Entrepreneurship – Page 174 – artdiamondblog.com

Entrepreneurs Are the Main Source of Economic Growth

(p. 144) The reason the system of capitalism without capitalists is failing throughout most of Europe is that it misconceives the essential nature of growth. Poring over huge aggregations of economic data, economists see the rise to wealth as a slow upward climb achieved through the marginal productivity gains of millions of workers, through the slow accumulation of plant and machinery, and through the continued improvement of “human capital” by advances in education, training, and health. But, in fact, all these sources of growth are dwarfed by the role of entrepreneurs launching new companies based on new concepts or technologies. These gains generate the wealth that finances the welfare state, that makes possible the long-term investments in human capital that are often seen as the primary source of growth.

Source:
Gilder, George. The Spirit of Enterprise. 1 ed. New York: Simon and Schuster, 1984.

“Capitalism without Capitalists”

(p. 131) . . . suffusing all the most visionary and idealistic prose of leftist economics is the same essential dream of the same static and technocratic destiny: capitalism without capitalists. Wealth without the rich, choice without too many things to choose, political and intellectual freedom without a vulgarian welter of individual money and goods, a social revolution every week or so without all this disruptive enterprise.

Source:
Gilder, George. The Spirit of Enterprise. 1 ed. New York: Simon and Schuster, 1984.
(Note: ellipsis added.)

High Progressive Income Taxes Result in “Demoralization of Entrepreneurs”

(p. 127) High progressive and unnegotiable gouges like those in Sweden and England drive people altogether out of the country into offshore tax havens, out of income-generating activities into perks and leisure pursuits, out of money and savings into collectibles and gold, and, most important, out of small business ventures into the cosseting arms of large established corporations and government bureaucracies. The result is the demoralization of entrepreneurs and the stultification of capital. The experimental knowledge that informs and refines the process of economic growth is stifled, and the metaphysical capital in the system collapses, even while all the indices of capital formation rise.

Source:
Gilder, George. The Spirit of Enterprise. 1 ed. New York: Simon and Schuster, 1984.

Gilder Explored “The Spirit of Enterprise”

Source of book image:
http://g-ecx.images-amazon.com/images/G/01/ciu/64/17/bc94225b9da0b4326fb8b010.L.jpg

Gilder presents many case studies of entrepreneurs, with plenty of thought-provoking commentary and generalization.
I read the 1984 version because it is the version that is available in audio that can be listened to while walking the dachshund. I also own the 1992 updated version, and can say from a flip-through that this it is a major revision (not just a “revision” that consists of a new introduction, as is often done).
Gilder justly, and eloquently, takes economists to task for generally ignoring the role of the entrepreneur in improving our lives.

For the early edition, see:
Gilder, George. The Spirit of Enterprise. 1 ed. New York: Simon and Schuster, 1984.
For the revised version, see:
Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.

Source of the book image: http://www.icspress.com/images/recapturing.jpg

“Venturesome” Consumers May Help Save the Day

Bhidé makes thought-provoking comments about the role of the entrepreneurial or “venturesome” consumer in the process of innovation. The point is the mirror image on one made by Schumpeter in Capitalism, Socialism and Democracy when he emphasized that consumer resistance to innovation is one of the obstacles that entrepreneurs in earlier periods had to overcome. (The decline of such consumer resistance was one of the reasons that Schumpeter speculated that the entrepreneur might become obsolete.)
I would like to see Bhidé’s evidence on his claim that technology rapidly advanced during the Great Depression. The claim seems at odds with Amity Shlaes’ claim that New Deal policies often discouraged entrepreneurship.

(p. A15) Consumers get no respect — we value thrift and deplore the spending that supposedly undermines the investment necessary for our long-run prosperity. In fact, the venturesomeness of consumers has nourished unimaginable advances in our standard of living and created invaluable human capital that is often ignored.
Economists regard the innovations that sustain long-run prosperity as a gift to consumers. Stanford University and Hoover Institution economist Paul Romer wrote in the “Concise Encyclopedia of Economics” in 2007: “In 1985, I paid a thousand dollars per million transistors for memory in my computer. In 2005, I paid less than ten dollars per million, and yet I did nothing to deserve or help pay for this windfall.”
In fact, Mr. Romer and innumerable consumers of transistor-based products such as personal computers have played a critical, “venturesome” role in generating their windfalls.
. . .
History suggests that Americans don’t shirk from venturesome consumption in hard times. The personal computer took off in the dark days of the early 1980s. I paid more than a fourth of my annual income to buy an IBM XT then — as did millions of others. Similarly, in spite of the Great Depression, the rapid increase in the use of new technologies made the 1930s a period of exceptional productivity growth. Today, sales of Apple’s iPhone continue to expand at double-digit rates. Low-income groups (in the $25,000 to $49,999 income segment) are showing the most rapid growth, with resourceful buyers using the latest models as their primary device for accessing the Internet.
Recessions will come and go, but unless we completely mess things up, we can count on our venturesome consumers to keep prosperity on its long, upward arc.

For the full commentary, see:
Amar Bhidé. “Consumers Can Still Spot Value in a Crisis.” Wall Street Journal (Thurs., MARCH 11, 2009): A15.
(Note: ellipsis added.)

