Posts

Can Capitalism Survive Beyond 2021? Yes! A New Generation Of Entrepreneurs Will Keep It Refreshed.

/0 Comments/in /by

Economist Joseph Schumpeter famously asked, “Can capitalism survive?” 

His next sentence: “No, I do not think it can.”

This was back in 1942, and socialism was in the ascendancy. It feels somewhat similar in 2021, given the economic policies of the Biden administration, and the money-printing activities of the Federal Reserve, the ECB and Central Banks worldwide. 

Yet the problem Schumpeter identified was not one of economics, but one of people. He thought that capitalism depends on broad popular support, but saw that it would breed its own enemies, and that its beneficiaries would fail miserably in defending the system that brought them wealth and comfort.

The most visible enemies of capitalism, in Schumpeter’s analysis, are intellectuals. Although he was an intellectual himself – employed as a university professor – he took an extremely dim view of the intellectual class. Intellectuals are a nuisance for capitalism. In Schumpeter’s phraseology, they lack the “firsthand knowledge” that only “actual experience” can bring, and so they are envious onlookers, purveyors of uninformed criticism.

The man who has gone through a college or university easily becomes psychically unemployable in manual occupations without necessarily acquiring employability in, say, professional work.… All those who are unemployed or unsatisfactorily employed or unsatisfactorily unemployable drift into the vocations in which standards are least definite or in which aptitudes and acquirements of a different order count. They swell the host of intellectuals … whose numbers increase disproportionately. They enter it in a thoroughly discontented frame of mind. Discontent breeds resentment. And it often rationalizes itself into … social criticism … [and] moral disapproval of the capitalist order. 

Capitalism, Socialism and Democracy, Joseph A Schumpeter

Capitalism creates sufficient wealth for the economy to support positions for intellectuals who do not produce, merely comment, and, as a result, the system comes under attack from those whose very occupations are made possible by the efforts of the entrepreneurs and capitalists who drive the economy in a ceaseless process of innovation, improvement and wealth creation.

But Schumpeter’s analysis goes beyond the commonplace observation that intellectuals are anti-capitalist. His argument is more complex: that capitalism’s success undermines the social institutions that protect it, creating “conditions in which it will not be able to live”.

Capitalism operates not primarily for the wealthy, but in the interests of the average person. Capitalism shortens their workweek, delivers leisure, excellent affordable and fashionable clothing, appliances of every kind, entertainment and education. This progress, in Schumpeter’s analysis, is the work of a minority: creative entrepreneurs who convert scientific discovery into items of pleasurable experience and valued benefits for customers. Capitalism enlists these entrepreneurial individuals of unusual talent and energy.

But these bold spirits become submerged. As capitalist corporations become bigger due to their success, they add layers of salaried employees – the “organization men” of capitalism – and the spirit of capitalism withers because these employees do not have the entrepreneurial spirit of founders and owners. These are the individuals who benefit from the system but fail to defend it from the intellectuals’ attack. These are the middle managers and bureaucrats within firms, accountants, engineers, systems wizards, marketing analysts, media manipulators, laboratory, technicians and associated technical experts who are paid and rewarded directly with the fruits of capitalism, yet don’t think sufficiently deeply about the system to develop an appreciation for the benefits it provides them.

Built-in Self-Destruction?

The self-destruction is built-in to capitalism in Schumpeter’s view. The system depends on general popular approval, which you’d think it would receive, given that capitalism improves the life of everyone who participates. However, there is a transitional element to the progress that capitalism brings, and it’s one with a detrimental effect. As the large corporations grow, they hire more and more administrators, drawing from a pool of individuals who, in the past, would have been entrepreneurial proprietors of smaller capitalist enterprises, what today we disparagingly call small business. Capitalism is, in this way, making progress that is self-destructive. Capitalism declines into administrative routine.

The perfectly bureaucratized giant industrial unit not only ousts the small or medium-sized firm and “expropriates” its owners, but in the end, it also ousts the entrepreneur and “expropriates” the bourgeoisie as a class which in the process stands to lose not only its income, but also what is infinitely more important, its function.

Ibid

And what about the leaders of the large corporations who perpetrate this “expropriation”? They come to believe that, in the era of big government, the best way to protect their interests is cronyism, a sort of business-controlled socialism in which the profits of the big companies are preserved, while the risks are socialized via legislative and regulatory “protections” enacted by the state.

