Quote of the Day: Conspicuous consumption should not be the goal of a prosperous society

Someone once said that the wealth of nations comes not from what we spend but from what we sow (actually, I wrote that several years ago). Like the farmer, a nation has to plant seeds in the spring to reap a good harvest in the fall, which is how Chauncey Gardiner, the fictional hero of Jerzy Kozinski's Being There, might have put it. For the rest of us, it's called investing in the future.

Just imagine if mom and dad, grams and gramps, doubled up on their holiday spending on toys and other tchotchkes for the kids. Spending would go up, GDP would go up, and toymakers would have to increase production to replenish their inventory. They might even hire a few new workers. The increased demand for toys would trickle down to suppliers, including manufacturers of plastics and other materials.

Then what? Tomorrow's growth is a function of what we invest today. It is investment in plants and equipment that expands productive capacity, increases efficiency, lowers prices, leads to higher real wages and enables the economy to expand at a faster rate in the future. There is no free lunch, but productivity growth is about as close as it gets.

So unless you think Barbie holds the key to a higher standard of living, conspicuous consumption—as it was known when Americans were being encouraged to save—should not be the goal of a prosperous society.

Consumer spending does send an important signal to producers as to how to best allocate scarce resources. Not that entrepreneurs are listening. Alexander Graham Bell didn't need consumer demand to encourage him to invent a piece of equipment that would transmit speech electrically. Nor did Steve Jobs wait for iPhone demand before creating Apple's incredibly popular smart phone. Entrepreneurs invent things because they anticipate a market for, and profit from, their product. If they change the world in the process, so be it. They don't need encouragement or validation—seed capital will suffice—before they create something the public didn't know it wanted or needed.

This is from former Bloomberg columnist Caroline Baum at the Economics21.org

The Virtue of Failure: Billionaire Sara Blakely’s Success Recipe

In the realm of capitalism, failures serve as stepping stones to success as I pointed out here here and here

Take for example, billionaire Sara Blakely, founder and owner of garment company Spanx, who in a CNBC interview said that a key ingredient to her career success emerged from her string of initial misfortunes.

CNBC’s Robert Frank reports

"What have you failed at this week?" Blakely recalled in an interview on CNBC's "Squawk Box" n Wednesday. "My dad growing up encouraged me and my brother to fail. The gift he was giving me is that failure is (when you are) not trying versus the outcome. It's really allowed me to be much freer in trying things and spreading my wings in life."

Blakely's embrace of failure has helped make her the youngest self-made female billionaire in America. The 41-year-old Florida native was selling fax machines door-to-door before she came up with the idea for Spanx, the body-shaping undergarments that have become a global sensation.

Her string of early career failures eventually led Blakely to the Spanx idea. She said wanted to be a lawyer but "basically bombed the LSAT twice," she said. "I ended up at Disney World trying out to be Goofy. They wanted me to be 5' 8", but I was 5' 6". They wanted me to be a chipmunk."

Ms. Blakely's determination in the face of the lack of knowledge and experience...

Like many entrepreneurs, Blakely said that not knowing industry practices—and the things that supposedly can't be done—is critical in starting a business.

"The fact that I had never taken a business class, had no training, didn't know how retail worked," she said. "I wasn't as intimidated as I should have been."

And a memorable gaffe...

Her rise was filled with little failures—some of them humorous. When she went to London in an early sales trip to promote the product, she was interviewed by the BBC. She described the benefits of Spanx by saying, "It's all about the fanny. It smooths your fanny, lifts and separates your fanny."

Suddenly, the interviewer lost all color in his face.

"I had no idea," Blakely said, "but fanny apparently means vagina in England."

The tolerance of or the virtue of failure is founded on learning and building from them

As American industrialist and founder of the Ford Company Henry Ford wrote as one of his Principles of Business

An absence of fear of the future or of veneration for the past. One who fears the future, who fears failure, limits his activities. Failure is only the opportunity more intelligently to begin again. There is no disgrace in honest failure; there is disgrace in fearing to fail. What is past is useful only as it suggests ways and means for progress.

On the other hand, in the world of politics, failure has frequently been used as an excuse for political agents to grab control of society.

Why Entrepreneurship is an Art

Marketing guru Seth Godin says it best

Studying entrepreneurship without doing it...

...is like studying the appreciation of music without listening to it.

The cost of setting up a lemonade stand (or whatever metaphorical equivalent you dream up) is almost 100% internal. Until you confront the fear and discomfort of being in the world and saying, "here, I made this," it's impossible to understand anything at all about what it means to be a entrepreneur. Or an artist.

