Posts filed under ‘Entrepreneurship’
Josh Lerner on Public Policy Toward Entrepreneurship
| Peter Klein |
Speaking of public entrepreneurship, here’s an interview with Josh Lerner about his new book Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed — and What to Do About It (Princeton, 2009). Excerpt:
There are two well-documented problems that can derail government programs to boost new venture activity. First, they can simply get it wrong: allocating funds and support in an inept or, even worse, a counterproductive manner. Decisions that seem plausible within the halls of a legislative body or a government bureaucracy can be wildly at odds with what entrepreneurs and their backers really need. . . .
Economists have also focused on a second problem, delineated in the theory of regulatory capture. These writings suggest that private and public sector entities will organize to capture direct and indirect subsidies that the public sector hands out. For instance, programs geared toward boosting nascent entrepreneurs may instead end up boosting cronies of the nation’s rulers or legislators. The annals of government venturing programs abound with examples of efforts that have been hijacked in such a manner.
Thanks to Ross Emmett for the tip.
New Book: The Invention of Enterprise
| Peter Klein |
I’m putting this one on my Amazon wish list: The Invention of Enterprise:
Entrepreneurship from Ancient Mesopotamia to Modern Times, edited by David Landes, Joel Mokyr, and Will Baumol (Princeton, 2010). Check out the Table of Contents — an all-star lineup of entrepreneurship scholars and economic and business historians.
For Hire: Neo-Schumpeterian Economist
| Dick Langlois |
I was recently contacted by Robert Atkinson of the Information Technology and Innovation Foundation in Washington. His group is looking for a neo-Schumpeterian economist interested in the role of innovation in addressing climate change. Here’s the position listing. Surely there is a reader of O&M out there who fills the bill.
Studying Entrepreneurs
| Peter Klein |
Great opening from Robert Whaples’s EH.Net review of T.J. Stiles, The First Tycoon: The Epic Life of Cornelius Vanderbilt (Knopf, 2009):
Economists have always had a hard time dealing with entrepreneurs — as individuals and in the aggregate. We sort of know what entrepreneurship is and that it can have a profound impact on economic performance, but it’s usually just too difficult to model and measure. What we do not understand, we simply ignore and leave to others. After all, we are firm believers in comparative advantage and studying entrepreneurship — even if it is economically important — doesn’t seem to be our comparative advantage. In the view of most economic historians, it is the rules of the game — the incentives and the institutions — that really matter, not the players. American economic history has been cast as the story of millions of diligent and clever beavers working away and transforming the landscape. Take one of them away and nothing of great importance will really change. (In fact, most of us seem to believe that if you take away an entire technological complex, like the railroads, little of much importance would really change.)
Why, then, should economic historians study the careers of entrepreneurs? Not all of us should. But for some, the study of entrepreneurs will illuminate the past and the present — and put life into our cliometric narrative.
Joe Salerno has a valuable treatment of this problem in his 2008 paper “The Entrepreneur: Real and Imagined.”
Entrepreneurship and Action
| Peter Klein |
A few entrepreneurship scholars see action under uncertainty, rather than perception of opportunity, as the essence of the entrepreneurial function. Really, really eminent scholars. Anyway, here’s a little etymological tidbit along these lines from Jesús Huerta de Soto’s book The Austrian School: Market Order and Entrepreneurial Creativity:
Indeed both the Spanish word empresa and the French and English word entrepreneur derive etymologically from the Latin verb in prehendo-endi-ensum, which means “to discover, to see, to perceive, to realize, to capture”; and the Latin term in prehensa clearly implies action and means “to take, to seize.” In short, empresa is synonymous with action. In France, the word entrepreneur has long conveyed this idea — since the High Middle Ages, in fact when it was designated to those in charge of performing important and generally war related deeds or to those entrusted with executing the large cathedral building projects.
Thanks to Dan D’Amico for calling my attention to this passage.
