When countries are ranked according to how important a role entrepreneurship plays in their economies, Israel almost always comes out near the top. In their book Start-Up Nation: The Story of Israel’s Economic Miracle, Dan Senor and Saul Singer look at the possible reasons. I am half-way through the book, and I like how the authors try to offer as nuanced a view as they can. In searching for reasons, it is often tempting to run with a “simple” cultural explanation. While culture certainly must play a role, there are many other important factors, sometimes interacting with culture. I am especially interested in how government policy has enabled the blossoming of entrepreneurial ventures.
Moving on to innovation, I can’t wait to read Inside Real Innovation by Fitzgerald, Wankerl and Schramm. Professor Brandenberger has built up my expectations quite a bit through his enthusiastic summary of some of the main arguments, including the emphasis on the non-linearity of the process of innovation.
Well, if you get to any of those, let me know what you think. I will definitely read something more literary as well, but I am really not sure what that will be. In addition, I hope I’ll have a chance to listen to some great live music every now and then, and I wish you the same.
The “avuncular state” is one of this week’s topics in the Comparative Economics Systems course. Should the state take a more paternalistic role? The Economist covers the topic fairly regularly, and you can probably guess which side they are on. This week’s issue has an entertaining (and worrisome) piece in the Schumpeter blog on the “Licence Raj.” As the quote in the title of this post says, even interior designers must be licensed in Florida. Requiring licensing raises wages by about 15% in a profession, the article says.
While The Economist sees licensing requirements as a weight pulling down entrepreneurship, others see that 15% wage bump as a perfectly good reason to require licensing. In Germany, for instance, the traditional and highly developed apprenticeship system ensures that students who do not go on to university end up with respectable, satisfying work as licensed craftsmen and women, for a living wage.
For those of you hiding under a rock, the idea of The Rabbit Galleryis to put art galleries in vacant shops, allowing artists to display their work and pay a lower commissions for display. The intrepid entrepreneurship of Ranga and his brethren has secured the $700 to get the gallery out of its hole and into Conkey’s.
The special VIP launch date (for those only who contributed!) is May 14th (tomorrow) at 4:30…. See you there.
The launch date for the general public is Tuesday, May 17th.
I have recently seen two examples of creative ways to get free labor over the internet. I suppose the whole open source movement should be counted in this category, too, but that’s old news. (And there’s probably more to it than I think.) At a workshop two weeks ago, I heard about Fold-It, a “a revolutionary new computer game enabling you to contribute to important scientific research.” Larry Robertson told us about it at Millikin University, in the context of a discussion on the meaning of entrepreneurship. What could be a more creative and low-cost way to get people to think about protein structures?
The other example is not so much about advancing science as about making money. We all know and love those annoying little wavy words we have to decipher to submit web forms. They are referred to as “CAPTCHAs,” which apparently stands for “completely automated public Turing test to tell computers and humans apart.” What you may not know is that you are working for someone, say, Google, when you decipher those words. The New York Times has the full story. reCAPTCHA started as a project of Professor von Ahn at Carnegie Mellon, as their website says. That same site, you may notice, starts with www.google.com, which is because Google bought reCAPTCHA in 2009. Through reCAPTCHA, Google is enlisting you and me to decipher words in scanned documents that the image-to-text software had trouble with. Hey, if I can help digitize old books, I’m all for that. I hope I don’t have to pay a ton to read those same words in the right order. I can’t wait to hear more about the next scheme of Professor von Ahn.
The stream of extraordinarily useful and interesting alumni presentations continues this Saturday with the LSB Entrepreneurial Ventures Summit, to be held from 1pm to 3pm in the Hurvis Room in WCC. Our very special guests will be Susan Palm ’80, Pete Shuster ’81, and Greg Linnemanstons ’80. Click the poster on the left for more information. Come to learn about the fascinating work that three distinguished alumni have done, and maybe even win the prize! Join our guests for lunch at 12:00 in the Parrish-Perille room in Andrew Commons.