That’s why you don’t learn entrepreneurship in classrooms.

Quote of the Day: Business People are the True Public Servants

A free and prosperous society should marvel at the accomplishments of its businessmen and businesswomen. These are true public servants, people who endeavor at great personal sacrifice to drive history forward and grant the human race a greater degree of material prosperity tomorrow than they have today. These are the people who really keep hope alive.

This is from Jeffrey A. Tucker at the Laissez Faire Books on political scapegoating of the entrepreneurs

Markets in Everything: Rent a Boyfriend

In China, online entrepreneurs have found a business niche by serving female lonely hearts: the rent a boyfriend business model

From the Telegraph (hat tip Carpe Diem's Mark Perry)

The Chinese New Year is fast approaching, and millions of girls will be schlepping home from their jobs in the city to their families in the countryside. According to the Globe and Mail, “Because so many Chinese live and work away from their native towns and villages, and travel home only once a year, the treasured family time is weighted with pressure to show what you’ve accomplished over the last 12 months.” It can be a particularly miserable experience for girls who don’t bring home a boyfriend, leading to endless questions about why they’re not dating and where their life’s going. In this sexist society, ladies over 27 who aren’t hitched are labelled “leftover women.”

Thankfully, the internet has a solution for all those loveless leftovers. If you don’t have a man to bring home to the folks, just rent one for the week.

Over 300 boyfriend-rental services are currently listed on the Chinese shopping site Taobao. One ad reads, “Not getting any younger and still dreading facing the nagging parents? Need a boyfriend to face the family?" If the answer is “yes” then a girl can pick from a wide range of boys who charge a flat rate plus commission on a whole host of thrilling activities.

Quote of the Day: Every Act of Entrepreneurship is Revolutionary

Every act of entrepreneurship is revolutionary and rooted in the anarchist spirit. It strikes at the heart of the status quo. It dares to be dissatisfied with what is. It imagines something new and better. It brings about unexpected, unapproved, and progressive change by adding a new dimension of experience to how we understand ourselves and how we interact with others.

Without entrepreneurship, history would lack forward motion, our understanding of the uniqueness of our time in this world would be forever undefined, and society itself would atrophy and finally die. With it, every attempt to control and freeze the world faces opposition and long-run failure.

History teaches that those who dare stand in the way of human progress will eventually be run over. Yes, there is plenty of friction and too many victims as we get from here to there. But we will get there, one creative act of disobedience at a time.

This is from the highly articulate publisher and editor Jeffrey A. Tucker of the Laissez Faire Books on the forces of decentralization founded on entrepreneurship.

Quote of the Day: Leading Myths About Entrepreneurship and Effective Start Up Communities

What are the leading myths about building more effective startup communities?

There are there common ones: 'We need to be more like Silicon Valley,' 'We don't have enough capital,' and 'Angel investors must be organized.'

For decades, cities have been proclaiming themselves the next Silicon Valley. That’s nonsense — cities — and the entrepreneurial leaders — should focus on creating the best startup community for their city, based on the unique attributes of their city. Learn from the amazing things in Silicon Valley, but instead of trying to be like Silicon Valley, be the best Boulder, or best Chicago, or best New York, or best Portland. You already have an identity as a city — you don’t need to be Silicon Alley or Silicon Slopes.

Next, there never is a balance between supply and demand of capital. Entrepreneurs shouldn't worry about this — instead they should focus on creating amazing companies. Capital will always find amazing companies. While there are many things that can be done over time to attract more capital to a region, the biggest thing is for entrepreneurs to actually go create some significant companies.

Finally, related to this is the notion that angel investors should be organized into formal angel investor groups. While this can be helpful, it’s often extremely harmful and stifling, as many angel investor groups try to look like small venture capital firms rather than acting like helpful angel investors.

(bold original) 

This is from Brad Field and Rich Florida as quoted by Paul Kedrosky at the Kauffman Foundation’s Growthology blog.

My comments:

On the myth of the next Silicon valley.

What is needed is an intensely competitive environment that will foster and reward the virtues of failure or risk-taking that encourages innovation.

In other words, entrepreneurship thrives best on economic freedom.

On the the fantasy of the equilibrium of capital.

The same argument has been used to justify government’s role on public works or infrastructure spending.