A New Entrepreneurial Resurgence.

Schumpeter’s pessimism can be quite persuasive as one observes the decline of capitalism today into bureaucratic corporations integrated with an even more bureaucratic welfare state that promotes dependency over initiative, creativity and hard work. 

But his analysis is too one-directional and does not accommodate feedback loops. The corporate administrators and technocrats will become unfulfilled, bored and alienated. They will not accept that all they can expect is the wage that is paid to them for their labor hours. They will observe that the entrepreneur can obtain market rewards from many other sources, including capital from investors or loans from banks, and eventually returns on equity and on creativity. Entrepreneurship also opens up new streams of psychic and life rewards, from a sense of achievement to purpose and meaning, and the comradeship of working in highly motivated entrepreneurial teams. Life is better for entrepreneurs.

Capitalism has recently made new advances that reverse the trends that Schumpeter observed – what he called “automatizing progress”, i.e. taking the vibrantly creative entrepreneur out of the process of economic progress and substituting routinized work methods. Now, new forms of productive capital enable more individuals to choose the entrepreneurial route, by harnessing the tools of the internet, including open source and low cost software, networking systems to organize decentralized innovation, and newly capable ecosystems such as IoT. Entrepreneurs can become designers of new consumer experiences and of new markets. They can innovate by connecting things rather than building or inventing them. They can connect devices and sensors and software and data streams to personalize experiences for customers. It does not require the resources of a giant corporation, and it often does not even require a lot of financial capital (and, when it does, there are a myriad of new sources).

Today, it is far easier to seize the emotionally fulfilling high ground of entrepreneurship, and to reject the stultifying bureaucracy of corporate process and routine and hierarchy. People can substitute the joy of creativity and initiative for the alienation and insecurity of the cubicle and the spirit-draining scheduled meeting on Microsoft Teams. 

A new generation of entrepreneurs and their firms is arising and will defy the decay of the capitalist spirit that Schumpeter anticipated. 

Loss Of Jobs? No, It’s The Splendid Rise Of Entrepreneurship.

/0 Comments/in /by

There is a bit of a wall of worry that advancing technology will eliminate a lot of jobs in the future economy. As usual with conventional wisdom, it’s the wrong way to think. What if jobs are just a bad idea, or at least one whose time has passed? What if we are on the cusp of figuring out a better way for everyone who works to be appropriately rewarded?

Let’s start with corporations, since they represent the source of most jobs. They hire workers, they offer jobs. Jobs are designed for corporate purposes. That has been a good system for a couple of hundred years, because it was the only way workers could access the capital they require to be their most productive. Specialized skills plus specialized capital combinations equals high productivity. Workers are paid in relation to their marginal variable product, and so some of them could be well remunerated if they found the right job.

But the arrangement has a little bit of a whiff of dependency. Some call it wage slavery, although that seems like a step too far. But workers are clearly dependent for access to capital. The corporation has provided that access.

Have you noticed, however, that the respect that society grants to big corporations is eroding? We can see it in the repudiation of Big Energy, Big Tech, Big Pharma, and even Big Food. The withdrawal of respect is critical, as a Big Energy CEO Bernard Looney of BP observed:

Looney said there’s no question that oil — his company’s main commodity — is becoming increasingly “socially challenged.” Even people working within BP started to have doubts about their line of work, Looney said. The company was in danger of losing staff, he said, and job candidates were reluctant to join. “There’s a view that this is a bad industry, and I understand that,” he told the Times.

Looney makes a far-reaching point. People are not going to work in a job where they get no respect, whether from their employer or form their peers or from society (represented, these days, by Twitter and Facebook). Respect is a fundamental. It’s why we work.

Lack of respect is one reason people will migrate away from Big Corporations. But economics provides another. More are realizing that the cost-benefit analysis of the career ladder / work-life value proposition is worsening. According to Bernhard Schroeder at forbes.com, young people can do the math in a very sophisticated manner.

A significant portion of the Gen Z demographic is having second thoughts about whether college, and its debt/cost, is necessary to accomplish their goals.