We had a pretty good discussion today, especially on the distinction between the Schumpeterian and Kirznerian entrepreneurs (perhaps too much on Christiansen). Ladies and gentlemen, the Kirznerian entrepreneur (emphasis his):
For me the function of the entrepreneur consists not of shifting the curves of cost or of revenues which face him, but of noticing that they have in fact shifted — Kirzner, Competition & Entrepreneurship, p. 81.
For further explication of the differences between Schumpeter and Kirzner (beyond what’s on pp. 79-81), see this piece by Don Boudreaux.
Today we concluded this term’s Schumpeter Roundtable, what I consider a reasonably successful, certainly enjoyable reading of Joseph Schumpeter’s Capitalism, Socialism, and Democracy. Those who follow our blog have probably pegged its authors (notably me) as Schumpophiles, so to speak, but I think it was just a groove that we settled into following our reading of the Thomas McCraw biography, Prophet of Innovation: Joseph Schumpeter and Creative Destruction.
For the Spring term, we will take a crack at another noted entrepreneurship scholar, Israel Kirzner, whose Competition and Entrepreneurship is considered a classic in Austrian Economics. This is a one-unit course that will meet weekly for about half of the term. The requirements are to read, participate in discussions, and complete a short writing assignment.
Yes, but what is it all about?
According to the book’s publisher, Kirzner “provides at once a thorough critique of contemporary price theory, an essay on the theory of entrepreneurship, and an essay on the theory of competition. Competition and Entrepreneurship offers a new appraisal of quality competition, of selling effort, and of the fundamental weaknesses of contemporary welfare economics.” And, writing for the Concise Encyclopedia of Economics, Russell Sobel gets at why this is important:
Two notable twentieth-century economists, Joseph Schumpeter and Israel Kirzner, further refined the academic understanding of entrepreneurship. Schumpeter stressed the role of the entrepreneur as an innovator who implements change in an economy by introducing new goods or new methods of production. In the Schumpeterian view, the entrepreneur is a disruptive force in an economy. Schumpeter emphasized the beneficial process of creative destruction, in which the introduction of new products results in the obsolescence or failure of others. The introduction of the compact disc and the corresponding disappearance of the vinyl record is just one of many examples of creative destruction: cars, electricity, aircraft, and personal computers are others.
In contrast to Schumpeter’s view, Kirzner focused on entrepreneurship as a process of discovery. Kirzner’s entrepreneur is a person who discovers previously unnoticed profit opportunities. The entrepreneur’s discovery initiates a process in which these newly discovered profit opportunities are then acted on in the marketplace until market competition eliminates the profit opportunity. Unlike Schumpeter’s disruptive force, Kirzner’s entrepreneur is an equilibrating force. An example of such an entrepreneur would be someone in a college town who discovers that a recent increase in college enrollment has created a profit opportunity in renovating houses and turning them into rental apartments. Economists in the modern Austrian school of economics have further refined and developed the ideas of Schumpeter and Kirzner.
That’s a good start, and I look forward to developing some auxiliary materials to help us to understand the material. It would probably help a lot of if you’ve had Econ 300, but I certainly won’t exclude anyone on that basis. The course requirements are to read the book, attend several weekly discussions (likely five or six weeks), and complete one or two short writing assignments.
The sign up is 391 DS-Discovering Kirzner, as a one-unit course with either myself (Professor Gerard) or Professor Galambos. We will arrange a time based on the schedules of those who sign up.
Brandenberger and Galambos strike again. This via the Faculty & Grants Fellowships Newsletter:
This summer, the In Pursuit of Innovation course — co-taught by Professors John Brandenberger (Physics) and Adam Galambos (Economics) — received a two-year $23,000 grant from the National Collegiate Inventors and Innovators Alliance substantially to enhance the support for student projects and to fund guest speakers. Team projects play a central role in the course, and the NCIIA grant will allow students to dream bigger and to go further in pursuing their chosen innovations. It is expected that some teams will go beyond producing a prototype and will bring their idea close to being commercialized. The Innovation course, to be offered for the third time in Winter 2011, is one of the core courses of the Innovation & Entrepreneurship program, which is Lawrence University‘s model for integrating innovation and entrepreneurship into liberal arts education.