Economic freedom nurtures capital accumulation. As the great Ludwig von Mises reminds us “Progressive capital accumulation results in perpetual economic betterment.” As noted in the above quote, capital and great companies will co-exist, given an environment that is conducive to business or business friendly.

On groupthink in terms of Angel investors.

Groupthink, as explained before, reduces critical, creative and independent thinking as well as  individual responsibility and discipline, all necessary ingredients for entrepreneurship.

Groupthink fallacy applies not only to Angel investors but to the financial markets, as well as to other social activities, specifically magnified in politics.

Remember, entrepreneurship is foremost an art before it is science.

Are Taxes and Regulations as Primary Business Obstacles a Myth?

The McKinsey Quarterly writes to supposedly debunk the myth where taxes and regulations poses as key obstacles to small businesses:

Many business leaders will tell you that taxes and regulation are the biggest barriers to starting up and enlarging small businesses. It’s true that some regulations and laws have inhibited the growth of small businesses; the Sarbanes–Oxley Act, for instance, had the unexpected consequence of discouraging some companies from making initial public offerings, a step typically followed by a burst of hiring. But taxes and government oversight are not the primary barriers to stimulating the growth of small businesses. In the latest recession, their owners pointed to a lack of market demand as the primary problem, as well as an inability to obtain financing

In reality, the alleged inadequacy of consumer demand are no less than symptoms of invisible but real underlying causes.

The perception of the lack of consumer demand as the main culprit to business or even economic deficiencies represents a populist Keynesian fallacy.  As the great Friedrich A. von Hayek explained  (Unemployment and Monetary policies, p.40; hat tip Professor Don Boudreaux) [bold mine]

The conquest of opinion by Keynesian economics is due mainly to the fact that its argument conformed to the age-old belief of the businessman that his prosperity depended on consumer demand.  This plausible but erroneous conclusion was derived from his individual experience in business, namely, that general prosperity could be maintained by keeping general demand high.  Economic theory had been rejecting this conclusion for generations, but it was suddenly made respectable by Keynes.  And since the 1930s it has been embraced as obvious good sense by a whole generation of economists brought up on the teaching of his school.  Thus for a quarter of a century we have systematically employed all available methods of increasing money expenditure, which in the short run creates additional employment but at the same time leads to a misdirection of labor that must ultimately result in extensive unemployment

The policies of inflationism, aimed at increasing “money expenditures”, that has prompted for the large scale or clusters of “misdirection of labor” and resources that “must ultimately result” in capital consumption which gets to be manifested as “extensive unemployment” and consequently, the dearth of consumer demand.

In short, boom bust cycles fosters what mainstream sees as lack of demand.

Additionally, regulations that prevent markets from “clearing” or allowing markets to coordinate resources and labor towards consumer preferences also poses as unseen but real hindrance to additional consumer demand.

High taxes divert resources from production to consumption, thereby decreasing capital investments that suppresses income and eventual demand.

 

Bailouts and subsidies too or the transference of resources from productive to politically preferred unproductive areas (e.g. Obama’s green energy projects) also results to wasted resources, high costs to taxpayers, crowding out, diminished capital investments and subsequently a paucity of demand

Lastly, arbitrary regulations have been the major obstacles to business creation or expansion.

Some real life examples: In Georgia, policemen shut down a child’s lemonade stand (due to lack of permit) and in Chattanooga City Tennessee, a pedicab project has been shelved simply because state officials didn’t like it. 

Of course, there are many more instances of economic repression from political agents. Deprivation of livelihood from political interference, signifies as a source of the lack of demand. No income, No spending.

Bottom line: The world does not operate on a vacuum. People just don’t act because they wake on one side of the bed and feel either confident or anxious. People’s actions are driven by incentives (and not by moods or by animal spirits). 

Lastly, effects must not mistaken as the cause.  

World’s Richest Women are Chinese Entrepreneurs

That’s according to the Hurun Rich List, where seven out of 10 of the world’s wealthiest self-made women are from mainland China, most of whom made their fortune from real estate and manufacturing

According to Finance Asia (table theirs too) [bold mine]

It is not surprising that most of these women made their fortune from real estate, the country’s most profitable industry, and are headquartered in Guangdong, the cradle of China’s entrepreneurial spirit.

Zhang Xin, chief executive of Soho China, has said that Chinese women enjoy many freedoms and opportunities in the country’s private business sector — more so than their foreign counterparts.

China’s dominance in the top 10 world’s wealthiest women list seem to coincide with the gender distribution in their domestic workforce, where China ranks 3rd in Asia in terms  of women managers, and ranks, second in the world female labor force participation rate according to table from the Economist.

