Interview in eTalks

I am interviewed in the latest edition of Entrepreneurial Talks, better known as eTalks. “It’s a multi-disciplinary community of entrepreneurs, innovators and leaders who share a common denominator to create a better world with innovative entrepreneurial ideas.” Interviewer Niaz Uddin asks me about entrepreneurship in theory and practice, how economics and other academic disciplines fit into entrepreneurship education, the role of institutions and public policies in fostering entrepreneurship, and more.

Clusters of Entrepreneurship and Innovation

That’s the title of a new review paper by Aaron Chatterji, Ed Glaeser, and William Kerr (a gated NBER working paper, unfortunately). Agglomeration has been a huge issue in the entrepreneurship, technology strategy, innovation policy, and economic growth literatures and it’s nice to have an up-to-date, not-very-technical review paper. (Hopefully there is an ungated copy out there somewhere.)

Clusters of Entrepreneurship and Innovation
Aaron Chatterji, Edward L. Glaeser, William R. Kerr
NBER Working Paper No. 19013, May 2013

This paper reviews recent academic work on the spatial concentration of entrepreneurship and innovation in the United States. We discuss rationales for the agglomeration of these activities and the economic consequences of clusters. We identify and discuss policies that are being pursued in the United States to encourage local entrepreneurship and innovation. While arguments exist for and against policy support of entrepreneurial clusters, our understanding of what works and how it works is quite limited. The best path forward involves extensive experimentation and careful evaluation.

[Cross-posted at Organizations and Markets]

Freedom and Entrepreneurship?

The relationship between institutions and economic development has been studied in numerous papers, and the findings are rather well aligned: institutions supporting the freedom of individuals to make private choices have a positive effect on economic growth and entrepreneurship. Institutions that are core to so-called liberal democracies, such as protection of property rights, the rule of law, and procedural/formal equality, are often found to be directly and positively correlated with the creation of economic wealth.

This already established relationship is further studied in a new study from the Mercatus Center at George Mason University, which takes a broader approach and studies the effect of freedom in general on entrepreneurship (measured as startup growth) and, hence, economic growth and prosperity. The study, Freedom and Entrepreneurship: New Evidence from the 50 States authored by Joshua C. Hall, John Pulito, and Benjamin VanMetre, finds that there is indeed a positive, empirical and significant relationship between freedom and entrepreneurship. But disaggregating the composite measure of “freedom” into “personal freedom” and the more commonly studied “economic freedom,” they find that the latter is the driver of this relationship. Hence, personal freedom is not a significant factor in entrepreneurship.

This finding is very interesting and raises quite a few questions. For instance, what does this mean in terms of policy and the attempts to help the developing world “catch up” with the developed ditto? And what does this tell us about the People’s Republic of China, which combines (limited and regional) economic freedom with personal unfreedom? (It would also be interesting to relate this finding to e.g. the thesis in Ronald Coase’s latest book, How China Became Capitalist.)

Interesting research questions such as these are, of course, in addition to the moral or ethical dimension of the policy suggestions that can be derived from these findings. What are the possible implications of learning that entrepreneurship and economic growth and prosperity result from economic but not personal freedoms?

From a McQuinn Center point of view, however, other questions emerge as potentially more interesting. If a quantitative measure of startups is positively related to economic but not personal freedom, where does entrepreneurship as judgment come in? Entrepreneurial judgment is not necessarily solely economic, but has a distinct personal or social flavor to it.

The sound entrepreneurial imagining of future opportunities under Knightian uncertainty may be derived partly from the experience of economic action (and the understanding of economic causal relationships), but the lack of personal freedom should also have an effect the entrepreneurial abilities of would-be judgmental entrepreneurs. It seems likely that personal unfreedom should affect entrepreneurially minded people’s scope of thinking and their judgmental ability. A related question: what is the role of personal freedom to such types of free-thinking that causes innovation? And do innovation and entrepreneurial judgment therefore call for re-aggregation of the freedom measure?

The implications of this study’s contribution, especially the research questions the findings give rise to, are potentially enormous. The study’s “mere” extension of the existing literature opens up for a lot of very interesting research questions.

Entrepreneurial Missouri

We’ve written before on entrepreneurial activities in our home state. Here’s a Forbes piece from Kauffman’s Lesa Mitchell celebrating Kansas City as the heart of an entrepreneurial ecosystem:

Kansas City is not only in the heart of America, it is in the heart of what’s known as the Silicon Prairie. Opportunities for educational, experiential and entrepreneurial growth continually expand in our urban core, attracting innovators of all ages and interests. Maker Faire KC, one of only four cities outside of California to hold a major Maker event this year, brings inventors, builders and dreamers from varied fields together, helping them create the relationships that build and sustain entrepreneurial success. The promise of the world’s fastest Internet access via Google Fiber is attracting innovators to KC from around the country and helped inspire the just-emerged entrepreneurial neighborhood, KC Startup Village, and Home for Hackers. Startup Weekends are a regular happening here, and the Kauffman Foundation’s own 1 Million Cups and Kauffman FastTrac provide unequalled education and networking opportunities to help entrepreneurs start and grow their companies.

