a general framework of individual potentialities and should not be deterministic. Institutions serve as constraints and, at the same time, as action enablers.

As in all entrepreneurial matters,  subjectivity applies. The subjectivity of entrepreneurial institutions should allow individuals the ability to take advantage of newly emerging market opportunities. If nascent entrepreneurs go about serving others in the marketplace the same way as previous actors, they will ultimately get the same result. As a case in point, it was Einstein who changed Newton’s longtime theory of gravity by pointing out there is a special and a general relativity. Einstein replaced Newton’s theory, not using the same thoughts and processes as Newton, but from his subjective institutional experiences, knowledge, and skills that he possessed at a particular point in time as new ideas emerged. The theory of relativity gave physics a massive leap in science. The conventions of physics allowed Einstein to use the institutional framework to discover and attempt to be part of something useful for science and the layperson.

Can we extend this same sentiment to the entrepreneur to advance using the institutions of entrepreneurship?

I say yes! An entrepreneur’s experience within institutional environments is subjective, so in the words of Booker T. Washington, nascent entrepreneurs should “cast down your bucket where you are.” Ideally, everyone should have the opportunity to “cast down a bucket where they are,” particularly via emerging entrepreneurial institutions, as a means to learn from the marketplace and participate in the market economy.

Emerging entrepreneurship institutions – such as starting a business on the internet – are the key to entry into markets that may have once been unobtainable for some people, primarily because institutions are subjectively experienced. In many ways, institutions can be identity-producing. If Mary Kay started her business a certain way, it does not mean others following her footsteps have to do it the same way to be successful as she was. Like Isaac Newton, she inspired. Emerging entrepreneurial institutional environments, for those individuals steeped in institutional identity, provide a chance for individuals to realize an alternative to the normative ways of participating in a given marketplace. Moreover, nascent entrepreneurs can use emerging institutions via institutional superhighways through multiple technological devices (i.e., smartphones, laptops, social, and e-commerce platforms) to make transaction-based sales that can serve consumers across the globe.

Institutional environments ought to allow everyone the chance to pursue their entrepreneurial plans. As we know, plans are often diverted due to unexpected events, which is why entrepreneurial institutional environments should serve as market feedback mechanisms and not barriers to market entry. Dropping a bucket means using production factors to serve consumers in the best possible way, not waiting for the ideal circumstance to participate in the marketplace. Entrepreneurs should not wait for an ideal situation, ideal investment, or the perfect business idea.

Within the institutions of entrepreneurship, one should be able to drop down their bucket where they are. Institutions of entrepreneurship should make room for new entrepreneurial participants via technological devices, i.e., smartphones, tablets, laptops. Higher levels of entrepreneurship are not the cause but the effect of technological advancements. Technology is not static but dynamic and the same for the people using it. “Tools and machinery are primarily not labor-saving devices, but means to increase output,” as Ludwig von Mises once said.

A recent report showed that 14% of business owners are between 30-39, and 4 % are between 18 and 29. These demographics (especially 18-29) own smartphones or laptops with access to e-commerce platforms and digital media – basically access to consumer markets at their fingertips. The next logical question is: if 13% of millennials spend over 12 hours on their phones daily, how can they participate in the marketplace? The data speak to the fact that everyone has the chance to drop their buckets where they are and serve their fellow man.

“At least 81% of entrepreneurs do not have access to a bank loan or venture capital,” says a recent Kauffman Foundation report. The report goes on to say, “Very little of the total capital flow to entrepreneurs is geared toward women and people of color.” Again, institutional environments are entirely subjective, as there is too much diversity among people and circumstances to assume that everyone interested in entrepreneurship might uniformly enter the market and participate evenly. Nevertheless, that is the point! Instead of institutional barriers preventing entrepreneurship, institutions of entrepreneurship and emerging institutions ought to function as superhighways of entrepreneurial accessibility via the means of one’s talent and resources where they are, as indeed most people have access to technological devices.

There are 272.6 million smartphone users across the United States, which means that 272.6 million business opportunities are waiting for people to drop down their buckets. Not to mention, 52.4% of the population worldwide use their smartphone to access the internet.