The program currently features three core courses that are to be complemented by additional topical courses dealing with environmental issues, politics, economic development, and other subjects that reflect interests of participating faculty. As a result of the program, several courses in economics as well as several courses in the arts will have newly added entrepreneurial components for the first time this year.
Invited experts also play critical roles in the program‘s core courses, including Innovation. These experts also help the program grow, expanding opportunities for students to engage in real-world entrepreneurship and innovation, through structured practical opportunities to take their course-based projects to commercialization, or internships in businesses or nonprofits that foster entrepreneurship or innovation. The NCIIA grant will help pay for travel expenses of several highly regarded experts who will contribute to the next offering of the Innovation course. The expectation is that students who take I&E courses will gain knowledge and cognitive skills that will equip them to be “change agents.” Combined with LU‘s emphasis on critical thought and information synthesis, the conceptual and practical knowledge gained through these courses will prepare students to undertake imaginative and ambitious innovative and entrepreneurial activities.
I have finally started reading Capitalism, Socialism, and Democracy by Joseph Schumpeter. And now I simply can’t put it down. This has not happened to me with an economics book since I read The Road to Serfdom by Hayek. Schumpeter’s work is pure gold, prescient, wise, analytically crystal clear, and beautifully written (yes, every so often one must reread a paragraph-long sentence). I can’t wait to discuss the details in our CS&D reading groups.
The second part of the book is on capitalism, and Schumpeter make some arguments that seem decidedly Marxian, resembling conclusions that Marx “reached.” Which is probably why Schumpeter found it important to start the book with a first part on Marx’s work. Schumpeter’s critique of Marx is balanced, even generous, but penetrating. I have read before that Schumpeter succeeded best by far in putting Marx’s work in perspective, and now I can see how. (Not that I have much expertise on Marx.) Yes, Schumpeter says, I reach some similar conclusions, but make no mistake, dear reader: there is a world of difference between how Marx got there and how Schumpeter did. And there is a world of difference between the implications of Marx’s “analysis” and Schumpeter’s.
I particularly enjoyed Schumpeter’s analogy between Marxism and religion. I have read others who make the same point, but Schumpeter makes it so much better. Marxism is not just a theory of economic change, but a theory of the world. And so it gives followers a lens through which they can see and interpret everything. The Witness is a Hungarian cult movie from the sixties on the Soviet system. In one scene, the head of the state secret police says, “whether you eat baked potatoes or pork roast, the class struggle is intensifying!” People quoted this phrase for decades to come in an ironical voice in comments on the political and economic situation. Yes, it is possible to see everything as a manifestation of class struggle. And once you see everything that way, it is difficult to think outside that system. Though I grew up in the last stages of goulash communism, I was to some extent exposed to that world view, partly in a very personal way. My great-uncle was a true believer in Marxism well before it was fashionable in Hungary. In fact, his own father was in and out of jail in the 1920s for being a communist. (At that time, right-wing Hungary’s police stations had copies of a thick black book—a list of undesirable, suspicious people to watch out for. My great-uncle’s father was listed as guilty of being a Communist and a Jew.) My uncle, after he came back from Auschwitz, got to work in helping build the communist future. He taught Marxism in evening classes to those who needed to be “educated.” And even though he lived through the many failures of that system, he remained a believer to some extent till the end of his life. Yes, Marxism offers a theory of why things are bad, who’s to blame, and hope for inevitable salvation.
Inside the elevator that ascends six floors in the UW-Madison Humanities Building to reach the university’s art department, the aesthetics had sunk low, really low.