McQuinn Center in the News

Sunday’s Columbia Tribune ran an excerpt from my recent book chapter on entrepreneurship and policy, under the provocative title “Get Government Out of the Way: Entrepreneurs Need Freedom to Prosper.” The longer essay isn’t available online but you can read chunks courtesy of Google Books.

Addendum: I discussed the essay, and entrepreneurship and policy more generally, on the November 19 episode of the Denver-based Start-Up Show.

Interview with Kevin Langley, Chair of the Entrepreneurs’ Organization

“Is entrepreneurship really the answer to the world’s problems?” the New York Times asks Kevin Langley, head of the Entrepreneurs’ Organization? Interesting passage:

A. I traveled to Egypt after the revolution to help some young technology entrepreneurs. I spent three or four days mentoring them and then they took me to Tahrir Square. And this young female entrepreneur walked us right into the middle of Tahrir Square. She told me that her brother had been killed there during the revolution.

This Egyptian woman wants to develop an app, a 911 service for traveling in third world countries. You can use the app to identify and find medical help close to you and it will alert social networks that you have been injured. That one female entrepreneur could create opportunities for hundreds of people in Egypt, which is why the revolution happened.

Q. How so?

A. The Arab Spring was started by a young entrepreneur. The guy who set himself on fire in Tunisia, Mohamed Bouazizi, was a young street vendor who had a vision of having multiple fruit carts and had a goal of buying a Toyota pickup truck to haul his fruit carts around. What was lost was his hope.

Q. Wasn’t the Arab Spring also about people in the Middle East being tired of not choosing their own leaders?

A. The point I’m making is that no one talks about the fact that he was someone who aspired to create his own economic opportunity, and because that was limited, he lost all hope.

My own take is somewhat different, though of course I recognize the importance of small business startups for economic development.

Growing State Economies

A May 2012 report from the (US) National Governors Association, “Growing State Economies,” is filled with interesting facts and figures about the climate for startups in US states (via Mary Leuci).

Entrepreneurs Do It Themselves

Sometimes a topic opportunity emerges that is simply too good to overlook. This is the case with President Obama’s latest gaffe, which has turned into quite an Internet storm of “memes.” Said the president:

If you’ve got a business, you didn’t build that. Somebody else made that happen

Of course, it is easy to understand what this can mean: without customers there can be no business; without employees there can be no firms; without suppliers there can be no end-products; and so on. These are all true. The interpretation that no businesses are successful without government, often found on liberal blogs, is far more of a stretch. Businesses may transport their goods on public roads, but do they have an alternative? And more importantly: if government didn’t supply roads, would it be impossible to run a business firm? Obviously not. There would be other, non-governmental, means of transportation. Such as private roads.

But if we look closer at the president’s statement, it is obvious that he has no understanding for what Mises calls “the driving force of the market”: the entrepreneur. If a business firm is simply putting different inputs together, then obviously what you do is not unique, novel, pioneering – or independent of the actions of others. In fact, “anyone” could do the same thing and, in fact, “anyone” probably would: why should we expect people not to act on an obvious opportunity to make money?

The problem is that for a generous interpretation of the president’s statement to be true, it must be as entrepreneurless as neoclassical economic theory. As Baumol (1968, p. 66) stated it:

The theoretical firm is entrepreneurless – the Prince of Denmark has been expunged from the discussion of Hamlet.

The president’s view of the market (and the firm) is just as entrepreneurless; there is no Prince of Denmark in the federal government’s Hamlet.

The entrepreneur is the innovator, the organizer, and the one exercising superior judgment to produce value for consumers. Entrepreneurship is hardly just combining existing pieces according to already existing blueprints – it is about creating new pieces, fitting them in new ways, and creating something new. It is about independent and pioneering vision – and taking the step from dream to reality through action. In this sense, an entrepreneurial creation is unique and something we have not seen before. It is consciously aimed for and created, even if it utilizes (previously undiscovered) strengths of others.

So, Mr. President, the fact is: the entrepreneur did build that.

Interview at Universidad Francisco Marroquín

A September 2011 interview I did at Universidad Francisco Marroquín in Guatemala has been published on the university’s media site with the title “The Entrepreneur as Hero.” Check it out.

Price Stability and Entrepreneurship

Monetary economists tend to fall into one or both of two categories: they are proponents of either price stability or inflation. Some, like University of Chicago’s Luigi Zingales, proposes a government entity to guard us from inflation. Others, like Princeton’s Paul Krugman, seems to see only problems with price stability – but sees only good things come out of inflation.

Interestingly, there is little talk about entrepreneurship when monetary theorists talk. An exception is the 20th century economist Ludwig von Mises, an economics system builder who developed a subjective theory of money as well as connected it to the market’s structure of production, entrepreneurship, and linked them all in a theory of business cycles.

Whether or not we adopt Mises’s views, it is fascinating to adopt an entrepreneurial perspective when discussing monetary theory and policy. What is the role of entrepreneurship and how does entrepreneurship fare under or affect market prices?

Well, let’s imagine an entrepreneur is either alert to arbitrage opportunities (as in Kirzner, 1973), is an innovator that creates new combinations of resources (as in Schumpeter, 1911), or exercises superior judgment in bearing uncertainty in productive enterprises for profit (as in Knight, 1921). Then imagine that this entrepreneur acts under any conceivable monetary regime. What is the effect of entrepreneurship on market prices?