Entrepreneurs Are Key to Ending Economic Crisis

(p. A15) The passage of the $787 billion stimulus bill has so far failed to stimulate anything but greater market pessimism. This suggests to us that the strategy behind the American Reinvestment and Recovery Act is wrong — and worse, that the weapons it is using to fight the recession are obsolete.

Just as generals are notorious for fighting the last war, Congress and the White House seem intent on fixing an economy of hidebound and obsolete companies and industries, while ignoring the innovative ones rising before us and those waiting to be born.

Missing from this legislation is anything more than token support for the long-proven source of most new jobs and new growth in America: entrepreneurs. These are the people who gave us everything — from Wal-Mart to iPhones, from microprocessors to Twitter — that is still strong in our economy. Without entrepreneurs, we will never get out of our current predicament.

For the full commentary, see:
TOM HAYES and MICHAEL S. MALONE. “Entrepreneurs Can Lead Us Out of the Crisis What Are the Odds of a Depression?” Wall Street Journal (Tues., FEBRUARY 24, 2009): A15.
(Note: ellipses added.)

Bailouts Reduce Resources Left for Entrepreneurs

Columbia University Professor Amar Bhidé has authored two important books on entrepreneurship. Some of his thoughts on the current economic crisis follow:

(p. A15) Our ignorance of what causes economic ailments — and how to treat them — is profound. Downturns and financial crises are not regular occurrences, and because economies are always evolving, they tend to be idiosyncratic, singular events.

After decades of diligent research, scholars still argue about what caused the Great Depression — excessive consumption, investment, stock-market speculation and borrowing in the Roaring ’20s, Smoot-Hawley protectionism, or excessively tight monetary policy? Nor do we know how we got out of it: Some credit the New Deal while others say that that FDR’s policies prolonged the Depression.
. . .
Large increases in public spending usurp precious resources from supporting the innovations necessary for our long-term prosperity. Everyone isn’t a pessimist in hard times: The optimism of many entrepreneurs and consumers fueled the takeoff of personal computers during the deep recession of the early 1980s. Amazon has just launched the Kindle 2; its (equally pricey) predecessor sold out last November amid the Wall Street meltdown. But competing with expanded public spending makes it harder for innovations like the personal computer and the Kindle to secure the resources they need.

Hastily enacted programs jeopardize crucial beliefs in the value of productive enterprise. Americans are unusually idealistic and optimistic. We believe that we can all get ahead through innovations because the game isn’t stacked in favor of the powerful. This belief encourages the pursuit of initiatives that contribute to the common good rather than the pursuit of favors and rents. It also discourages the politics of envy. We are less prone to begrudge our neighbors’ fortune if we think it was fairly earned and that it has not come at our expense — indeed, that we too have derived some benefit.

To sustain these beliefs, Americans must see their government play the role of an even-handed referee rather than be a dispenser of rewards or even a judge of economic merit or contribution. The panicky response to the financial crisis, where openness and due process have been sacrificed to speed, has unfortunately undermined our faith. Bailing out AIG while letting Lehman fail — behind closed doors — has raised suspicions of cronyism. The Fed has refused to reveal to whom it has lent trillions. Outrage at the perceived use of TARP funds to pay bonuses is widespread.

For the full commentary, see:

Amar Bhidé. “Don’t Believe the Stimulus Scaremongers.” Wall Street Journal (Tues., FEBRUARY 17, 2009): A15.
(Note: ellipsis added.)

Bhidé’s two books on entrepreneurship are:
Bhidé, Amar. The Origin and Evolution of New Business. Oxford and New York: Oxford University Press, 2000.
Bhidé, Amar. The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World. Princeton, NJ: Princeton University Press, 2008.

UNO Economics Students Embrace Entrepreneurship

“The company was founded with the thought that a recession would happen,” said Grant Stanley, founder of marketing analytics firm Contemporary Analysis.” Source of caption and photo: online version of the Omaha World-Herald article quoted and cited below.

Grant was a student in my Economics of Technology and Economics of Entrepreneurship classes; Tadd was a student in my Honors Colloquium on Creative Destruction; Luis was a student in my Principle of Economics–Micro class. They have chosen an exciting path, and I wish them well!

(p. 1D) Grant Stanley was studying economics at the University of Nebraska at Omaha last year when he identified a business opportunity in the deteriorating economy.

A company making use of econometrics – a field that combines math, statistics and economics – could help small and midsize businesses make decisions in areas such as hiring, and sales and marketing techniques. Econometrics is widely used in education, government and large companies, Stanley said, but usually isn’t applied to smaller businesses.

Stanley thought the need for business forecasting and marketing analytics firms would grow as companies looked for help developing long-term strategies in order to survive an economic downturn.

So Stanley, who was only 20 years old at the time, started Contemporary Analysis, a marketing analytics firm, in March 2008.

“The company was founded with the thought that a recession would happen.”

Stanley courted classmate Tadd Wood, who also was 20 and studying economics, to help start the business, but it wasn’t an easy task. Wood already had a part-time job and was helping out in his family’s business.