Gen Z is becoming more open to doing college differently or not going at all, according to a new study by TD Ameritrade. The study surveyed over 3,000 U.S. teens and adults, including approximately 1,000 Gen Z (ages 15 to 21), 1,000 young Millennials (ages 22 to 28), and 1,000 parents (ages 30 to 60). About one in five Gen Z and young Millennials say they may choose not to go to college. Many others see a less conventional path through education as a good idea.

As Jared Lindzon writes at Fast Company,

the traditional pathway to career success—namely higher education and climbing the corporate ladder—has never felt more out of reach or less certain. 

What’s the alternative? Don’t take a job, make a job. Become an entrepreneur. While the PR machine for Big Corporations continues to tar entrepreneurial business with the brush of high risk and fear of failure, and as an entitlement desert without corporate benefits or the warm embrace of the corporate PR department, young people are migrating to entrepreneurship and smaller, more nimble entrepreneurial companies where they can enjoy more creative empowerment. They are calculating the cost-benefit equation in a different way.

The calculus is not just financial. There are many psychic benefits from entrepreneurship, and they’re superior to the corporate ladder option.

Earlier start

In the corporate world, it’s required that you start at the bottom of the pyramid. With sacrifice (usually of work-life balance), it’s possible to climb upwards, but the pyramid narrows quickly after you and your fellow climbers, get beyond the base, and it’s easy to get jettisoned. On the job site, you start as apprentice or assistant and do the menial tasks until you are trusted with the tools. In the restaurant, you start as waiter or dishwasher and hope there is a pathway upwards.

Entrepreneurs are starting out at a younger and younger age. Even teenage. There’s no need to climb someone else’s pyramid if you can start out as the boss.

Easy access to capital

For today’s entrepreneurs, capital is something you download from the internet. Amazon.com will provide all the infrastructure needed to operate a digital retail business. Alibaba will hook you up to a supply chain. Mohammed Keyhani will connect you to dozens of generative tools for business design and business building, many of them free. There’s a whole fintech world of distributed capital on offer for those who want financial backing. The cost of entry for entrepreneurship has never been lower.

Self-sufficiency

Young people want to respect themselves. They’d rather be creative and resourceful and trust in their own self-confidence than to work in a corporation where they are told what to do, perhaps by people for whom they have no respect or in pursuit of hopeless strategies. The old “loyalty for security” trade (do as you are told and keep your job) is no longer as attractive as it once was. The market rather than the corporate HR department is Gen Z’s preferred mechanism for evaluating human worth and allocating human resources.

Control

The market is uncertain. Entrepreneurship is risky. Competition is unforgiving, red in tooth and claw.

Gen Z is not buying this corporate and government propaganda either. The uncertainty in the market is human: how do people choose, what do they prefer, what do they believe constitutes good service, what makes them loyal? These questions are fascinating and engaging. Gen Z loves to swim in these waters. Empathy is a business tool they can cultivate. They know how to run the A/B tests on offers and content through which they can implement the explore-and-expand methodologies that harness the complexity of adaptive systems. Entrepreneurs embrace and welcome market uncertainty, and get an emotional reward from mastering it.

Meaning And Purpose

Active participation in the capitalist system as entrepreneurs competing to best serve customers in the economic marketplace is a source of meaning. Clay Routledge, a social psychologist at the Challey Institute contextualizes it this way:

Meaning is defined as people’s perception of the coherence, significance and purpose of their lives. We are all trying to find a place in the world where we function, and we have a desire to be significant, to play a role in society, and to have a purposeful existence.

And people understand this about themselves. They have a good subjective sense of what it means to have a meaningful and purposeful life.

Clay’s research reveals the importance of existential agency – the extent to which people believe they have the ability to pursue and maintain meaning in their lives. And people’s beliefs about meaning and existential agency influence a range of economic beliefs and views towards capitalism and entrepreneurship. People who have more existential agency were more likely to have positive views towards capitalism, about entrepreneurship, and more likely to be motivated to start or run their own business.

Clay also emphasized how much meaning in life and existential agency are associated with pro-social beliefs, attitudes, and behaviors. For these people, motivation is not focused solely on their own wellbeing and their own life outcomes. Part of the motivation is to serve a community and serve society. Entrepreneurs are motivated to solve problems for others: entrepreneurship is pro-social. It can solve the major challenges of society, including macro problems like climate change or poverty.

A better choice

For Gen Z and Young Millennials, the realization is dawning that entrepreneurship is a better choice – for them as individuals, for the customers they will serve, for society and for the economy – than entry into the corporate hierarchy or wage labor in a system controlled by employers.