Entrepreneurship is a function of the market process, an activity that should be open to anyone willing to serve others’ needs. Internet searches are now an institution; they’re how people express needs. There are vast amounts of these internet searches, providing the inquisitive entrepreneurial mind with a million ways to start a business. However, the problem is that not all potential entrepreneurs will experience the same institutional environments uniformly. We all have different plans and expectations of how entrepreneurial institutions should facilitate entrepreneurial pursuits, whether it be the production of music, art, lectures, reading material, cooking lessons, painting services, or exercise tutorials. If buckets are dropped where the person is, the only cost incurred by the nascent entrepreneur is time, and the chances are that someone got served, which is the first step towards the ideal success narrative that we often connotate with entrepreneurship.

Again, there are entrepreneurial opportunities only if entrepreneurial institutional environments create an entry for anyone willing to drop their bucket where they are. Entrepreneurial institutions should operate as uncertainty reducers and not uncertainty enhancers. Therefore, the conventional institutional environments ought to support emerging entrepreneurial opportunities and individual action. The institutions of entrepreneurship should accommodate action in emerging institutions so that the entrepreneurial spirit can pour the horn of plenty on all of us.

Entrepreneurs Are Those Who Refuse To Accept The Status Quo – In Business, Politics, Institutions And Society.

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Entrepreneurs refuse to accept the status quo. Their function is to create new economic value for their customers, and thereby to profit for themselves, both financially and psychically. They do this by introducing new products and services to the marketplace, designing and implementing new processes, adding value to others’ inventions by turning them into market-wide innovations, and offering new pleasures and satisfactions and solutions that no-one knew of or imagined.

The pursuit of new is a refusal to accept the status quo. That includes any and all existing market conditions and structures, any monopolistic incumbent firms, any regulatory barriers, any capital shortages, any “it can’t be done” pessimism. 

We think of entrepreneurs in economic terms, market movers dealing in goods and services, taking dollars and cents in exchange. But the entrepreneurial mindset and the entrepreneurial process can be applied in many more contexts where the status quo requires a challenge and change is called for. Functional entrepreneurship is a process that can be described as a series of steps:

  • Development of entrepreneurial belief. An entrepreneur develops and continually adapts and polishes a belief about the status quo that no-one else holds. The belief is that the status quo is inadequate, wrong, or susceptible to improvement. For whom? For customers – i.e. not for the entrepreneur herself but for others. The status quo is under-serving others, and the entrepreneur is determined to fix that error. The entrepreneur, of course, expects to get something back in return, which could be psychic fulfillment (a sense of purpose and meaning from being the status quo buster) as well as profit (which is the financial signal to the entrepreneur to keep going). It all starts with dissatisfaction and the belief in the possibility of eliminating it.
  • Alignment with customers: As the entrepreneur develops the belief, she or he continuously aligns with (potential) customers. Am I getting this right? Does what I believe align with your preferences? If I change things in the way I am thinking, will you endorse the change? You are the customer, and you are my guide. You have the final decision.
  • Implementation: Given supportive feedback from customers (“the market”), the entrepreneur moves ahead with the new initiative – designing, building, and marketing it. It’s offered to the market as a value proposition (“I think you might like this – here’s why”). The market (i.e. customers) responds yes, no or conditionally (“I’d like it better if………). The entrepreneur receives the feedback, reshapes the value proposition and re-offers it until the customer confirms “Yes! That’s it!”

This mindset and the BAI process – Belief, Alignment, Implementation – can be applied not only in business but in any context or setting where there is dissatisfaction with the status quo on which an entrepreneur can build a belief and a customer can express a preference. As a result, we can imagine a wide range of fields in which the entrepreneurial mindset can be applied to society’s benefit.

