Category: Entrepreneurship

Regulations Deter Start-Ups, Creating a “Senile Economy”

(p. 5B) We may have a “senile economy,” says economist Robert Litan of the Brookings Institution. That’s senile as in old, rigid and undynamic.

. . .

Litan is not just blowing smoke. In a new study, he and Ian Hathaway measured the age of American businesses. They were astonished by what they found: From 1992 to 2011, the share of U.S. firms that were 16 and older jumped from 23 percent to 34 percent.

. . .

What happened to all the entrepreneurs? Good question.

“We do not have an explanation,” write the University of Maryland and the Census Bureau economists. Neither does Litan. “One theory is that the cumulative effect of regulations,” he says, discriminates against new businesses and favors “established firms that have the experience and resources to deal with it.” What allegedly deters and hampers startups is not any one regulation but the cost and time of complying with a blizzard of them.

For the full commentary, see:
ROBERT J. SAMUELSON. “Fewer entrepreneurs spells trouble.” Omaha World-Herald (Mon., August 11, 2014): 5B.
(Note: ellipses added.)

The article mentioned above by Hathaway and Litan is:
Hathaway, Ian, and Robert E. Litan. “The Other Aging of America: The Increasing Dominance of Older Firms.” In Economic Studies at Brookings, The Brookings Institution (July 2014): 1-17.

“Seeing What Everybody Has Seen and Thinking What Nobody Has Thought”

Szent-Györgyi is onto something important below. But I think it would be more accurate to say that we all experience dissonant events (but usually not the same dissonant events, as Szent-Györgyi implies), and that most of us let the events pass without noticing, or remembering, or making use of them. What is rare is to notice the events, remember them and make use of them. Those who carry around with them the burden of unsolved problems, and unfixed frustrations, are more likely to see in unexpected events solutions to those problems and fixes for the frustrations. This all takes the effort of our better self (what Kahneman calls our System 2). It takes effort to carry around the problems, to bear the dissonant observations, and to suffer the indifference of friends and the ridicule of experts. But it is through such effort that we better understand the world and, most importantly, that we improve the world.

(p. 12) “Discovery (p. 13) consists of seeing what everybody has seen and thinking what nobody has thought,” according to Nobelist Albert Szent-Györgyi.14
. . .
(p. 324) 14. Albert Szent-Györgyi, Bioenergetics (New York: Academic Press, 1957), 57.

Source:
Meyers, Morton A. Happy Accidents: Serendipity in Modern Medical Breakthroughs. New York: Arcade Publishing, 2007.
(Note: italics in original.)

For Health Entrepreneurs “the Regulatory Burden in the U.S. Is So High”

(p. A11) Yo is a smartphone app. MelaFind is a medical device. Yo sends one meaningless message: “Yo!” MelaFind tells you: “biopsy this and don’t biopsy that.” MelaFind saves lives. Yo does not. Guess which firm found it easier to put their product in consumers hands?
. . .
In January 2010, Jeffrey Shuren, a veteran FDA official, was appointed director of the FDA’s Center for Devices and Radiological Health, the division responsible for evaluating MelaFind. Dr. Shuren, Dr. Gulfo writes, had “a reputation for being somewhat anti-industry” and “an aggressive agenda to completely revamp the device approval process.” Thus in March MELA Sciences was issued something called a “Not Approvable letter” raising various questions about MelaFind.
. . .
The letter sent the author into survival mode. He battled the FDA, calmed investors, and defended against the lawsuit all while trying to keep the company afloat. Under stress, Dr. Gulfo’s health began to decline: He lost 29 pounds, his hair began to fall out, and the pain in his gut became so intense he needed an endoscopy.
. . .
The climax to this medical thriller comes when, in “the greatest 15 minutes of [his] life,” Dr. Gulfo delivers an impassioned speech, à la “Twelve Angry Men,” to the FDA’s advisory committee. The committee voted for approval, 8 to 7, and, perhaps with the congressional hearing in mind, the FDA approved MelaFind in September 2011.
It was a major triumph for the company, but Dr. Gulfo was beat. He retired from the company in June 2013– . . .
. . .
Google’s Sergey Brin recently said that he didn’t want to be a health entrepreneur because “It’s just a painful business to be in . . . the regulatory burden in the U.S. is so high that I think it would dissuade a lot of entrepreneurs.” Mr. Brin won’t find anything in Dr. Gulfo’s book to persuade him otherwise. Until we get our regulatory system in order, expect a lot more Yo’s and not enough life-saving innovations.