Entrepreneurs Do Not Fail, They Effectuate Funds Of Knowledge For Human Flourishing

/0 Comments/in /by

Failure is a misnomer if we are referring to the human action involved in an entrepreneurial pursuit. A commonly held, although misleading notion, is that entrepreneurs often fail within the first few years in the marketplace. Often, I wonder why and how it happens that entrepreneurs fail only after a few years in the market if they envisioned a profitable opportunity where none had existed beforehand and was visually unapparent to others. In a non-metaphorical sense, let us think about this: Entrepreneurs discover and invest in producing and distributing goods for those who demand them the most, thereby creating downward pressures on consumer prices via their purposive action. With that said, why is it that at one point, the entrepreneur discovers effectual ways to satisfy consumer demands, and only within a few years is the entrepreneurial reported to have failed? I do not buy this one bit, and I believe this belief is all wrong. Here is why: Firms measure “success” or “failure” via profit and loss. How do we measure the entrepreneur’s contributions? One way we might measure the entrepreneurial function is by their compounding effect on future developments for human flourishing.

Instead of, as some might think, that entrepreneurs quit too soon, the reality is that entrepreneurs are often negatively affected by distortions and interventions in the marketplace. Not to mention, entrepreneurs are subject to the ongoing competition between existing and emerging institutions. Institutional competition is a result of what has been and what will be. Nevertheless, Institutional conditions serve to attract the unknown persons with specific knowledge who are incentivized and motived to contribute to the knowledge fund of the marketplace.

Some have said that entrepreneurs do not pick the right people for their team, their purposes are directed toward the wrong endeavor, and somehow, they lack commitment, persistence, and all the rest. I do not buy it. We must look at the effects of various institutional changes, distortions, and interventions, that play such a significant role in the assumed failure of nascent or incumbent entrepreneurs. 

It boggles the mind how failure is attributed in many cases only to entrepreneurs’ characteristics instead of the distortions and interventions placed in their way that obstruct the signals that are widely used to make decisions. Institutions like money and price act as entrepreneurial signals that reflect the known knowledge needed to produce and distribute consumer goods and services, particularly those economic goods valued most by market participants who consume and are satisfied by them.

Even the thought of an entrepreneur’s failure is somehow self-inflicted is udder nonsense. Who would discover a profitable opportunity only to fail at it knowingly? Moreover, the same people who attribute failure to the entrepreneur have the antidote for fixing their failures. Ha! We got entrepreneurial failure all wrong. It is no doubt true that sometimes entrepreneurial projects do not cut the mustard. However, according to Murray Rothbard, no one else knows their market and the workings of their market better than the entrepreneur. Therefore, there must be some external factors creating situations conducive to failure. As you see, commentary about entrepreneurial failures seems to face inward – failure is the entrepreneurs’ fault – of course. I beg to differ. Firms may fail, but entrepreneurs do not. Entrepreneurs shape our future only by adding to the entrepreneurial stock of knowledge. The steamboat, airplane, vehicles, ice manufacturing, light bulbs, umbrellas, pens, food and food processing, digital apps, just technology, in general, are all outcomes of an accumulation of knowledge from previous entrepreneurs that took place over decades and in some cases even centuries. 

Here is a thought experiment: If entrepreneurs functioned under a designated entrepreneurial sector, I presume they would “fail” less often. We know that institutions shape individual’s decision-making and, in the entrepreneurial sector, risk tolerance. An entrepreneurial sector as a “fund of knowledge” creates conditions for entry and learning from previous entrepreneurs’ accumulated experiences. 

Institutions of Entrepreneurship invites the effectual conditions for human flourishing – the spontaneously grown institutions where wealth can be created ex nihilo. You see, the marketplace is not anthropomorphic; it is a means by which individuals can pursue their end. 

You see, “failure,” as implied by those who do not realize it is one of those misleading words concerning the function of entrepreneurship in a market economy. We cannot look at failure as such. Intervention and distortions and institutional shifts have a more significant effect on entrepreneur success than the personal characteristics attributed to their “failure.” 

How Creative SMEs And Their Digital Assistants Will Elevate The Second Economy To First Position.