Over the years the metal walls of the bare-bones, slightly rumbly elevator served as a magnet for 2D creativity, some of it intriguing, but a lot of it slapdash and much of it resembling graffiti more often found on the sides of a bathroom stall. In other words, the kind of vandalism someone can pull off between stops on a 20-second elevator ride.
My feeling is that this was simply art students practicing their elevator pitch. In a city that already has Connected Bits service, you simply would have used your smartphone to take a quick pic of the graffiti and send it on to the authorities. By the way, the person behind Connected Bits (and other very intriguing ventures) is Dave Mitchell, who is a Lawrence alum and will be guest speaker for In Pursuit of Innovation (Econ 211) next term. But, in Madison, they took a tip from the pop-up gallery movement instead, and turned that doomed “lift” into the Hi/Lo Gallery, “seven floors of visual candy.” Appleton is likely soon to get its first pop-up gallery, thanks to Sydney Pertl and Krissy Rhyme , who have been continuing the project from Entrepreneurship in the Arts and Society, and hope to open the first exhibition in February.
The answer depends on whether it manages to preserve its history of entrepreneurship, says Edward Glaeser in his piece Start-Up City in New York’s City Journal. He argues that the strength behind the spectacular economic development New York City has experienced in most of the past two hundred years grew out of entrepreneurship. Industries have come and gone, but the entrepreneurial spirit remained. But will this be the case after the Fall of Finance? Glaeser worries that the financial firms that have come to dominate the City aren’t small and entrepreneurial, but relatively large, possibly undermining that culture of entrepreneurship. Moreover, in several studies and surveys New York state and New York City show up as one of the worst places to do business in the US. One other piece of this picture that I think deserves more attention than Glaeser is granting is the constant influx of immigrants that New York has experienced for a long time. See this paper by Waldinger on immigrants and the famous New York garment industry, or this study by the Kauffman Foundation on immigration and technology entrepreneurs in particular. Of course when great numbers of immigrants became entrepreneurs in NYC, it was in small-scale manufacturing industries such as the garment industry, where no knowledge of English and no higher education were required. My great-uncle has several childhood friends who successfully became such entrepreneurs in the US, and spoke rather limited English to the day they died. It is doubtful that such a mechanism of low-skilled immigrant entrepreneurship could function today. But, as the aforementioned study suggests, technology may be the new garment industry.
Last Friday and Saturday, I participated in a variety of activities related to the Chicago ACM program on Business, Entrepreneurship, and Society. Two current seniors, Alex Chee and Cuong Nguyen, are enrolled in the program and have fascinating internships that they will tell us about when they return in January.
We visited the Industrial Council of Nearwest Chicago (ICNC), which has been serving business start-ups for 40 years. The above building houses over 120 tenants that are in the early stages of business development. ICNC owns and manages this 410,000 square foot space and supports the resident entrepreneurs with a variety of services including counseling and technical assistance, advocacy, recruitment, funding, and employee training. We met with one firm (Souldier) that recycles automobile seatbelts into guitar straps (for famous and not so famous bands) and another (Aloft) that teaches how to do aerial acrobatics on silk ribbons hung from the rafters – an awe inspiring vision.
If you fancy yourself as an entrepreneur, seriously consider enrolling in this program. You will find out whether such a lifestyle is a perfect fit for you. If you have questions or seek more information about the program, come see me.
When I conceived of the “free market Monday” tag, this recent Reuven Brenner article in Forbesis what I had in mind. Brenner is one of the great champions of the idea that access to capital and fluid capital markets are prime drivers of capitalist economies. In this piece, he talks about the importance of risk capital in revitalizing the North American economic outlook.
Another very interesting person I heard at the CEO conference on Friday was Lisa Canning. Well-known for Entrepreneurthearts.com, Lisa Canning is a prominent face of arts entrepreneurship these days.