For the full review, see:
ALEX TABARROK. “BOOKSHELF; It’s Broke. Fix It. MelaFind’s breakthrough optical technology promised earlier, more accurate detection of melanoma. Then the FDA got involved.” The Wall Street Journal (Tues., Aug. 12, 2014): A11.
(Note: ellipses added, except for the one internal to the final paragraph, which is in the original.)
(Note: the online version of the review has the date Aug. 11, 2014, and has the title “BOOKSHELF; Book Review: ‘Innovation Breakdown’ by Joseph V. Gulfo; MelaFind’s breakthrough optical technology promised earlier, more accurate detection of melanoma. Then the FDA got involved.”)

The book under review is:
Gulfo, Joseph V. Innovation Breakdown: How the FDA and Wall Street Cripple Medical Advances. Franklin, TN: Post Hill Press, 2014.

Curing Cancer Requires Enabling Serendipity, Not a Centrally Planned War

Happy Accidents is a wonderful book on serendipitous discovery that I ran across serendipitously. I had never heard of the author, but was interested in serendipity, so I started to collect books that Amazon says have something to do with serendipity. I let Happy Accidents sit on my shelf for about four years before starting to read.
The author is a retired, distinguished physician. The book is mainly a compendium of cases where major medical advances resulted from chance discoveries. Of course, the discoveries usually required more than just good luck. They usually required that someone was alert to the unexpected, and was willing to work in order to turn the unexpected into a cure. Their efforts are often made all the harder because of resistance from powerful incumbent “experts” and institutions. Often the discoveries go against the current theory, and are discovered by underfunded marginal outsiders.
Meyers points out that the centrally planned War on Cancer has cost the taxpayer a lot of money, and has largely failed to achieve its intended and predicted results. The reason is that you cannot centrally plan serendipity.
During the next several weeks, I will be quoting some of Meyers’ more revealing examples or thought-provoking comments.

Book discussed:
Meyers, Morton A. Happy Accidents: Serendipity in Modern Medical Breakthroughs. New York: Arcade Publishing, 2007.

Bill Gates on Xerox’s Inventions and Mistakes

(p. C3) Not long after I first met Warren Buffett back in 1991, I asked him to recommend his favorite book about business. He didn’t miss a beat: “It’s ‘Business Adventures,’ by John Brooks, ” he said. “I’ll send you my copy.” I was intrigued: I had never heard of “Business Adventures” or John Brooks.
Today, more than two decades after Warren lent it to me–and more than four decades after it was first published–“Business Adventures” remains the best business book I’ve ever read. John Brooks is still my favorite business writer. (And Warren, if you’re reading this, I still have your copy.)
. . .
One of Brooks’s most instructive stories is “Xerox Xerox Xerox Xerox.” (The headline alone belongs in the Journalism Hall of Fame.) The example of Xerox is one that everyone in the tech industry should study. Starting in the early ’70s, Xerox funded a huge amount of R&D that wasn’t directly related to copiers, including research that led to Ethernet networks and the first graphical user interface (the look you know today as Windows or OS X).
But because Xerox executives didn’t think these ideas fit their core business, they chose not to turn them into marketable products. Others stepped in and went to market with products based on the research that Xerox had done. Both Apple and Microsoft, for example, drew on Xerox’s work on graphical user interfaces.
I know I’m not alone in seeing this decision as a mistake on Xerox’s part. I was certainly determined to avoid it at Microsoft. I pushed hard to make sure that we kept thinking big about the opportunities created by our research in areas like computer vision and speech recognition. Many other journalists have written about Xerox, but Brooks’s article tells an important part of the company’s early story. He shows how it was built on original, outside-the-box thinking, which makes it all the more surprising that as Xerox matured, it would miss out on unconventional ideas developed by its own researchers. (To download a free e-book of “Xerox Xerox Xerox Xerox,” go to GatesNotes.com.)