In the world of economic freedom, gender distribution (politically coded as “inequality”) barely becomes an issue as “freedoms and opportunities” are democratized. 

Video: Global Entrepreneurship Week

The Kauffman Foundation of Entrepreneurship celebrates the "Global Entrepreneurship Week" with the following sketchbook video (unleashingideas.org)

Notable quote from Jonathan Ortmans:

Entrepreneurs might be the force for change in the country, to think beyond just economic change that they can actually make the world a better place.

Globalization of start up communities actually gives the world a much better chance at solving intractable challenges of the decades past…

The world needs more entrepreneurs

The capitalists-entrepreneurs represent as the sine qua non forces of progress of any society 

As the great Professor Ludwig von Mises wrote, 

The economic foundation of this bourgeois system is the market economy in which the consumer is sovereign. The consumer, i.e., everybody, determines by his buying or abstention from buying what should be produced, in what quantity and of what quality. The businessmen are forced by the instrumentality of profit and loss to obey the orders of the consumers. Only those enterprises can flourish that supply in the best possible and cheapest way those commodities and services which the buyers are most anxious to acquire. Those who fail to satisfy the public suffer losses and are finally forced to go out of business.

Unfortunately, the capitalists-entrepreneurs whom are the genuine heroes, has largely unappreciated by the politically brainwashed public, whom have been oriented or trained to see politics as saviors.  

Yet the deepening of the information age may change this, that's because this era will usher in the political economy of entrepreneurship.

Spotting Technology Winners is a Judgment Call

Forbes’ brilliant technology analyst and venture cap investor Josh Wolfe gives as a clue on how to identify winning technology innovation, (bold caps original)

And the stakes are always highest when the forces of technological disruption, oft too weak to be detected, catalyze massive industry change and become too strong to be resisted.

Common conception holds that brilliant inventions burst straight from research labs to take over markets. But in studying and investing in change, it becomes apparent that the enabling technologies have often been in existence for some time, developing quietly in the background in ancillary markets or other incarnations. It’s only at the confluence of parallel technological developments and shifting market forces that, often unexpectedly, “Aha!” – a new application takes hold. The combinatorial chemistry of industry and invention yields an explosive reaction, and then: everything changes. Thus we’re always hunting for two things: cutting-edge technologies and rapidly changing markets.

In short, the success of identifying winning disruptive technology innovators comes with the ‘right timing’. Technology may have been "in existence for some time", but markets may not be ripe for it.

This gives merit to Professor Peter Klein’s definition of entrepreneurship as one of speculative judgment.

At the Mises Blog Professor Salerno writes,

So, Klein maintained, the profit opportunity was not an ex ante fact waiting to be discovered; rather the profit opportunity was only realized , ex post, as the successful outcome of an action based on a speculative judgment. Whether or not the plans of economic agents are better coordinated and the economy is closer to equilibrium than before is “irrelevant,” Klein explained; the important point is that ex post profits indicate that resources have been reallocated from less valuable to more valuable uses from the point of view of consumers.

Anyway, Mr. Wolfe’s present candidate is the 3D printer.

I talked about the potentials of 3D printers at an earlier post.

I also share the view that 3D printers will function as one of the three major forces of the information age.

Integrating PSE with ASEAN Equity Markets

The Philippine government plans to improve local equity standings through regional cooperation.

From Finance Asia

The Philippine Stock Exchange can boast a handful of companies that international investors are comfortable with — the biggest banks, telcos and conglomerates. But there are also a handful of companies in foods, pharmaceuticals and services that are well-run, growing businesses.

In an exclusive interview with FinanceAsia, Cesar Purisima, secretary of the Philippine department of finance, said that he hopes these dynamic firms will become future corporate champions through initiatives such as Asean Exchanges — a collaboration of seven exchanges from Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

“We’ve been trying to encourage more of these start-ups and family-owned companies to come to the capital markets,” said Purisima. “It is important that Asean develops a deeper capital market that attracts investors from both within the region and outside. The problem for most of the exchanges right now is that it is simply not deep enough, not big enough. The Asean Exchanges will help us address that problem.”

A deeper pool of liquidity could make it more worthwhile for start-ups and other growing businesses to consider listing, but would also help bigger firms with international ambitions.

“We have companies that are starting to go beyond the boundaries of the Philippines,” said Purisima, “Getting funding from outside is crucial not just from a capital perspective, but also in terms of matching risk.”