/0 Comments/in /by

When we think of “the economy”, we tend to think about actions and interactions directed and organized by people, in a physical world of machines, factories, buildings, roads, airplanes, offices and houses and cars. This physical world is where production takes place, whether those products are goods or services. Phones are manufactured, planes take off, banks make loans, and meetings are held, whether on zoom or in a conference room.

Over the most recent decades, a digital infrastructure has been growing alongside this physical economy. Or perhaps the better analogy is that the digital economy is growing under the physical economy like a root system under a forest, unseen but penetrating ever further. W. Brian Arthur, in an essay in McKinsey Quarterly, characterized this growing digital infrastructure as a “deep and slow and silent” transformation.

Shifting his analogy from root system to information exchange, he described a “conversation conducted entirely among machines”. His illustration depicts a traveler checking in at an airport. By placing a credit card or a frequent flyer card into a machine, the traveler initiates a process that automatically generates a boarding pass, a receipt and a luggage tag. While this is going on, computers check the status of the traveler, the status of the flight, the traveler’s identity with TSA, the traveler’s seat choice and access to lounges. There may be an automatic check with passport control, and with ongoing flights. Several more “conversations” are automatically informed, such as one about weight distribution of the airplane and another about air traffic control. These conversations take place automatically among servers, switches, routers and other internet and telecommunications devices. They occur in a few seconds for this one traveler, while they are ongoing for all travelers and for the air transportation system, with the conversations becoming smarter and smarter and more and more informed as more data flows.

Professor Arthur sees this digital infrastructure, and the conversations running through it and the automated processes it enables, as “the second economy”. It does not produce anything tangible, but it enables a lot of tangible outcomes. It helps architects design buildings and helps construction companies and contractors to build them. It tracks sales and inventories and supports transportation systems to ship goods from one place to another. It supports banks making loans and doctors conducting surgeries. It’s a kind of neural system. It provides intelligence – a neural layer that can sense and compute information and respond and make appropriate changes. Rapidly, this neural layer will develop more and more intelligence to support what people do in the physical economy.

There’s a worry that he cites – and which is shared with many intellectual commentators: that there is an adverse impact on jobs. The greater productivity enabled by the neural layer of the economy means that overall physical output requires fewer people to produce it. Physical jobs for people will disappear. He calls for the welfare state to compensate for this development via income and wealth redistribution schemes. 

But there is a totally different way to look at, and to welcome and celebrate, the development of the second economy. It is that those disappearing jobs will be replaced with entrepreneurship. The new, digitally-evolved neural layer will empower more creative entrepreneurship and more innovative value generation. Value is a subjective emotional experience of human beings, not of machines. It requires human empathy to understand the search for value, the desire for more satisfactory experiences, and it takes empathy to imagine and design the new solutions and offerings that can deliver this betterment in a human context. That’s the value that comes from entrepreneurship. What’s exciting about the new digital layer is that it helps entrepreneurs to generate more value.

Jim Spohrer, the Director Of Research at IBM’s Almaden Research Lab and head of Cognitive OpenTech, talks about digital assistants for entrepreneurs, and A.I.-based cognitive mediators capable of supplementing entrepreneurial capabilities – making entrepreneurs better at gathering the knowledge that they need to do business, better at negotiating, better at building business models and better at deploying them in new ways to serve customers. In Jim’s imagination, we’ll all have 100 smart digital assistants to help us in the near future. What will we be able to achieve? What will 1,000 entrepreneurs each with 100 digital assistants be able to achieve? How about 1 million or 10 million such augmented entrepreneurs?

One thing we can probably predict with confidence: those entrepreneurs with digital assistants will achieve more than the jobs displaced by automation. In fact, we can expect a new army of entrepreneurs to ride on the neural layer that Brian Arthur describes. They’ll be more empowered and more innovative and better at serving customers than the status quo of performing jobs in a hierarchy.

The best use of the term “Second Economy” is not for the digital automation infrastructure that is developing. We can make better use of the term to describe the entrepreneurial small and medium sized enterprises (SME), newly empowered by digital assistants, and newly expanded in numbers by people transferring from the jobs economy to the entrepreneurial economy. Together, this new service system will unleash new cascades of value-generating innovation for their customers, their communities and their employees. SME’s are already the second economy, in that they account for 50% of GDP and over half of new job creation in the U.S. They are already creating new economic value at a fast rate, yet they are largely forgotten while economic analysts focus on FAANG corporations and the New York Stock Exchange and the S&P 500.