“Tadd took months of, ‘Hey, want to hang out?'” before he agreed, Stanley said.

The young men met their third partner – Luis Lopez, 20 – through a friend over the summer, and the trio hit the ground running.

For the full story, see:
STEFANIE MONGE. “Pitching a startup in a downturn.” Omaha World-Herald (Monday, February 2, 2009): 1D & 3D.

“Members of the Contemporary Analysis team at a conference table in the home of Paddy Tarlton. From left are Luis Lopez, Nancy Jimenez, Grant Stanley, Tarlton and Tadd Wood.” Source of caption and photo: online version of the Omaha World-Herald article quoted and cited above.

Ending Capital-Gains Tax Would Encourage Funding for Entrepreneurial Ventures

(p. A15) In virtually all economics classes, including those taught by the many excellent economists on the Obama team, the idea of government spending as an engine for growth is not a popular topic. Yet despite their skepticism of Keynesianism in the classroom, when it comes to public policy, these economists happily endorse a large stimulus package that could bring our deficit to 10% of GDP. Why?
One explanation is that these economists think this recession is an extraordinary one.
. . .
But this particular recession is unique not in its dimensions, but in its sources. First, it is the result of a financial crisis that severely affected stock-market valuations. The bad equilibrium did not originate in the labor market, but in the credit market, where investors are reluctant to lend to risky firms. This reluctance is making it difficult for these firms to refinance their debt, forcing them to default on their credit, further validating investors’ fear. Thus, the problem is how to increase investors’ willingness to take risk. It’s unclear how the proposed stimulus package would help inspire investors to do so.
. . .
So how do we stimulate the economy without increasing the already large current-account deficit? It’s not easy, but here is an idea: Create the incentive for people to take more risk and move their savings from government bonds to risky assets. There is no better way to encourage this than a temporary elimination of the capital-gains tax for all the investments begun during 2009 and held for at least two years

For the full commentary, see:
ALBERTO ALESINA and LUIGI ZINGALES. “Let’s Stimulate Private Risk Taking.” Wall Street Journal (Weds., JANUARY 21, 2009): A15.
(Note: ellipses added.)

“Atlas Shrugged is a Celebration of the Entrepreneur”

“The art for a 1999 postage stamp.” Source of image: online version of the WSJ article quoted and cited below.

(p. W11) Many of us who know Rand’s work have noticed that with each passing week, and with each successive bailout plan and economic-stimulus scheme out of Washington, our current politicians are committing the very acts of economic lunacy that “Atlas Shrugged” parodied in 1957, when this 1,000-page novel was first published and became an instant hit.
Rand, who had come to America from Soviet Russia with striking insights into totalitarianism and the destructiveness of socialism, was already a celebrity. The left, naturally, hated her. But as recently as 1991, a survey by the Library of Congress and the Book of the Month Club found that readers rated “Atlas” as the second-most influential book in their lives, behind only the Bible.
For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises — that in most cases they themselves created — by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.
. . .
Ultimately, “Atlas Shrugged” is a celebration of the entrepreneur, the risk taker and the cultivator of wealth through human intellect. Critics dismissed the novel as simple-minded, and even some of Rand’s political admirers complained that she lacked compassion. Yet one pertinent warning resounds throughout the book: When profits and wealth and creativity are denigrated in society, they start to disappear — leaving everyone the poorer.

For the full commentary, see:
STEPHEN MOORE. “DE GUSTIBUS; ‘Atlas Shrugged’: From Fiction to Fact in 52 Years.” Wall Street Journal (Fri., JANUARY 9, 2009): W11.
(Note: ellipses added.)

Since Wire Rope Had Not Been Tried, Entrepreneur Roebling Had to Self-Finance His Innovation

(p. 178) It was a bridge across the Niagara that would change life for the nail and wire makers. In 1831 a German engineer had emigrated from Mühlhausen in Saxony to America, where he founded the city (p. 179) of Saxonburg, Pennsylvania (having refused to settle in the American South because of his views on slavery). He then worked as a farmer, as a surveyor on the Pennsylvania Canal and finally as a railway engineer. His name was John Roebling, and he had a strange obsession with wire ropes. Since nobody in America had ever tried to make that kind of rope, the idea was not easy to promote. After failing to interest the firm of Washburn & Company, in Worcester, Massachusetts (we will return to this firm in our story), in 1848 Roebling moved to Trenton, New Jersey, and set up on his own.

After practicing his technique on a number of small bridges in Pennsylvania and Delaware, Roebling finally got a contract for the 3,640 wires into a compact, uniformly tensioned wire cable. Then, using a kite to get the cable to the other side of the river, he went on to finish the first-ever wire suspension bridge, 821 feet in length and strong enough to take the full weight of a train. The bridge opened to rail traffic on March 16, 1855.

Because of his success at Niagara, Roebling’s cable-spinning technique soon became standard on all suspension bridges. He put his name in the history books with his next job: the Brooklyn Bridge.

Source:
Burke, James. The Pinball Effect: How Renaissance Water Gardens Made the Carburetor Possible – and Other Journeys. Boston: Back Bay Books, 1997.
(Note: ellipsis added.)