The main reason that I am not sold to the notion of decoupling (yet), aside from globalization, has been because regionalization has already been happening, if not intensifying. So the political framework for deeper regional collaboration through equity markets are, in effect, responses to an ongoing phenomenon.

Yes, ASEAN has already embarked on a cross listing program via the Singapore Exchange and the Monetary Authority of Singapore (MAS) which began this month with Malaysia, Singapore and Thailand as pioneer participants. The Philippines, Indonesia and Vietnam has announced interests to join in the future.

While I am one with Mr. Purisima’s goal to deepen the domestic equity market partly through ‘collaboration’ with Asean exchanges and eventually through cross-listing, Mr. Purisima misses out the main reason for why many family owned businesses have been reluctant to list.

This basically boils down to economic opportunities: many economic opportunities has been politically derived, which also extrapolates to the lack of opportunities outside the political realm.

In a way, the Philippine political economy resembles Greece.

Robert Kaplan at the Stratfor describes the fundamental Greece political economy

Roughly three-quarters of Greek businesses are family-owned and rely on family labor, making meritocratic promotion difficult for those outside the family. Tax cheating is rampant. The economy suffers from a profound lack of competitiveness, even as Greece is mainly a service economy, relying on tourism, in which manufacturing constitutes a weak sector. Of course, these features have much to do with bad policies enacted over the years and decades, but they are also products of history and culture, which are, in turn, products of geography. Indeed, Greece lacks enough productive land to be an agricultural power.

Then there is political underdevelopment. Long into the 20th century, Greek political parties had a paternalistic, coffeehouse quality, centered on big personalities -- chieftains in all but name -- with little formal organizational support. George Papandreou, the grandfather of the recent prime minister of the same name, actually headed a party called the "George Papandreou Party." Political parties have been family businesses to a greater extent in Greece than in other Western democracies. The party in power not only dominated the highest echelons of the bureaucracy, as is normal and proper in a democracy, but the middle- and lower-echelons, too. State institutions from top to bottom were often overly politicized.

In other words, the structure of the economy reflects on the structure of politics.

As I pointed out before,

There about 250 political dynasties in the Philippines (New York Times 2007) and this number has been growing. The 14^th Philippine congress has an estimated more than 75% of lawmakers from old political families (Wikipedia.org).

In short, the key problem has not been about ‘corporate governance’ or ‘corruption’ (which has been alluded to as obstacles by Mr. Purisma) both of which signifies as symptoms rather than the disease, but one of economic freedom.

Because greater economic freedom allows for MORE economic opportunities, economic freedom will likely reduce the incentives by families to keep a tight lock on their business holdings and allow more public ownership. Alternatively, family business owners are likely to be provided with more options to diversify or even to switch fields of investments, given the liberal business environment.

Lastly corporate governance has not been an issue of oversight from ‘virtuous’ regulators over scheming stockholders and managers, as the government has been guilty of the many sins endured by the economy and by unscrupulous corporate agents; particularly through taxes, manifold regulations (as licenses, disclosure rules, insider trading etc..) [ which diminishes profits, distorts profits and spurs corruption and transferring of resources to wasteful consumptive expenditures by governments], ownership restrictions, labor regulations (raises the cost of labor and thus unemployment) and more.

Corporate governance is largely the about the contractual relationship between the entrepreneurs, capitalists and managers.

As the great Ludwig von Mises explained,

The general direction of a corporation's conduct of business is exercised by the stockholders and their elected mandataries, the directors. The directors appoint and discharge the managers. In smaller companies and sometimes even in bigger ones the offices of the directors and the managers are often combined in the same persons. A successful corporation is ultimately never controlled by hired managers. The emergence of an omnipotent managerial class is not a phenomenon of the unhampered market economy. It was, on the contrary, an outgrowth of the interventionist policies consciously aiming at an elimination of the influence of the shareholders and at their virtual expropriation. In Germany, Italy, and Austria it was a preliminary step on the way toward the substitution of government control of business for free enterprise, as has been the case in Great Britain with regard to the Bank of England and the railroads. Similar tendencies are prevalent in the American public utilities. The marvelous achievements of corporate business were not a result of the activities of a salaried managerial oligarchy; they were accomplished by people who were connected with the corporation by means of the ownership of a considerable part or of the greater part of its stock and whom part of the public scorned as promoters and profiteers.

Politically based corporate governance can, thus, serve as a vehicle for government control of corporations and for cronyism.