PS: On the more general claim that entrepreneurship should be treated as an abstract function, rather than an employment category, I call to the stand Edith Penrose, who writes in Theory of the Growth of the Firm (chapter 3, footnote 1):
The term “entrepreneur” throughout this study is used in a functional sense to refer to individuals or groups within the firm providing entrepreneurial services, whatever their position or occupational classification may be.
You go, girl!
Public Entrepreneurship
| Peter Klein |
Joe Mahoney, Anita McGahan, Christos Pitelis, and I have written a paper, “Toward a Theory of Public Entrepreneurship,” exploring the application of concepts, theories, and approaches from the entrepreneurship literature to non-market behavior. We argue that governments, government agencies, social enterprises, charitable organizations, and other “public” actors can be described as being alert to opportunities for value creation and capture, exercising judgment over the deployment of resources under uncertainty, introducing technological and organizational innovations, and so on. These actors are, in a sense, “public entrepreneurs.” This characterization also helps highlight critical differences between private and public actors and organizations, differences relating to the definition and measurement of objectives, the ability to evaluate performance, the nature of external governance, and, of course, the role of coercion. The paper is very much an exploratory effort in this area, and we certainly welcome comments and suggestions.
Here’s the abstract:
This paper explores innovation, experimentation, and creativity in the public domain and in the public interest. Researchers in various disciplines have studied public entrepreneurship, but there is little work in management and economics on the nature, incentives, constraints and boundaries of entrepreneurship directed to public ends. We identify a framework for analyzing public entrepreneurship and its relationship to private entrepreneurial behavior. We submit that public and private entrepreneurship share essential features but differ critically regarding the definition and measurement of objectives, the nature of the selection environment, and the opportunities for rent-seeking. We describe four levels of analysis for studying public entrepreneurship, provide examples, and suggest new research directions.
Samuelson and Schumpeter
| Peter Klein |
Paul Samuelson, the enormously influential economic theorist, textbook writer, and teacher, died yesterday. The Times calls him “the foremost academic economist of the 20th century,” which may be true, depending what’s meant by “foremost.” He was certainly brilliant, talented, and creative. His Foundations of Economic Analysis (1949) changed forever the way economists think about their discipline (formerly a distinct, mostly verbal, logical science, economics became a branch of classical mechanics). His textbook Economics established a new style for introductory texts: lengthy, comprehensive, but ad hoc and unsystematic (Murray Rothbard called it a “vast potpourri . . . of bits and smidgens of technique and of data, none of them integrated into any sort of digestible or comprehensible whole”).
The blogosphere is beginning to spew out commentary, not all of it flattering (Krugman fawns, Ed Glaeser and Arnold Kling are more nuanced, Yuri Maltsev is gracious, Mario Rizzo is blunt). I don’t have much to add specifically for O&M readers, but I’m curious about one issue that may not get much play: the influence on Samuelson’s thought of Joseph Schumpeter, Samuelson’s dissertation supervisor at Harvard.
In many ways, they were opposites: Schumpeter the flamboyant, dramatic innovator, Samuelson the careful, rigorous systematizer; Schumpeter the defender of capitalism and critic of Keynes, Samuelson the interventionist and foremost American Keynesian; Schumpeter, someone I greatly admire, Samuelson. . . . well, you get the picture. Both were brilliant and egocentric (you all know the Schumpeter quip about wishing to become the greatest horseman, economist, and lover in Vienna, but achieving only two of the three; Samuelson once declared, “I can claim in talking about modern economics I am talking about me”).
Samuelson is mentioned in the Schumpeter biographies, including McCraw’s, mostly to illustrate Schumpeter’s enthusiasm for Samuelson’s brand of mathematical economics, which Schumpeter greatly admired even if he himself was not a practitioner. Samuelson has written a bit on his old teacher, mostly to praise Schumpeter’s brilliance (and celebrate his quirkiness, particularly in the classroom), but not much on Schumpeter’s specific theoretical contributions. (Here is Samuelson’s 1951 paper “Schumpeter as a Teacher and Economic Theorist,” which is a good read but not, ultimately, very informative; here is Samuelson’s critique of Schumpeter’s theory of equilibrium interest rates). Samuelson certainly didn’t give the entrepreneur a prominent place in his own system (here is a technical paper on innovation); what did he think of Schumpeter’s account of entrepreneurship and economic change?