In fact, we can expect that SME’s utilizing the digital assistance of the neural layer of the economy will become the First Economy, leading the way in innovation, job creation, and economic growth. The economy evolves as technology evolves, and the next cycle will raise digitally assisted entrepreneurship in first position.

Entrepreneurship Is Our Highest And Most Productive Technology.

/0 Comments/in /by

Technology is a means to a better life. Few would dispute the case today. Whether you think of food production or air conditioning or medical services or smartphones and computers and software, our living and working conditions are better as a result of technology. We would not want to back to pre-technology days, and most of us would not want to go back to the earlier technology days of, say, the 1700’s. There was technology back then, but it couldn’t be as useful to us as it is today.

W. Brian Arthur has written a useful book called The Nature Of Technology: What It Is And How It Evolves. At the outset, he asks the question: what is technology? How do we define it? He proposes three separate but related definitions:

  1. Technology is a means to fulfill a human purpose, a means to an end as economists phrase it. The means might be a diesel engine to power your car to get to work, or a roller bearing to reduce friction in the work of a machine. Technology is always a means to carry out a human purpose.
  2. Technology is an assembly of parts and practices. Bio-technology, for example, combines many toolboxes of individual technologies and practices such as laboratory research and injections into the human body.
  3. And technology can mean an entire collection of devices and practices available to us as a culture or a society.

Arthur illustrates the three meanings with reference to a F-35 carrier-based fighter aircraft. It’s a means to the end of displaying power and making war. The aircraft itself is an assembly of parts and practices: a jet engine, wings, avionics. Each of these is an assembly of sub-assemblies: the jet engine has an air inlet system, a compressor system, a combustion system, a turbine system, and so on. Each of these sub-assemblies has components. And they all use the practice of engineering. 

And the F-35 is part of a larger collection of devices that constitute the carrier battle group, the Navy, the armed services, and the military-industrial complex.

Then Arthur adds another element to his definition of technology. In all its forms, technology harnesses phenomena. Oil refining harnesses the phenomenon that components of vaporized crude oil condense at different temperatures. A hammer harnesses the phenomenon of transmission of momentum from a moving object to a stationary one. A humble radio receiver harnesses phenomena including induction, electron attraction and repulsion, voltage drop across resistance, frequency resonance and more. Arthur’s point is that phenomena are the indispensable source from which all technologies arise.

What this excellent author and his penetrating analytical description of technology in society misses, it seems to me, is the most productive and beneficial technology of all: entrepreneurship.

Entrepreneurship is technology in every one of Arthur’s definitions. It is, first, a means to fulfill a human purpose. That purpose is a better life – to bring into being a better set of circumstances, a preferable set of conditions, than exist today. Entrepreneurs pursue this end for others now, in order to achieve it (later) for themselves. 

Entrepreneurship is also assembly. In fact, economists use that very word to portray the act of entrepreneurship: assembling resources, capital, processes and people, and organizing them in teams and firms and corporations in order to achieve their human purpose. Entrepreneurship brings about lasting institutions to transmit the achievements of assembly across generations and across geographies.

And entrepreneurship is a collection of actions and practices for the benefit of society and the strengthening of culture. We study entrepreneurial history to understand how the actions of individual entrepreneurs, embracing risk and defying uncertainty, have led to civilizational advance, scientific understanding and commercial discovery. Entrepreneurship drives social evolution and technological evolution. Entrepreneurs experiment and try new approaches and build new devices so that we can all benefit from the learning that comes from both success and failure. The entrepreneurs bear the brunt of the failures and the rest of society benefits from the successes.

And what are the phenomena harnessed by entrepreneurship? The first is the most fundamental of all: the phenomenon of human action: that humans act, take decisions and make choices in order to improve their subjectively-perceived conditions of life, to make things better. And there is a special second phenomenon that is particularly harnessed by entrepreneurs, that of anticipative understanding (as Ludwig von Mises termed it): the reasoned, sensible, intuitive anticipation of that future better life, based on their tacit knowledge, their subjective understanding, their empathy and their experience. Successful entrepreneurs harness this phenomenon better than other people, though it may be available to all.