Peter Thiel Pays People to Drop Out of College and Pursue Entrepreneurship

Billionaire entrepreneur and libertarian Peter Thiel pays students to drop out of college to pursue entrepreneurship.

From CBSNews.com

One of the wealthiest, best-educated American entrepreneurs, Peter Thiel, isn't convinced college is worth the cost. With only half of recent U.S. college graduates in full-time jobs, and student loans now at $1 trillion, Thiel has come up with his own small-scale solution: pay a couple dozen of the nation's most promising students $100,000 to walk away from college and pursue their passions.

See the interview below.

Some noteworthy parts of the interview… [bold emphasis mine]

Peter Thiel: We have a bubble in education, like we had a bubble in housing in the last decade. Everybody believed you had to have a house. They'd pay whatever it took. Today, everybody believes that we need to go to college, and people will pay whatever it takes.

Morley Safer: You describe college administrators as subprime mortgage lenders, in other words conmen.

Peter Thiel: Not all of them, but certainly the for-profit schools, the less good colleges are like the subprime mortgage lenders where people are being conned into thinking that this credential is the one thing you need to do better in life. And they're actually not any better off after having gone to college; they typically are worse off because they've amassed all this debt.

More Peter Thiel quotes:

Peter Thiel: I'm saying that people should think hard about why they're going to college. If your life plan is to be a professor or to be a doctor or some other career where you need a specific credential you should and probably have to go to college. If your plan is to do something very different you should think really hard about it.

Peter Thiel: I did not realize how wrong-- how screwed up the education system is. We now have $1 trillion in student debt in the U.S. That trillion dollars-- wanna describe it cynically? You can say it's paid for $1 trillion of lies about how good education is.

Peter Thiel: We have a society where successful people are encouraged to go to college. But it is a-- it's a mistake to think that that's what makes people successful.

In the interview, Mr. Peter Thiel has been criticized for advocating or pursuing “anti-education” sentiment. But such accusation represents a misplaced understanding of Mr. Thiel’s position: the growing impracticability and irrelevance of the current “screwed up” educational system.

In other words, Mr. Thiel has not been anti-education “where you need a specific credential you should and probably have to go to college”, but rather he points out that the cost benefit tradeoff of higher education has become infeasible, and worse, the quality of education has not been aligned with the “education” necessary for work. And this is evidenced by the decreasing returns of higher education.

Finally Mr. Thiel doesn’t really pay people to drop out of college to become bums. He has instead been preaching entrepreneurship to students.

To quote anew the great Ludwig von Mises on the relationship between education and entrepreneurship,

In order to succeed in business a man does not need a degree from a school of business administration. These schools train the subalterns for routine jobs. They certainly do not train entrepreneurs. An entrepreneur cannot be trained. A man becomes an entrepreneur in seizing an opportunity and filling the gap. No special education is required for such a display of keen judgment, foresight, and energy. The most successful businessmen were often uneducated when measured by the scholastic standards of the teaching profession. But they were equal [p. 315] to their social function of adjusting production to the most urgent demand. Because of these merits the consumers chose them for business leadership.

Once again Peter Thiel

Mark Zuckerberg from Facebook didn't complete Harvard. Steve Jobs dropped out of Reed College. Bill Gates dropped out of Harvard. When you do something entrepreneurial, the credentials are not what really matters. What matters is having the right idea at the right time, the right place.

Peter Thiel has definitely not been out of touch with reality.

Quote of the Day: The True Job Creators

Citing the success of Apple, libertarian author Robert Ringer points out that the genuine source of productive job creation, that leads to economic prosperity, comes from entrepreneurs.

Mr. Ringer writes,

Apple’s ingenuity and marketing skills are so good that its sales in China not only are skyrocketing, but playing a major role in its meteoric growth. Imagine — a U.S. company so good at what it does that even the Chinese are rushing to buy its products.

How could Apple accomplish such amazing feats without a government bailout or government “investment” in its technology? Because it had an entrepreneur at the helm who had the creativity, marketing savvy, personal ambition, and drive to bring the company back from the dead. No other help needed, thank you.

It is more than just a bit ironic that Steve Jobs’ last name is a testament to how entrepreneurs, when left to their own devices, are the true job creators. It also highlights the arrogance of politicians, particularly those who have never created or marketed anything, who believe they somehow have the ability — let alone the right — to take money from private citizens and “invest” it in technologies of their choosing.