For the full review, see:
BILL GATES. “My Favorite Business Book.” The Wall Street Journal (Sat., July 12, 2014): C3.
(Note: ellipsis added.)
(Note: the last quoted sentence is in the location, and has the wording, of the printer version, not the online version.)
(Note: the online version of the review has the date July 11, 2014, and has the title “Bill Gates’s Favorite Business Book.”)

The book being reviewed is:
Brooks, John. Business Adventures: Twelve Classic Tales from the World of Wall Street. pb ed. New York: Open Road Integrated Media, Inc., 2014.

Structural Reforms Needed to Increase Innovation

(p. A13) . . . , a lack of “demand” is no longer the problem.
. . .
Where, instead, are the problems? John Taylor, Stanford’s Nick Bloom and Chicago Booth’s Steve Davis see the uncertainty induced by seat-of-the-pants policy at fault. Who wants to hire, lend or invest when the next stroke of the presidential pen or Justice Department witch hunt can undo all the hard work? Ed Prescott emphasizes large distorting taxes and intrusive regulations. The University of Chicago’s Casey Mulligan deconstructs the unintended disincentives of social programs. And so forth. These problems did not cause the recession. But they are worse now, and they can impede recovery and retard growth.
These views are a lot less sexy than a unicausal “demand,” fixable by simple, magic-bullet policies. They require us to do the hard work of fixing the things we all agree need fixing: our tax code, our cronyist regulatory state, our welter of anticompetitive and anti-innovative protections, education, immigration, social program disincentives, and so on. They require “structural reform,” not “stimulus,” in policy lingo.

For the commentary, see:
JOHN H. COCHRANE. “OPINION; The Failure of Macroeconomics; When models don’t yield the spending policies they want, some Keynesians abandon models–but not the spending.” The Wall Street Journal (Thur., July 3, 2014): A13.
(Note: ellipses added.)
(Note: the online version of the commentary has the date July 2, 2014.)

Established Companies Are Not Structured for Exponential Growth

(p. A13) Why are large tech companies losing the ability to innovate? Entrepreneur and author Salim Ismail studies the new generation of “exponential corporations,” enterprises that grow 10 times faster than the average rate. He believes that established companies simply aren’t structured for this kind of speed. So their only choice is to buy those companies that can still innovate rapidly.
If Mr. Ismail is correct–and the current dynamic in Silicon Valley suggests that he may be–we’re on the brink of a major restructuring of business strategy, venture capital and almost every part of the high-tech world. It may be time to stop waiting for famous tech companies to roll out the hottest new product and start investing in startups that can sell their innovations to big companies. Tech appears to be evolving into a different kind of field: one that is, paradoxically, more static at the top but also more dependent on entrepreneurship than ever before.

For the full commentary, see:
MICHAEL S. MALONE. “An Innovation Slowdown at the Tech Giants; Seen anything new and big lately from Cisco, Yahoo or even Twitter?” The Wall Street Journal (Weds., July 2, 2014): A13.
(Note: the online version of the commentary has the date July 1, 2014.)

The Ismail research mentioned above, is discussed further in:
Ismail, Salim, Mike Malone, and Yuri van Geest. Exponential Organizations: Why New Organizations Are Ten Times Better, Faster, Cheaper Than Yours (and What to Do About It). New York: Diversion Books, 2014.