Financing Constraints and Entrepreneurship
| Peter Klein |
Speaking of banks, here’s a very good survey of the entrepreneurship literature on financing constraints by William Kerr and Ramana Nanda, just out from NBER. From the introduction:
The first research stream considers the impact of financial market development on entrepreneurship. These papers usually employ variations across regions to examine how differences in observable characteristics of financial sectors (e.g., the level of competition among banks, the depth of credit markets) relate to entrepreneurs’ access to finance and realized rates of firm formation. The second stream employs variations across individuals to examine how propensities to start new businesses relate to personal wealth or recent changes therein. The notion behind this second line of research is that an association of individual wealth and propensity for self-employment or firm creation should be observed only if financial constraints for entrepreneurship exist.
These two streams of research have remained mostly separate literatures within economics, driven in large part by the different levels of analysis. Historically their general results have been mostly complementary. More recently, however, empirical research using individual-level variation has questioned the extent to which financing constraints are important for entrepreneurship in advanced economies. This new work argues that the strong associations between the financial resources of individuals and entrepreneurship observed in previous studies are driven to large extents by unobserved heterogeneity rather than substantive financing constraints. These contrarian studies have led to renewed interest and debate in how financing environments impact entrepreneurship in product markets.
Making and Unmaking Economic Orders
| Dick Langlois |
The new issue of the online journal Capitalism and Society has a number of articles that should interest readers of this blog. Each is probably deserving of its own post. (Ah, but time prohibits.)
Jon Elster has a piece called “Excessive Ambitions” that criticizes not only mainstream rational-choice models (as we would expect from Elster) but also modeling in general. Roman Frydman and Michael Goldberg have a piece that applies something like Leijonhufvud’s “corridor” to risk regulation: when swings of asset values are small, government should stay out, since such swings are actually beneficial; but when asset prices get too far from “underlying values,” government regulation is called for.
My favorite paper is by Thorbjørn Knudsen and Richard Swedberg. Here’s the abstract:
This is a theoretical paper in which we attempt to present an economic and sociological theory of entrepreneurship. We start from Schumpeter’s idea in Theory of Economic Development that the economy can be conceptualized as a combination and innovations as new combinations. Schumpeter also spoke of resistance to entrepreneurship. By linking the ideas of combination and resistance, we are in a position to suggest a theory of capitalist entrepreneurship. An existing combination, we propose, can be understood as a social formation with its own cohesion and resistance — what may be called an economic order. Actors know how to act; and profit is low and even in these orders. Entrepreneurship, in contrast, breaks them up by creating new ways of doing things and, in doing so, produces entrepreneurial profit. This profit inspires imitators until a new order for how to do things has been established; and profit has become low and even once more. Entrepreneurship is defined as the act of creating a new combination that ends one economic order and clears the way for a new one. The implications of this approach for a number of topics related to entrepreneurship are also discussed.
This has some affinities to arguments I have made in the past. I am thanked in the acknowledgements, presumably for conversations that Richard and I had at a Schumpeter conference at Harvard last year; but I’m not cited. (Assume sad-faced emoticon here.)
I will talk about the fourth paper in the issue soon in a separate post.
Navigating a Process of Integrating Co-Authors’ Diverse Mental Models
| Russ Coff |
Not long ago, Peter mentioned his heavily downloaded SEJ article (with Nicolai, Yasemin, and Joe). They argue that entrepreneurial teams have a greater potential for competitive advantage than individuals if positive team dynamics allow them to draw upon members’ diverse mental models.
My related working paper unpacks positive team dynamics across the variance generation and selection stages of creativity. In a nutshell, the required group mood differs markedly between the two stages and many teams are unable to navigate the divide.
