25 February 2011

Entrepreneurship

One of the more common themes of my college business classes has been on the topic of encouraging and explaining entrepreneurship.  While I am of the opinion that entrepreneurs are more “born” than “made,” I tend to agree with the general sentiment that the world needs more entrepreneurship.

Unfortunately, what most of my professors have meant by entrepreneurship is little more than running a small business.  There is nothing inherently wrong with running a small business, but telling people that starting a specific, government-defined vehicle of wealth is the same as being an entrepreneur, and that this is a desirable thing seems somewhat misguided to me.

In addition, this seems to be a silly status game.  (Note: status-boosting is the social inverse of shaming, in that it is using language to override most a person’s beliefs/desires.)   Calling people entrepreneurs in order to get them to engage in activities that are detrimental to them is unsustainable in the long-term, and downright cruel in spite of proponents’ intentions.

I say that encouraging a false form of entrepreneurship is cruel because it encourages people to embark on business ventures that are high-tax (like sole proprietorship) and high risk in general.  Not everyone is going to succeed at small business ventures, yet most of my professors ignore this and present said ventures as, to borrow a phrase, “doing God’s work.”

In all of this, there is an implicit recognition that entrepreneurs have gone away, and that they are vital to the long-term economic success of not just one’s country, but the entire world.  This is true, albeit slightly hyperbolic, and deserves some consideration.  The best place to start is with the meaning of the word “entrepreneur.”

What is an entrepreneur?


There is no simple way to define “entrepreneur.”  It is like pornography, in that one knows it when one sees it.  However, there are some general characteristics of entrepreneurs that are useful in setting them apart from others, and providing a workable definition.

In the first place, entrepreneurs are very independent-minded.  Some might refer to this as “thinking outside the box,” but that term is nonsensical and misleading, which is why I choose to avoid it.  Instead, entrepreneurs are people who think within different paradigms.  They do not need others to tell them how or what to think, because they can think for themselves.  This does not mean that they invent their own facts; rather, they draw their own conclusions from them.

Secondly, entrepreneurs are creative.  They see the same problems everyone else sees, but they are able to come up with different solutions.  The solutions are not needlessly complex.  In fact, most are dead simple, almost insanely so.  Sometimes, the entrepreneurial will look to replace while most look to reform, and this requires a special kind of creativity.

Third, the entrepreneur has a special relationship with risk.  Entrepreneurs are not afraid of risk, in part because they are better able to understand it.  There have been many successful ventures that others would consider risky.  The ventures were considered risky because so much was unknown.  The iPod, for example, and the personal computer were at one time considered risky bets because most of the experts were unable to correctly identify risk. The entrepreneurs who brought these products to market understood better than the so-called experts that these risks, though unknown, were likely overstated because people wanted these things even if they didn’t know it beforehand.  The entrepreneur, since he is able to see solutions that no one else sees, also knows that presenting these solutions is not as risky as experts think, because people want these solutions even though they themselves cannot envision them.

In the fourth place, the entrepreneur is active.  He is not content to sit back and let life happen to him. As clich√© as this sounds, he makes his own luck.  He does whatever he can to ensure his success.  Does chance play a part in his eventual success or failure? Definitely.  But the entrepreneur does what he can to ensure that chance plays the smallest role possible in the outcome of his venture.

In the fifth place, the entrepreneur is industrious.  He is not lazy.  This doesn’t mean that he does unnecessary work, but it does mean that he gets work done.  He works intelligently, and tries to accomplish as much as he can in the most efficient way possible.  He also more intelligent than average.

Obviously, then, these are the sort of people that bring about the process of “creative destruction,” which is why they are so necessary.  But it seems that these sort of people have dropped out of the economy, which begs the obvious question:

Where have the entrepreneurs gone?


Where indeed.  Entrepreneurs have seemingly disappeared from the market, and no one seems to know where they are.  Fortunately, Captain Capitalism can give us some insight:
Bill is my buddy and my realtor. I've known him a long time as I've been in real estate a long time. And ever since I've known him he's been an entrepreneur. He's been in real estate, works hard and has always been on the look out for what we call "Cunning Plans" as a reference to the Black Adder Comedy Troupe.
His "cunning plans" included grandiose things like boosting some of the poorer communities by bulldozing the worst neighborhoods and putting a golf course right in the middle while building around the periphery of the course condos to house those displaced.
Another was to analyze and identify key houses in the richest of neighborhoods, purchasing them and housing ex-cons and loud youth in them to drive prices in the neighborhood down, only to repurchase the land, kick the criminals out and resell the properties at a markup.
Whatever the case, he was always thinking, planning and scheming coming up with new ideas.
No longer.
Now he's gone into complete defense mode. His purchases and "investments" are not really investments at all, but food supplies, survival gear and potentially finding a safe house. Admittedly he's gone a little further down the "society collapsing" route than I have, but be it him, me or any other young entrepreneur, there is a HUGE ramification that just dawned on me.
The entrepreneurs are no longer entrepreneuring. They've stopped.
The Captain is somewhat mistaken here.  Entrepreneurs haven’t stopped being themselves; they’ve merely redirected their energies.  Bill didn’t stop planning and executing, he changed his plans.  Instead of making a profit in real estate, he has decided to prepare for the coming collapse.  Entrepreneurs, first and foremost, look out for themselves.  Many products have been invented, and many innovations have occurred because someone simply wanted to solve a problem that was bothering them.  Since marketing this product is no longer as profitable as it once was, Bill simply decided to use his talents differently.