Unfortunately the public does not recognize the true heroes, and at worst, have been bedazzled by the voodoo of politics.

Quote of the Day: How Different Policies Affect Entrepreneurs

1. In a nation with poor rule of law and weak protection of property rights, entrepreneurs are undermined in their efforts to innovate, expand, and create.
2. In a nation with bad monetary policy, entrepreneurs are hampered because the basic unit of account and medium of exchange is unstable.
3. In a nation with onerous fiscal policy, entrepreneurs are discouraged because government is misallocating resources and imposing punitive tax rates.
4. In a nation with protectionist trade policy, entrepreneurs are denied the ability to buy and sell in ways that enable the most productive use of labor and capital.
5. In a nation with interventionist regulatory policy, entrepreneurs are saddled with extra costs that make it more expensive to mix labor and capital in ways that most effectively satisfy consumer desires.

That’s from Cato’s Dan Mitchell.

Entrepreneurship: The Gap Between Theories and Practice

Kate Maxewell of the Kauffman Foundation writing at the Growthology blog observes of the chasm between entrepreneurial literatures and entrepreneurs in action (bold emphasis mine)

In my reading of the entrepreneurship literature I have been struck by the large gap between entrepreneurs and people who study entrepreneurship. The group of people who self select into entrepreneurship is almost entirely disjoint from the group of people who self select to study it. Such a gap exists in other fields to greater and lesser degrees. Sociologists, for instance, study phenomenon in which they are clearly participants whereas political scientists are rarely career politicians but are often actors in political systems.

But in the case of entrepreneurship the gap is cause for concern. My sense is that all too often those studying entrepreneurship don’t understand, even through exposure, the messy process of creating a business, nor, due to selection effects, are they naturally inclined to think like an entrepreneur might. At Kauffman, we have had multiple scholars say to us that they’ve found that talking to entrepreneurs is useful in their research.

This should be obvious, but it’s not. The result is research that can lack grounding, perspective and credibility. As a researcher I understand the natural impulse to keep things neatly ordered so as to create elegant papers and clear conclusions. But the fact of entrepreneurship is that it is anything but pretty or neat. More importantly, the research product resulting from such a disconnect can present a distorted view of the entrepreneurial process that may actually hinder our understanding of it. Such ill-informed research can then go on to form the basis of a policy directed at entrepreneurs – without ever having involved or understood them.

Like investing in markets, theories and practice are often detached. Yet many cling to the barnacle of academic mirages that perceives entrepreneurship as rigorous methodological science.

And as I earlier pointed out entrepreneurial traits are not acquired from books or from the academia and don’t require ‘new attitudes’. Instead they emanate from observation, knowledge, the willingness to learn from failure, and most importantly, the desire to undertake activities that profits from risk ventures through servicing or producing for the consumers.

As the great Ludwig von Mises pointed out, (bold emphasis added)

In order to succeed in business a man does not need a degree from a school of business administration. These schools train the subalterns for routine jobs. They certainly do not train entrepreneurs. An entrepreneur cannot be trained. A man becomes an entrepreneur in seizing an opportunity and filling the gap. No special education is required for such a display of keen judgment, foresight, and energy. The most successful businessmen were often uneducated when measured by the scholastic standards of the teaching profession. But they were equal to their social function of adjusting production to the most urgent demand. Because of these merits the consumers chose them for business leadership.

In short, as part of human action entrepreneurship represents more a work of art—which attempts to satisfy the preferences and value scales of consumers—than of science.

Lenten Thoughts for the Day: My Salute to Holy Week Entrepreneurs

Celebrating the Lenten tradition does not eliminate human needs and wants.

So while some entrepreneurs take these as opportunities to benefit financially, in reality, the main beneficiaries are the consuming public especially when many, if not most, people elect to spend time away from work. Life becomes a lot more convenient for the most of us.

Thus I salute entrepreneurs who elect to tradeoff leisure time to open shop when most businesses are closed. This is an example of ethical self-interest which extrapolates into public good.

In the words of investing guru Doug Casey

It's in your selfish best interest to provide the maximum amount of value to the maximum number of people

And the provision of public service through trade is, in effect, loving and servicing one's neighbors, clues of which can be found in the Bible.

From Galatians 5:13-14

For you were called to freedom, brothers. Only do not use your freedom as an opportunity for the flesh, but through love serve one another. For the whole law is fulfilled in one word: “You shall love your neighbor as yourself.”