Ironically, this paper has, itself, been a journey to meld co-authors’ diverse mental models. (more…)
Another Nanosecond of Fame
| Dick Langlois |
Warm thanks to Art Diamond for his very nice review on eh.net of my book The Dynamics of Industrial Capitalism: Schumpeter, Chandler and the New Economy. I am most pleased that Art recognizes the book to be primarily theory, albeit with much discussion of economic history and economic ideas.
Is This In the Training Manual for Academic Deans?
| Peter Klein |
Matilda, mother of King Henry II, advising her son on the business of royal patronage (quoted in Danny Danzinger and John Gillinghman, 1215: The Year of Magna Carta, London, Hodder and Stoughton, 2003, p. 178):
He should keep posts vacant for as long as possible, saving the revenues from them for himself, and keeping aspirants to them hanging on him hope. She supported this advice by an unkind parable: an unruly hawk, if meat is often shown it and then snatched away or hid, will become keener, more attentive, and more obedient.
Speaking of deans, I happened to catch Indiana Jones and the Kingdom of the Cyrstal Skull the other day. The film, you probably know, takes place in the 1950s and centers on Indy’s confrontation with a group of Soviet treasure-hunters. Early in the film Indy loses his academic post because of suspected Communist sympathies. At the end, after defeating the bad guys (hope that’s not a spoiler), Indy not only gets his job back, but is made Associate Dean. That this is considered a reward shows how little anyone in Hollywood knows about university life!
The Zen (or Feng Shui) of Copyright
| Dick Langlois |
Peter blogged some time ago about intellectual property rights in comedy. Turnabout is fair play; and here, in a kind of post-modernist twist, is a comedic take on intellectual property rights — from the Onion.
Intellectual Property Rights as Fleeting as the Scent of Jasmine, Mayfly’s Wing
BEIJING — Settling not on the industrious sons of China, nor on their ware-covered blankets, ownership rights of intellectual property fluttered silently by, unseen, on Monday, as does the gentle mayfly on a warm harvest-time breeze. “Is this a pirated DVD of Transformers 2 dreaming it is an original? Or is it an original Transformers 2 dreaming of an adventurous life as a pirate?” a sidewalk merchant in Tiananmen Square whispered to a moment already gone, as his hands clutched some worldly illusion of the Michael Bay film. “Eight dollars. Plays anywhere in the world.” In their great wisdom, the merchants also carried forth the ancient teachings of Zhuangzi — who spoke of how time is a riddle answered by eternity — to the equally fleeting earthly conceits of trademarked wristwatches, electronics, clothing items, Starbucks, and automobiles.
The piece is part of a new online issue whose conceit is that the Onion has been sold to Chinese interests. It’s quite good — the Onion is at its best when it has an overarching theme, as in the Our Dumb Century book. Of course, one of the multiple layers of meaning in the joke may have to do with the fact that the real magazine actually is apparently up for sale.
Videos from Entrepreneurship Research Exemplars Conference
| Peter Klein |
Dick blogged previously about the Entrepreneurship Research Exemplars Conference held at UConn in May. The conference organizers have uploaded videos of the keynote speeches by Howard Aldrich, Jay Barney, Mike Hitt, Duane Ireland, Patricia McDougall, and Venkat Venkataraman. You can also watch the editor/author panel sessions in which editors of AMJ, AMR, ET&P, JAP, JBV, JOM, JMS, Org Science, SEJ, and SMJ discuss publication strategies and authors of recently published papers talk about their experiences with writing and revision (Fabio, direct ’em here!). I especially like the SEJ session featuring Yasemin Kor’s discussion of this excellent paper, which I’m told is the most-downloaded paper on the SEJ website. Go figure.
Scott Shane Blogging at the NYT
| Peter Klein |
Scott joins the “You’re the Boss” blogging team (via Dane Stangler).
