Entrepreneurial Judgment: Steve Jobs and Herman Cain
October 9, 2011 Leave a comment
Interesting article by John Chapman on entrepreneurial judgment, with applications to Steve Jobs and Herman Cain. John builds on ideas from, as Greg Mankiw might say, my favorite entrepreneurship scholar:
Seen in this “Kleinian” formulation, in which judgment about an uncertain future is the crucial focal point for analysis of entrepreneurship, several important conclusions follow:
- Ownership matters. It is the command of resources — of capital — that empowers (and defines) successful entrepreneurs. This in turns matters for (and implies a specific) policy formulation: the owners of capital or those tasked, in a derived sense, to control use of it, make decisions about the unknown future. It is in their interest, and indeed they have every incentive, to economize on the use of this scarce capital, that is, to protect and grow it. They therefore have every incentive to understand and acquire knowledge, both through trial-and-error and through research, about future conditions in the market, in order to optimize their capital. Government actors, by contrast, do not have the same incentive, nor the same ability, to acquire such useful and relevant knowledge.
- Uncertainty, and the imperative to exercise judgment, are irrevocable, in this world of space and time. Much in the way of policy developed out of Washington, D.C. seeks to replace the vague unpredictability and uncertainty about the future with bureaucratic diktat that allegedly makes life easier for citizens. Many elected officials will say their purpose is to remove, as it were, the uncertainty itself. And the assumption is always implicit in Beltway-based action that the government actors – somehow — know more than citizens do, and that the course of action taken by government will turn out as they intend it to, and will successfully improve conditions for the intended citizen beneficiaries. Professor Klein’s extensive body of work shows that this is folly. Radical uncertainty is a pervasive and permanent feature of life in this world; the operative question is how best to mitigate it. Entrepreneurs, again, have every incentive to discern the best uses of current capital resources as applied against future prospective conditions, and to organize activity around profitable possibilities emanating from these future (currently unknown) conditions; government actors, conversely, whether elected or permanent civil service, have no such similar incentive. And indeed, the knowledge the government actors have about what are often locally-based conditions — that is to say, from the vantage point of the government actor, geographically and contextually distant – is almost always inferior to that garnered by profit-seeking entrepreneurs who are responding to market signals. Further, for Klein, the trial and error process itself is what generates the knowledge that is useful, relevant, and indeed, critical, in order to make the best decisions about deployment of scarce capital to make the future conditions better than they are at present. No amount of government resources or intervention can somehow supersede this knowledge-generating process by effectively abrogating the trial-and-error that is its critical essence. And this trial-and-error process is none other than the market process itself; that is to say, the buying and selling that takes place in markets and generates useful price signals that are effectively co-opted by entrepreneurs, as primordial sources of information and insights about the uncertain future.
- Entrepreneurship, as the driving force of the market, is a necessary institutional condition for optimal economic growth. Because radical uncertainty cannot be revoked, and because capital resources are both scarce and depreciating, action is required in order to maintain (and protect) one’s current standard of living, and achieve a higher standard of living in the future. Entrepreneurship, which at its essence permits both the creation and salutary exploitation of knowledge about how to best employ the scarce resources of society for profit — that is to say, for the creation of wealth — is absolutely criticalto economic growth and human progress.