Poggio Helped Invent Italics Script

(p. 115) What Poggio accomplished, in collaboration with a few others, remains startling. They took Carolingian minuscule–a scribal innovation of the ninth-century court of Charlemagne–and transformed it into the script they used for copying manuscripts and writing letters. This script in turn served as the basis for the development of italics. They were then in effect the inventors of the script we still think of as at once the clearest, the simplest, and the most elegant written representation of our words. It is difficult to take in the full effect without seeing it for oneself, for example, in the manuscripts preserved in the Laurentian Library in Florence: the smooth bound volumes of vellum, still creamy white after more than five hundred years, (p. 116) contain page after page of perfectly beautiful script, almost magical in its regularity and fineness.

Source:
Greenblatt, Stephen. The Swerve: How the World Became Modern. New York: W. W. Norton & Company, 2011.

John Jacob Astor on Why His Son Gave More to Charity

John Jacob Astor . . . enjoyed making fun of his own foibles, including his carefully restrained charitable instincts. One day when a man dropped by his office to solicit a contribution to some worthy cause, Astor grumpily wrote out a check. Looking at the paltry amount from the richest man in the country in some dismay, the man said that Astor’s son, William, had already given twice as much.
“Ah, well,” replied Astor, “but then William has a rich man for a father.”

Source:
Klepper, Michael, and Robert Gunther. “The American Heritage 40.” American Heritage 49, no. 6 (Oct. 1998): 56-66.
(Note: ellipsis added.)

Rollin King Found Legal Way to Avoid Fed’s Regulations

(p. 25) Rollin W. King, a co-founder of Southwest Airlines, the low-cost carrier that helped to change the way Americans travel, died Thursday [June 26, 2014] in Dallas. He was 83.
. . .
The concept for Southwest came to Mr. King when he noticed that businessmen in Texas were willing to charter planes instead of paying the high fares of the domestic airlines.
At the time that Mr. King first proposed the idea to Mr. Kelleher over drinks, the federal government regulated the fares, schedules and routes of interstate airlines, and the mandated prices were high.
Competitors like Texas International Airlines, Braniff International Airways and Continental Airlines waged a protracted legal battle before Southwest could make its first flight. By not flying across state borders, Southwest was able to get around prices set by the Civil Aeronautics Board.

For the full obituary, see:
MICHAEL CORKERY. “Rollin King, 83, Pilot Who Helped Start Southwest Airlines.” The New York Times, First Section (Sun., June 29, 2014): 25.
(Note: ellipsis, and bracketed date, added.)
(Note: the online version of the obituary has the date June 28, 2014, and has the title “Rollin King, Texas Pilot Who Helped Start Southwest, Dies at 83.”)

Political Entrepreneurs Can Find Ways to Overcome Vested Interests

[p. 202] In their recent book, Leighton and López (2013) place special emphasis on political entrepreneurship in making policy reform possible. For new ideas to overcome vested interests, they write (p. 134), it must be the case that “entrepreneurs notice and exploit those loose spots in the structure of ideas, institutions, and incentives.” They provide four case studies of this process: spectrum license auctions, airline deregulation, welfare reform, and housing finance. In their words (p. 178): “[T]he public face of political change may be that of a madman, an intellectual, or an academic scribbler. But whatever form these leaders may take, they are political entrepreneurs–people whose ideas and actions are focused on producing change.” As these authors stress, political entrepreneurship can be socially harmful, as when the pursuit of individual rents comes at the expense of overall inefficiency. But the returns from shifting the political transformation frontier out can be very large as well.
. . .
(p. 206) I owe a special debt to the recent book by Edward López and Wayne Leighton (2012 sic) for stimulating me to put down on paper a number of ideas I had been mulling over for some time.

Source:
Rodrik, Dani. “When Ideas Trump Interests: Preferences, Worldviews, and Policy Innovations.” Journal of Economic Perspectives 28, no. 1 (Winter 2014): 189-208.
(Note: the bracketed page number refers to the Rodrik article; the page number in parentheses refers to the Leighton and López book; ellipsis added; italics, and the bracketed letter, in the original.)

The book Rodrik discusses is:
Leighton, Wayne A., and Edward J. López. Madmen, Intellectuals, and Academic Scribblers: The Economic Engine of Political Change. Stanford, CA: Stanford University Press, 2013.