Institutional Entrepreneurship

Many of the institutions in our society have reached all time lows of disrespect. Representative democracy is being widely questioned, and the institution of Congress has a very low approval rating (18% job approval – and moving lower – according to Gallup Poll in mid 2020). Also in the Gallup Poll, half of Americans revealed “somewhat negative” or “very negative” ratings of the federal government. We are losing confidence in our money, and the Federal Reserve, the institution charged with preserving its integrity and value, yet does the opposite. Similarly, we re losing respect for educational institutions that prefer to indoctrinate our children rather than educate them. 

In all these instances, there are entrepreneurs who have developed the belief that they can bring improvements to a corroded status quo. Even democracy can be innovated. Or, alternatively, we could re-think the entire founding of the US. Entrepreneurs are the ones who initiate these changes.

Regulatory Entrepreneurship

Regulation is the context in which entrepreneurs work. The more thoughtful entrepreneurs question whether the context is unchangeable, and they find innovative ways to make change. Uber and AirBnB are recent multi-billion dollar examples of what’s possible. Uber is what contracted automobile transportation looks like when entrepreneurs question the regulation that keeps the restrictive taxi monopoly in place. According to Josh Johnston Airbnb is just what hotels look like without hotel regulations. Entrepreneurs can out-think regulators.

Social entrepreneurship

Social entrepreneurship is a term that is often misused to mean entrepreneurial initiatives that are conducted without a profit motive, aiming for a higher target of good for society that entrepreneurial capitalism can’t achieve. The true case is that all entrepreneurship is for social good, because society is simply another word for entrepreneurs’ customers, and entrepreneurs want them to do well. Entrepreneurs offer society more and more good things, while trying to use less and less of society’s resources (i.e. lower costs), thereby freeing them up for other social uses. 

A great example of profit-directed social entrepreneurship is the initiative called Entrepreneur Zones, the brainchild of Dale Caldwell of Fairleigh Dickinson University’s Rothman Institute of Innovation and Entrepreneurship. With Entrepreneur Zones, Dr. Caldwell aims to solve problems of urban poverty, family instability and academic underachievement by establishing an environment where local residents can start and grow businesses and make them thrive, in n environment of shared purpose, supportive investment, training, mentoring and relaxed regulation. The goal is to improve society by making a profit, generating jobs, and creating the social environment in which families can pay their bills and their kids can do well in school. 

Cultural Entrepreneurship

In November 2020, Frank Newport of Gallup wrote A Letter to Elected Representatives, From the Average American, based on what average Americans had told Gallup in surveys. One of the statements is this: “I have lost faith in many of our culture’s institutions in recent years”. The term cultural institutions can include many things from religion to the healthcare system. Gallup reports that Congress has by far the lowest confidence of all institutions, of course, but confidence in many of our other institutions is redoing too. The next lowest after Congress is big business followed by the news media (TV and Newspapers), the criminal justice system, and organized labor, then banks and public schools.

We can see entrepreneurial improvements emerging for all these institutions. Home schooling and private schools; fintech replacing many bank functions; reformers trying to change the criminal justice system; internet news outlets offering alternatives to mainstream news media. Consumers get to choose which of these innovations they’ll support. Entrepreneurs will continue trying to secure that support through integrity, earning trust, and giving great service, which is where so many of our institutions fail.

Entrepreneurs and entrepreneurship are society’s resources for continuous improvement of the status quo.

The Ethic Of Entrepreneurship.

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What if the generalized approach to life was something like this: my most fulfilling and most profitable pathway is to first help other people – make their life better – and thereby help myself to a better life.

This is not the generalized approach today. It’s more common for people to think that they live in a system that they have to fight against, and that they help themselves by gaming it for advantage. That’s the mindset behind student loans, credit card debt, welfare, and many more common life strategies.

It is the ethic of entrepreneurship to choose the outer-directed course. To start from the point of view of identifying other people’s wants, and to undertake to address those wants with marketplace solutions: goods and services designed specifically for customers’ wants. The customer’s satisfaction is the object of the entrepreneur’s activity, creativity, investment and commitment to getting the commercial formula right, i.e. identifying the right benefit and the right cost so that the customer feels value.