2009 SES Boot Camp
| Peter Klein |
Just received the Call for Papers for the 2009 edition of the Society for Entrepreneurship Scholars Manuscript Boot Camp, this year at Johns Hopkins University right before the SMS Conference in October. I participated last year and had a terrific experience (OK, it was at a ski resort, but that has nothing to do with it). Submissions due 4 August 2009. Details below the fold. (more…)
World Bank’s “Doing Business” Changing Course
| Benito Arruñada |
Thanks to O&M for the opportunity to join the conversation. I plan to be blogging about some issues discussed in my book.
One of my recent research areas is the cost of business formalization. In particular, I have criticized the World Bank’s Doing Business project for the narrow focus of its “Starting a Business” indicator on reducing the initial costs of incorporating companies (Arruñada, 2007, 2009), which disregards the more important role of business registers as a source of reliable information for judges, which is essential for reducing transaction costs in future business dealings. In many developing countries, registers produce documents that judges do not trust and, therefore, registration does not facilitate impersonal transactions that it should be supporting. Reducing the explicit cost of registers and speeding production of useless paperwork will not help. The priorities of reform policies should therefore be thoroughly reviewed, aiming first for registers to achieve a minimum reliability. (See this discussion).
In April, following continuing pressure by Barney Frank, chairman of the US House Financial Services Committee, the World Bank decided to drop Doing Business’s “Employing Workers Indicator” and develop a new “Worker Protection Indicator” after concluding that the first indicator “does not represent World Bank policy and should not be used as a basis for policy advice or in any country programme documents that outline or evaluate the development strategy or assistance programme for a recipient country” (Aslam, 2009).
In line with my argument about registration, meaningful indicators of institutional quality should be comprehensive of costs and values. Therefore, an indicator of the quality of employment regulation should consider not only workers’ protection but other aspects, such as, most prominently, unemployment rates.
Entrepreneurship Exemplars Conference
| Dick Langlois |
The Center for Entrepreneurship and Innovation at the UConn business school is sponsoring an “exemplars” conference in conjunction with the Entrepreneurship Division of the Academy of Management. The idea of the conference is to help young scholars by providing “exemplars” of good scholarship. Editors from the top management and entrepreneurship journals are here (including frequent O&M participant Joe Mahoney) to comment on these exemplar papers and provide advice.
The conference started last night with a keynote by Venkat Venkataraman and continues through Saturday. You can actually participate in the conference online: register here. I am about to wander over (physically, not electronically) to hear Jay Barney’s keynote at 10:50 EDT.
PAL Team on Microfinance
| Peter Klein |
As a microfinance skeptic I was particularly interested in the new paper from the J-PAL team of Banerjee, Duflo, Glennerster, and Kinnan, “The Miracle of Microfinance? Evidence from a Randomized Evaluation.” Despite the pedestrian abstract, the findings are pretty significant:
To date there have been no randomized trials examining the impact of microcredit. Using such a design, 52 of 104 slums in Hyderabad, India were randomly selected for opening of an MFI branch while the remainder were not. We show that the intervention increased total MFI borrowing, and study the effects on new business starts, investment, and consumption. Households with an existing business at the time of the program invest in durable goods, and their profi ts increase. Households with high propensity to become business owners see a decrease in nondurable consumption, consistent with the need to pay a fixed cost to enter entrepreneurship. Households with low propensity to become business owners see nondurable spending increase. We find no impact on measures of health, education, or women’s decision-making.
Ryan Hahn puts it this way: The verdict is in on microfinance. . . . And it’s not pretty.” He means that microfinance does appear to have a positive marginal effect on business formation and expansion, but the effect is modest and does not (at least within a 15-18-month timeframe) have any discernible effect on well-being.
ACAC Schedule
| Peter Klein |
The Atlanta Competitive Advantage Conference begins tomorrow. The updated schedule, along with other logistical information, is here. You can also download many of the papers. Emory, Georgia Tech, and Georgia State Universities have co-hosted this event the past five years and it’s become one of the main events for research in strategy, organizational economics, entrepreneurship, and related fields.
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