Tag: Entrepreneurship

Innovation in Everything

What distinguishes the ‘scientific’ economist from all the other people who think, talk, and write about economic topics is a command of techniques that we class under three heads: history, statistics, and ‘theory.’ The three together make up what we call Economic Analysis.

That’s Joseph Schumpeter in Chapter 2 of his famous History of Economic Analysis. He believed that economics programs should emphasize and connect all three of those approaches. Those of us in ECON 405, The Economics of Innovation and Entrepreneurship, have been working to do just that, or at least the history and theory bit. To take a break from immersing themselves in the history of innovation and mathematical models of innovation and entrepreneurship, students have been exploring innovation in a variety of fields, and recording their journeys weekly on a blog. So, you can also learn about theatrical innovationmicrofinance in Pakistan, the habits of the poor, private equity and innovation, innovation in the construction industry, multisided markets, telematics, or big data and consumer goods. Enjoy!

The Magic Sauce?, or Where’s the Beef?

Here’s a couple of easily digestible, certainly thought-provoking, pieces on business start ups and job creation.  The first is via Professor Finkler, who sends along one of these new, cool Kaufman Foundation sketchbooks. In this one, Kaufman President Carl Schramm asserts the best indicator of whether a country will grow is the number, not the size, of firms created every year.  That’s quite an assertion.  Here’s more from the Kaufmann blog.

In the blue corner, James Surowieki at The New Yorker argues that small businesses are not the source of growth.

Who are you going to believe?

Innovation and Entrepreneurship Ride to the Rescue

Although there is some disagreement amongst economists, many argue that traditional monetary and fiscal policy will not take the US economy from its current relatively stagnant state to the robust growth needed to employ many of the 8 million who were unemployed during the recent recession as well as the new entrants into the labor force.  As those in Intermediate Macroeconomics learned, since we add roughly 1.5 million people to the work force each year, we need about that number of jobs just to keep  unemployment from worsening.

As several studies from the Kauffman Foundation have shown, the vast majority of new jobs created in the United States come from new firms (that is firms that are five years old or younger),  not from large firms or small firms and not from governments.  In recent years, fewer new firms have been created than  in the past, and each of these firms has generated fewer jobs than in the past.  The Kauffman Foundation has put together a non-partisan “Startup Act Proposal” to jump start the economy.  It is entitled “Access to Capital: Fostering Job Creation and Innovation Though High-Growth Startups.”   The four key provisions are as follows:

1.  Provide a permanent capital gains exemption to investment in startups held for at least five years.

2.  Reduce the corporate tax burden for new companies in the first three years they have taxable income. (This may be already doable under subchapter S of the corporate tax code.)

3.  Reduce Sarbanes-Oxley requirements for firms with less than  $1 billion in market capitalization.

4.  Subject federal regulation to 10 year sunset.

Carl Schramm and Robert Litan, on behalf of the Kauffman Foundation also argue for removing the caps on skilled immigrants and immigrant driven entrepreneurial ventures.

These are intriguing ideas.  They should encourage Lawrence students to sample our Innovation and Entrepreneurship courses.  Check out Schramm and Litan’s presentation last week to the National Press Club.

Rabbit Gallery off and running Saturday

Well, not quite yet, but they have secured space in the Conkey’s building.

For those of you hiding under a rock, the idea of The Rabbit Gallery is 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.

391 DS – Discovering Kirzner

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.

The Messy Path to Creating New Jobs

Carl Schramm, in a current blog entry in Forbes magazine, argues that job growth comes from the creation of new firms. Schramm is the president of the Kauffman Foundation and a strong advocate for the education of as well as the creation of an economy that encourages entrepreneurs.  We have many politicians arguing for job creation but few who understand where jobs come from.

Jimmy John Responds to Incentives

The founder and big pickle behind the Jimmy John’s enterprise is threatening to take his fixins and go elsewhere, this according to the Champaign News-Gazette. Mr. Jimmy John (Jimmy John Liautaud) is upset about the steep tax hikes enacted this past week by the Illinois state legislature — raising the personal income tax from 3 to 5 percent (67% increase) and corporate taxes from 7.3 to 9.5 percent (30% increase).

“My family and I are out of here.”

This story has some personal interest to me, as I was in Champaign when he opened up one of his first shops back in the late 1980s.  I still recall one of my (more obnoxious) friends — impressed by the deliciousness of the Jimmy John’s sandwich — on the phone trying to bribe providing cash incentives for the workers to bring him an order outside of their regular delivery area.  Not too many years later, Jimmy John’s has gone from a couple of sandwich shops in east central Illinois to a big corporate supporter of everything from NASCAR to University of Illinois athletics.

Friend, that’s a lot of sandwiches.

If he indeed packs up corporate shop and heads elsewhere, it will certainly impact the local economy in some fashion.

Here’s his take:

Some people may not realize how many travel to Champaign-Urbana as a result of Jimmy John’s being here – many of them for training.

(Jimmy John) said his business accounts for “350 motel nights a week in Champaign, 1,400 motel nights a month.”

“They eat at Cheddars,” get automotive service at Sullivan-Parkhill and “drink at Carlos (Nieto’s) bars.”

Jimmy John’s offices occupy 23,000 square feet on Fox Drive, and Liautaud said he had considered buying a 20,000-square-foot building just north of those offices. Those plans went out the window with the tax increase, he said.

As far as the national economy goes, it probably doesn’t matter where Jimmy John sets up shop, if Champaign doesn’t enjoy the benefits, someone else will.  But, I wonder what sort of elasticity the legislative analysis used to estimate business leaving the state when they put these tax increases together?

Mandated Health Insurance: the Big Tradeoff


David Leonhardt in today’s New York Times opines that the constitutional debate regarding the mandated insurance provisions of the health reform bill passed last March sends us back to many previous “constitutional” battles including those related to Social Security and Medicare.  Fundamentally, countries must set the boundaries for both risk taking and security provision.  He argues, in my view quite persuasively, that the security blanket of mandated insurance both encourages constructive entrepreneurship and discourages free-riding.  I wish that our public debate might take his arguments seriously.

Will NYC prosper?

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.