She founded the Institute for Arts Entrepreneurship, which has a two-year post-graduate certificate program that could be of interest to many Lawrentians. Their mission: “The IAE is committed to helping our students discover meaningful solutions to one essential question: As a person committed to the arts, how do I develop the knowledge and skills to create a successful, meaningful and sustainable life in today’s world?” Ms. Canning has started six highly successful ventures in the past twenty-some years. She sold all of them to start the Institute for Arts Entrepreneurship, except one: the one that is about her “baby,” the instrument she has played since her childhood, the clarinet. Lisa’s Clarinet Shop is still helping musicians of all levels find the perfect clarinet. Even when she was running those earlier businesses, Lisa hired artists and helped them build on their artistic skills and develop entrepreneurial skills. Artists can use their empathy and ability to connect with people to become successful entrepreneurs. Rather than pitching the “what” to a customer, it is much more important to make a human connection around the “why” and the “how.” This is good advice to anyone–Gary Vaughan was telling me on the way home that in any business, people buy from you because they like you. As Lisa said, she never has to talk about price, because it becomes a secondary issue to the customer. She is certainly a very kind and very emotional person, and I believe that she can teach a lot to artists about “entrepreneuring their art.” I hope we can get her to Lawrence in the not-so-distant future.
This three-day event features a number of entrepreneurs who share their experiences with about 1500 students from all over the country. We heard, among others, Jimmy John talk about his story. (His father lent him $25K to start a hot-dog stand, and said that if he makes it, Jimmy gets 52% of the company, father gets 48%; if he fails, he agrees to enlist. The threat of boot camp pushed Jimmy to succeed and buy out his father. How did he sell his first sandwiches? Well, he didn’t. After he opened his shop and not a soul showed up by 2pm, he grabbed a few sandwiches and went to the neighboring businesses to hand them out as samples.) Another interesting person I heard was Phillip Leslie. Formerly a Microsoft software engineer (mobiles apps division), Mr. Leslie just couldn’t help getting into the iPhone app gold rush when he was an MBA student at Chicago’s Booth School of Business. So he launched ProOnGo, a mobile expense reporting app. In the middle ages, when you went on a business trip, you came home with a pocketful of receipts, which you then meticulously recorded and submitted. With ProOnGo, when you get that receipt, you take a pic of it with your iPhone, or Blackberry, or whatever, and in a few seconds you are done. At the end of the trip, you click to submit your expenses in excel or pdf format. Huge hit. Mr. Leslie gave very good advice indeed on how to make it with an app. For example, do you know the three ways to make money with an app? Through ads, one-time sales, or subscription service. Sounds obvious, but, actually, he is one of the pioneers of the last of these: it was believed that subscription service just wouldn’t be viable for iPhone apps. And how much do you get per impression if you advertise on your free app? Well, between a tenth of a penny and a penny. He also encouraged students with economics and social science-type skills to pair up with computer science majors to produce an app. But be clear about one thing: is this a hobby (which will cost you money), or a business (which should make you money)?
The Federal Reserve Bank of St. Louis (which you know offers numerous publications that contain a fabulous array of macroeconomic data) recently announced a contest to produce a YouTube video that helps explain the factors of production in general and the role of entrepreneurs in particular to high school students. For some of you, this is too good an opportunity to pass up. Go to St. Louis Fed to learn the details.
The weather was not ideal for driving across Wisconsin, but the unusual conditions produced some amazing scenery.Before the Forum began, I had a chance to catch up with a friend, Daniel Barolsky, who was a Postdoctoral Fellow at Lawrence during the first year of the Fellows program. We all know that the first crop of Fellows was the best. I came in the second year of the program as a Fellow, so Daniel and I overlapped two years at LU. Anyway, we sat down in the Bushel and Peck’s, which is the center of activity in Beloit. It is a very interesting place–they have gourmet groceries, coffee, food, and ambience conducive to conversation. If you go, do stick to American coffee–that’s definitely their forte. If you get their bottomless cup, you will end up going through the art gallery in the back, which leads to the restroom. Oh, and the frozen chickens are stored back there, too.