A great part of the entrepreneur’s ethic of customer service and satisfaction is embracing the uncertainty of the market. Economists use the term “uncertainty” to indicate that hoping for a good result in the future – perhaps setting your heart on it – is unwise, simply because the future is unpredictable. It can’t be known, and so it’s improvident to wish for it. Entrepreneurs accept this uncertainty; they embrace it. They’re not discombobulated by it. They take on that stress for others who don’t have the calling. They provide a calming influence that’s beneficial for everyone in society. Customers don’t need to experience uncertainty; they’re certain of a supply of everything they need or demand, because multiple entrepreneurs are competing with each other to serve customers better. The entrepreneur’s uncertainty is the customer’s surety.

Similarly, the entrepreneur is undisconcerted by change. Many of us feel we are living through a period of change that has exhibited more volatility than we’ve seen in a lifetime. Entrepreneurs, on the other hand, make change their metier. Every element of change is, for them, an opportunity. “Bring it on!”, they say to change. They make lemonade when change delivers lemons. For evidence, look at the flood of new businesses being formed during the coronavirus pandemic. While politicians are forcing businesspeople to close their current businesses, and are forcing workers into unemployment, they are unable to repress the entrepreneurial spirit.

Change may be continuous or discontinuous, happening gradually or hitting us over the head with a massive, seemingly instantaneous radical change to our circumstances (like the one we are currently living through). Possessors of the entrepreneurial spirit respond with a question: what new unmet needs are emerging and how can we help people to meet them? The solutions they imagine and produce may range from new ways to provide jobs to new ways to communicate and collaborate to new ways to provide safety and re-ignite confidence and energy. The judges of how accurate the entrepreneurs are in their imagination, design and production are customers. They declare their decision by buying or not buying and the entrepreneur moves on to improve or take a new direction. Entrepreneurs bring us dynamism with their adaptive responses to customer wants and needs and purchase decisions.

What is this entrepreneurial spirit? It’s an ethic, a commitment to serve others. John Mackey, CEO of Whole Foods describes entrepreneurial business as “an expression of love in action”. Entrepreneurs are servants, who prioritize the needs of others”, says Mackey. They are following a heartfelt impulse to help.

And, although the term “entrepreneur” can sometimes be interpreted as implying a standout individual who leads a dynamic company by exercising her or his own charisma and leadership, Mackey writes that businesses “depend on interacting networks of actual people – engaging, refining, inventing, imagining, sharing, and building on one another’s work.”

All of us can adopt the entrepreneurial spirit, especially when we exercise it collaboratively with others in a team. That’s the entire concept of the economic principle of the division of labor. We all find and identify our own special contribution – the knowledge and skill that we alone possess and are capable of exercising on behalf of others – and then we deploy it in a joint effort with others towards the shared goal of serving customers, first producing collaboratively with others so that we can, later, consume individually based on our own preferences.

How do entrepreneurial team members contribute? Based on the personal resources they bring. There are unlimited ways. One point to note from John Mackey’s book Conscious Leadership is that IQ is not a good measure of contribution and we are wrong to try to measure it quantitatively. Focus on IQ and other measures of “intelligence” or educational achievement can obscure the “multiple kinds of personal competence” that individuals can bring to teams and productive networks.

Thus the cultivation of the entrepreneurial ethic is good for all individuals, good for collaborative production and innovation, good for family, friends and neighborhoods, and good for society. We should be elevating this ethic in the minds of our children and not permitting teachers’ unions and left-wing educational authorities and institutions to teach that capitalism is evil. 

Entrepreneur Zones: Teaching People To Fish In America’s Abundantly Stocked Economic River.

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Entrepreneurship has not been valued the way it should be.

Sure, we read about and hear about the outliers of venture-capital funded unicorns, and the spectacular wealth of entrepreneurs like Jeff Bezos and Elon Musk. But the most important entrepreneurship is represented by the tens of millions of so-called small businesses in the US. As a group, these businesses are the biggest employers (over 99% of employer companies are small businesses) and the leading job creators. They are the energy and dynamism of our economy. They have made the US into the richest country in the world. More critically, small business entrepreneurs provide the economic backbone of cities and local economies, providing the employment, income, and prosperity that make for thriving families, neighborhoods, and communities. Entrepreneurship is not only the foundation of a strong economy, it’s the best generator of social improvement.