It is not the technology of the F-35 or the computer or the smartphone or of biotech that makes life better, or that advances civilization. Those are secondary outcomes of the complex human system powered by entrepreneurship. The conditions of life can be continuously improved and our human state can be continuously elevated because we have entrepreneurs who can harness the phenomenon of human action aimed at betterment. Entrepreneurship is the meta-technology, making all sub-assemblies and components possible, continually driving advances in other technologies, society, the economy and civilization.

For A New Entrepreneurial Organization Of Our Economy.

/0 Comments/in /by

Biologists tell us that life is not the result of the carbon-based matter of which we are composed but of the organization of that matter. For example, none of the atoms or molecules or neurons in our brains are conscious, but the ways they are connected and organized results in consciousness as an emergent property.

Biological systems and economic systems have many shared characteristics, and the influence of organization on system outcomes is one of them.

The organization of firms in our system of economic production may be becoming dysfunctional. Instead of a network of highly productive entrepreneurial innovators driving betterment and economic growth, some sectors of the economy are witnessing  new forms of more concentrated organization in which dominant large corporations command outsize shares of transactions, revenues and profits.

Why is this a problem? We can identify at least two consequences of this trend. One is the emergence of what Ludwig von Mises called in Human Action “a salaried managerial oligarchy”. Such an organization is the opposite of what drives innovation and growth.  What Mises calls “the marvelous achievements of corporate business” are determined by the entrepreneur who decides “without any managerial interference” where to employ capital and how much capital to employ. These are “the essential decisions which are instrumental in the conduct of business. They always fall upon the entrepreneur”.

The second, related, consequence is the build-up of bureaucracy in large corporations. These bureaucratic structures are counter-productive – i.e. their purpose is not to increase productivity but to constrain it. Much of the bureaucracy results from a response to or is a requirement of government intervention. A lot of the bureaucratic activity falls under the heading of compliance, i.e. confirming the corporate subordination to government regulation and interventions.  The rest of the “woke” HR internal policy making is similarly driven by government requirements for demonstrated alignment with so-called social justice policies.

A more entrepreneurial organization of the economy around smaller, innovation-focused firms could result in less waste of resources and people by eliminating or reducing the total incidence of bureaucracy. We could also expect less lobbying for government favors (another form of wasted resources and effort), and less corporatism (the tendency for government and corporations to converge in counter-productive activities such as surveillance and anti-competitive lawmaking).

On the positive side, we could also expect that more entrepreneurial organization will produce a shift back to consumer sovereignty, the positive feedback process whereby consumer perception of value determines what goods and services are produced. Government and their corporate allies would rather believe that they know better what consumers should value, and would like to enforce their superior knowledge by limiting consumer choice. Healthcare and health insurance are a good example: an unholy alliance of big corporations and big government leaves consumers with an artificially narrow set of choices at artificially high prices. The energy sector is analogous to healthcare; the recent Texas blackouts provided an example of regulated corporations in alliance with their government controllers reducing the available options to the degree that the constrained power supply was unable to meet demand at a critical time. Entrepreneurs exist to ensure that supply meets demand, and the government-corporate failure in Texas was a particularly egregious example of how this feedback loop can break down.

The economy is a network of trust relationships. We can’t create complex, durable networks of cooperation unless the contracts between the customers and firms who are cooperating are fair and inclusive and engender trust. People are beginning to suspect that the contracts with big business corporations are unfair. Facebook, Google, and others take individuals’ personal data and re-sell it in different forms without compensating the individual who generated it in the first place. Amazon offers a platform to third-party sellers then uses the learning obtained to under-price them or undermine them through the use of corporate economic power. Energy providers conspire with government to limit user choices and drive up prices.

In an entrepreneurially organized economy, we’d base exchange on fairer contracts that are more innovative, more dynamic, and more inclusive in terms of sharing the gains of growth, and we’d create positive networks or positive feedbacks, where fairness and inclusiveness lead to more cooperation in the system. We’d put simpler – less corporately bureaucratic – pieces together to generate responsively dynamic behavior in economic systems. The crony capitalism of big government-entangled corporations has damaged the idea of fair economic contracts and thus has actually harmed the positive consumer feedback loop. This reduces trust, thereby reducing capitalism’s capacity to innovate and reducing capitalism’s capacity to create progress. Instead, it has created a system that rewards rent-seeking and value extraction rather than value creation.