The Forum itself started with a panel on Entrepreneurship and the Liberal Arts. Our own Prof. Finkler presented as part of a distinguished panel, describing the great many things we do in the name of I&E at Lawrence. He started with an image of the “Creative Instruction” cup that I presented to Prof. Gerard to signify his Chief of Schumptoberfest title. Prof. Finkler then summarized Schumptoberfest, In Pursuit of Innovation, Entrepreneurship and Finance, Entrepreneurship in the Arts and Society, and the many ways we build innovation and entrepreneurship into our courses at LU (including the upcoming Economics of Innovation course–watch this space for updates!) He also talked about the center we are developing, the Lawrence Innovation Bridge, where student ventures will have a space to grow. Robyne Hart from the ACM’s Chicago BES program also presented, outlining the indisputable advantages of being in Chicago, a hub of innovation and entrepreneurship. Consider making that a part of your Lawrence experience. From Wake Forest University, Betsy Gatewood presented on education, entrepreneurship and the liberal arts. She should know, being the Director of their Office of Entrepreneurship and Liberal Arts. They have an astounding variety of courses in all disciplines that relate to Entrepreneurship–take a look and let everyone at Lawrence know that you’d like to see more of that stuff here, too. Finally, Beloit’s own Jerry Gustafson gave an eloquent, entertaining, erudite, evocative and overall excellent monologue on entrepreneurship and education. We’ll see if we can make that available to you somehow. Finally Israel Kirzner himself reacted to what had been said. He thanked the panelists for all he had learned from their talks, pointing out that much of it was “refreshingly new” to him. Then he went on to make a distinction between studying the role of entrepreneurs in the economy (what he has done) and studying entrepreneurship, what makes an entrepreneur, etc.
Prof. Kirzner reiterated that distinction in the evening panel discussion on his work. The participants were (from left to right in the pic) Roger Koppl, Deirdre McCloskey, Virgil Storr, and Israel Kirzner. Much was said about expertise, entrepreneurship, piracy and shipwrecking, but to me the most interesting comments came from McCloskey, who started by describing, in the way of a confessional, here transformation from Chicago-school Samuelsonian anti-entrepreneurship economist to a fan of Kirzner. Max U, the protagonist of price theory, is a sociopath, says McCloskey, and we need a much better model of Human Action than that. Of course she has done much to round out our view of human action in her several books, the most recent of which is Bourgeois Dignity: Why Economics Can’t Explain the Modern World . She went on to reiterate the argument that some of us know from Schumptoberfest: Samuelsonian equilibrium economics has no place for the entrepreneur, because equilibrium looks at what happens after the entrepreneur’s work is done. As Jerry Gustafson put it, “by the time the theorist arrives on the scene, the entrepreneur has vanished.” There was much talk about what exactly Kirzner meant by “alertness.” He himself put it as “knowing what is around the corner,” and reminded us that by definition it cannot be taught. Apparently that comment (it is not possible to teach entrepreneurship) was made to him by Baumol many years ago. In response, Jerry Gustafson and others made the argument that neither is it possible to teach someone how to be a virtuoso violinist or pianist–but it certainly is possible to enhance one’s innate abilities in those areas. So it is with entrepreneurship: the true entrepreneur is born, not made, but we can certainly enhance those aptitudes through education. Perhaps more importantly, having entrepreneurship programs opens students’ minds (alerts them to) to the possibility of pursuing an entrepreneurial life. Gustafson added that having an entrepreneurship center like CELEB gives students an opportunity to try their hand at entrepreneurship in a safe place, where failure is not catastrophic and there is friendly help that makes starting a venture a learning experience. Our own dreams of the Lawrence Innovation Bridge go along these lines, too.
If you have any questions or comments about any of this stuff, click below and comment, or talk to us.