Dr. Dale G. Caldwell of Fairleigh Dickinson University’s Rothman Institute of Innovation and Entrepreneurship is an expert on the impact of entrepreneurship on social improvement, both in the US and worldwide. He has applied his analysis of entrepreneurship data to create an entirely new set of entrepreneurship policy initiatives.

“The quickest way to turn around low-income communities is to create new jobs that provide previously poor households with the income they need to pay their monthly bills on time”, he states in a white paper. The most effective way to create the jobs is to provide the tax incentives, regulation relief, and financial support that local entrepreneurs need to help them increase profitability and employment in the local community.

To implement such a policy, Dr. Caldwell introduces the idea of Entrepreneur Zones. These are designated areas within urban neighborhoods with the highest joblessness rates, where an increase in successful new businesses can significantly increase local employment, providing the jobs that local residents need to work their way out of poverty. Dr. Caldwell has outlined principles of legislation that would provide for lower state and local business taxes and relaxed state regulations for businesses located in Entrepreneur Zones and employing local residents. The businesses would receive tax credits based on the number of new employees they hire who live locally.

These businesses also need to be investable – they must be able to attract and accumulate the capital that supports growth and success. Dr. Caldwell suggests that lenders and investors receive favorable tax treatment for loans and investments provided directly to Entrepreneur Zone businesses. Governments could make these financial investments attractive by providing tax credits or possibly tax deductions similar to those received for contributions to nonprofits.

Most decidedly, Dr. Caldwell’s proposal is not welfare. In fact, it could be construed as counter-welfare. He points to “safety net” programs like free and reduced price lunch programs and temporary income and housing support that are “band-aids” but do not lead to the elimination of the educational achievement gap that means that kids who eat better at school and go home to federally-subsidized housing still end up living in poverty when they are adults.

But if programs can “teach a person to fish”, they can break the cycle of systemic poverty. Research has indicated that children who live in communities with high levels of poverty have weaker neural connections in their brain, affecting judgment and ethical and emotional behavior. They may have difficulty focusing, communicating effectively and making good decisions about work, school and life. Dr. Caldwell calls this condition Urban Traumatic Stress Disorder (“UTSD”), drawing the parallel with Post Traumatic Stress Disorder experienced by soldiers after serving in war zones.

Entrepreneur Zones would avoid the problem of welfare that traps people in multi-generational poverty and contributes to UTSD. Rather than a safety net, they would be a trampoline, enabling people to bounce up into society to become productive, financially independent citizens. Importantly, Dr. Caldwell’s program focuses on household income, which is more important than the hourly wages of individuals in determining real poverty. The creation of additional jobs via entrepreneurship will reduce poverty even if there is no increase in the minimum hourly wage. Dr. Caldwell cites study data demonstrating that the household living wage index (LWI) can predict improved academic performance in school, the reduction of crime, and lower health care costs.

Entrepreneur Zones are a highly targeted, highly specific solution to the problem of urban poverty. The “Empowerment Zones” of the 1990’s were unsuccessful because of weak investment incentives and a lack of focus on creating jobs and supporting entrepreneurs. The “Opportunity Zones” created in the 2017 Tax Cuts And Jobs Act are aimed at spurring real estate investment, not entrepreneurial businesses in poor communities. Entrepreneur Zones build on past learning to craft a better program design.

Dr. Caldwell has originated a whole new policy pathway: entrepreneurship policy. Job creation is the most effective social program, and job creation is what entrepreneurs do. We are reminded that Dr. Martin Luther King’s March on Washington in 1963 was actually called the March On Washington For Jobs And Freedom. It was economic activism, as well as political and social activism. Economic activism – teaching more people how to fish in America’s rapidly flowing and abundantly stocked economic river – can be more productive on more fronts than protest, social justice campaigning or welfare legislation.