Quote of the Day: Entrepreneurs as Political Force

Entrepreneurship is clearly becoming a global movement, one that is in its infancy, but whose ultimate power is sure only to grow over time. It will take that power to remove many of the obstacles that governments in many countries put in the way of their entrepreneurs.

That’s from Robert Litan of the Kaufmann Foundation describing the success of the Global Entrepreneurship Congress.

Entrepreneurship will be the hallmark of the information age.

Nassim Taleb on the Party Skills of Entrepreneurs

Why are entrepreneurs less glib in party conversations? Because they are doers and less of talkers. That’s how I interpret the impromptu and thought provoking post of one of my favorite author, Nassim Taleb on his Facebook wall.

I believe that education is mostly what make individuals more polished dinner partners. The British government documents, as early as fifty years ago, present another aim for education than the one we have today: raising values, making good citizens, and “the intrinsic value of learning”, not economic growth.

Likewise in ancient times, learning was for learning’s sake, to make someone a good person, worthy talking to; it was not for the vulgar aim to enhance the stock of gold in the city’s coffers. I will say it bluntly: entrepreneurs, particularly those in technical jobs are not necessarily the best people to have dinner with —the better at they are doing, the worst they tend to be (with some exceptions, of course).

I recall a heuristic I used in my previous profession when hiring people (called in Fooled by Randomness “separate those who when they go to a museum look at the Cézanne on the wall from those who focus on the contents of the trash can”): the more interesting their conversation, the more cultured they were, the more we are trapped at thinking that they are effective at what they were doing (something psychologists call the halo effect, the mistake in thinking that skills in, say, skiing translate into skills in managing a pottery workshop or a bank department). Clearly, it is unrigorous to judge the skills at doing from the skills at the talking (the same conflation of event and exposure, or knowing with doing, or, more mathematically, mistaking the x for f(x)), good traders can be totally incomprehensible —they do not put much energy in turning their insights and internal coherence into elegant style.

Entrepreneurs are selected to be just doers, not thinkers, and doers do, don’t talk, and it would be unfair, wrong, and downright insulting to measure them at the talk department. The same with artisans: the quality lies in their product, not their conversation —in fact they can easily have false beliefs that lead them to make better products, so what? But we should avoid the mental leap of going from the idea that making people interesting dinner partners to the notion that it creates economics growth, or that we should increase the stock of bureaucrats for that. Bureaucrats on the other hand, because of the lack of objective metric of success and absence of market forces, are selected on “hallo effects” of shallow looks and elegance —just say that a dinner with empty suits working for the World Bank would be more interesting than one with some of Fat Tony’s cousins.

The prolific Mr. Taleb seems to be distinguishing substance from form where he opines that measuring people by their social skills can be misleading or deceiving.

Doers (entrepreneurs, particularly technical entrepreneurs) may not be socially impressive but play a more prominent role in the economy. The tradeoff for the entrepreneurs: scarce time (and resources) are devoted to delivering the satisfaction of the consumers or clients than to spend unproductive time at social affairs. (though, we can’t generalize this, as some entrepreneurs can be sleek conversationalists and not all glib talkers are unproductive)

This is especially true compared to “halo effects” projected by bureaucrats and politicians who use emotionally driven rhetorical abstractions to gain sympathy and approbation of the unenlightened and of the boobus voters. Yet ironically these political agents lives off from the blood of their hosts—the entrepreneurs.

Also this quote may reflect on Mr. Taleb’s personal circumstance as a mathematician-philosopher. Perhaps if I read Mr. Taleb right, then I would share his frustrations: Talkers (like celebrity guru and insider Mr. Nouriel Roubini) get the chicks! [But that represents a choice: perhaps one needs to balance between social life and delivering value to clients/consumer.]

To summarize: in parties or in social gathering, what you see or hear isn’t what you get (in most instances).

Quote of the Day: Entrepreneurship is a Story of Innovation and Creativity

Entrepreneurship is a story of innovation and creativity. One may disagree with the exact terminology (i.e. “discovery”), but the essential point to take away is that entrepreneurship is not a given. It is an act of creation; production is a function of both the physical input of accumulated producers’ goods and human creativity, which is unique to the individual. In Hayekian terms, if we imagine wealth as it exists today as a mass of “known” knowledge, it is the entrepreneur’s role to essentially jump into the sphere of the “unknown.” It is not just about “discovering” what has been as of yet undiscovered, but about adding to the body of knowledge (whether known or unknown).

Excellent excerpt from Jonathan M.F. Catalán at the Mises Blog