And so, the entrepreneurs are still among us, but they are no longer concerned with solving “our” problems, which begs the next question:

Why have they dropped out?


The Adam Smith Institute recognizes the problem exists, and, in proposing a solution, hints at the reason why they’ve dropped out:
We'd all like to have more entrepreneurs in the economy, of course. Those lighting rods of the business world who are able to see new ways of putting together extant resources to produce new, better, even cheaper, products for the rest of us to enjoy.
But it turns out that "encouraging entrepreneurship" is more difficult that it seems. Telling people to go and do something new doesn't inspire all that many to do so…
For example, reducing the regulation which winds around all too many industries would mean that skill and talent stops being used to deploy such regulations to strangle competitors and is instead turned to creating new ones.
To put it another way: create that level playing field and entrepreneurs won't spend their time trying to game the system, they'll get on with making life better for us all.

The reason why entrepreneurs have stopped producing is because there is little or no profit in it, pure and simple.  The government has made it costly to do business, especially if that business is production.  There a thousands of costly regulations that must be adhered to in order for any business venture to be allowed to exist and operate.  Entrepreneurs don’t want any part of this.  In fact, no one, outside of lawyers, wants anything to do with the mess of the regulatory system, for too often it gets in the way of doing actual work.  Filling out forms is not productive, it is wasteful.

It is also expensive.  One must either spend their own time filling out forms, limiting personal productivity and the profits associated with it, or one must hire someone else to fill out the forms, which also cuts into profits.

Compliance to regulations also cost money, particularly where production facilities are concerned.  These days, coming up with a new idea is the easy part.  The hard part is producing it.  Production in America is costly, in part because of building codes and in part because of pollution control.  And producing overseas is no picnic either.  There are shipping costs and extra personnel costs associated with overseas productions.

And who can forget taxes?  There are corporate taxes and personal taxes to be paid, all compounding upon one another.  When you think about it, it is indeed a wonder that entrepreneurs are able to make a profit at all.  And when you consider it further, it is no surprise that they are dropping out of the system in droves.

But it need not be like this, which begs the next question:

How can we bring them back?


This question is a very broad one, and has thousands of contributory answers.  However, there are four major policies that, if enacted, should help to restore the entrepreneurial spirit.

In the first place, I recommend ending all business subsidies, at both the state and federal level.  This is necessary because this will enable deregulation, and because this levels the playing field.  Big businesses do not need subsidies.  If they can make it on their own, the subsidies are superfluous.  If they cannot, the subsidies keep a bad system from failing.  Either way, businesses are better able to undercut the inventions and innovations of entrepreneurs.

In the second place, and only after all subsidies have been removed, it is time to deregulate.  Regulatory compliance is often a fixed cost, which is not easily distributed when dealing with niche productions.  Large industries have little problem with laws like this because they can deal with them relatively cheaply.  For the entrepreneur that is just starting out, these sort of costs can cripple or prevent them or prevent their venture from going anywhere.  And if we except small-time entrepreneurs from compliance, it is only fair to except everyone else as well.

In the third place, I would recommend eliminating corporate taxes.  This recommendation stems primarily from the belief that individual citizens should bear the cost of taxation.  It is a truism that only individuals can pay taxes anyway, so the tax code should directly reflect this reality.  In addition, the only thing corporate taxes really do is increase the break-even point, which can be the difference between success and failure for many entrepreneurs.

Finally, I would eliminate Intellectual Property law.  This sounds counter-intuitive to most, but between patent jumpers and the massive amount of IP lawsuits, entrepreneurs are better off without IP.  In fact, large corporations often patent things they have no intention of bringing to market just so they can sue or charge licensing fees to those who end bringing those ideas to market.  This benefits no one except mega-corporations, and is itself a form of corporate welfare.

Summary and implications


The entrepreneur is a poorly understood creature who has gone into hiding.  He has dropped out of the market because it is no longer profitable for him to remain in it. Instead, he has now focused his attention on doing what is best for himself in light of the coming collapse.  He should not be blamed or derided for this choice.

In fact, if anyone deserves blame in this matter, it is those of us who have demanded that the entrepreneur forego his self-interest in order to serve our needs while simultaneously support politicians and policies that have turned the entrepreneur’s game  into a no-win situation for him.

If we want the entrepreneurs to come back, we must reverse the policies that have caused them to leave.  We must once again level the playing field for them.  Maybe, just maybe, they’ll come back.

2 comments:

  1. When I finish my M.Div., I'm planning to head overseas. I'm not sure where I am going yet, but one of the scenarios I have been considering is that instead of waiting for a formed congregation to call me, going out and building a church from scratch. Given how adverse Unitarians are to any sort of evangelism, this may be quite the challenge.

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  2. @Oz- good luck. Personally, I favor starting from scratch. Sure, it's harder work, but it is very rewarding.

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