11 ms·

Is America Encouraging the Wrong Kind of Entrepreneurship?

169 points by SQL2219 9y ago

kelukelugames 9y ago
> Is America Encouraging the Wrong Kind of Entrepreneurship? Question titles like this fall under clickbait. Also HBR is awful...as illustrated by their clickbait titles and fluff for content.
- wyas 9y ago
  Care to elaborate why HBR is awful? Article needs to provide more evidence that political regulation from rent-seekers is higher than ever before, but ultimately there's nothing that I would consider "clickbait" here.
  - maehwasu 9y ago
    Clickbait is only one of many failure modes.
- sjbase 9y ago
  I once saw the claim: for any headline ending in a question mark, the answer is always "we don't know." I have never found a counterexample.
  - humanrebar 9y ago
    Betteridge's law of headlines says the answer to question headlines is "No". https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headlines https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headline...
    - tinalumfoil 9y ago
      http://www.nationalgeographic.com/environment/global-warming/global-warming-real/ http://www.nationalgeographic.com/environment/global-warming... Not too hard to find exceptions. IMO it's a pretty worthless law even if only stated for entertainment value. A lot of times a yes-no question, like above, is just used as a low-effort intro to a low-effort article but sometimes a yes-no question could act as a well-thought-out intro to a well-thought-out article. It doesn't take too much experience to understand when a title is just being vague to draw you into a bad article.
deleted 9y ago
[deleted]
vonnik 9y ago
Rent-seeking regulatory capture shouldn't be called entrepreneurship at all. America's mania for privatizing government work does indeed encourage that form of rent-seeking, as does any other system in which a government awards contracts to private enterprise to get work done. One thing many businesspeople and founders (outside of Palantir) are unaware of is that a single government contract can be several orders of magnitude larger than their wildest revenue projections.
- adrianratnapala 9y ago
  This is true, but difficult to avoid in some form or another. The Queen does not personally take away my rubbish, or lay the city water pipes. The government pays people to do that, and private contracting is one way of organising that. State-owned corporations (or whatever you want to call them) are other. Sure there are opportunities for rent-extraction by contractors. But the same opportunities exist for bureaucratic empire builders and public-sector unions.
  - nickpinkston 9y ago
    I'm fine with having public and private companies compete for services. I'm pretty sure a government internet service would beat Comcast, and likely force all ISPs to up their game quickly. Monopoly on contracts is my issue with purely a state-owned approach. Some well-run countries do seem to make it work though.
    - chii 9y ago
      > I'm pretty sure a government internet service would beat Comcast, and likely force all ISPs to up their game quickly. the point is that if it were only a gov't service, that ISP would be just as bad as comcast. The problem is not due to it being gov't or not, but due to lack of competition!
      - Tyrek 9y ago
        I'm not sure that this is absolutely true - in the American experience it has been a consistent experience; but in other countries there have been state owned monopolies that blow Comcast out of the water.
TheMagicHorsey 9y ago
Comments in this thread and similar threads on Reddit make me dispair for the future. "America's fetish for privatization promotes rent-seeking" "Not having single payer healthcare is the single biggest reason we have so much rent seeking in healthcare" A society with fully socialized means of production is not free of rent-seeking. On the contrary, every single job in every organization in the economy is rent-seeking in that case. Anyone with experience in Indian public industries pre-liberalization, will tell you. Human beings in large organizations will often try to act in their own interest as opposed to the organizations interest. It is up to the organization to build up structures and culture to fight this innate tendency in humans. The problem is, organizational cultures tend to drift over time. Though an organization may be founded small, with a lot of idealism, and selfless workers, in the long run, political players will infiltrate the upper ranks ... you soon see people trading influence for their own benefit. The worst aspects of this are seen in India still, where people get a job, and then use whatever powers the job grants to extract rents from co-workers, the public, etc. The market plays a role in preventing this. The market is the ecosystem which provides predators which hunt and kill the decrepit organizations that have too much rent-seeking behavior internally. When a government company is full of rent-seekers there is no solution except to wait for some revolution to occur, because its never politically feasible to fire so many public sector workers. In the case of private companies, unless the government intercedes, an organization that is inefficient and full of rent-seekers will soon be overtaken by spry rivals who focus on consumer benefits. Let me give you some concrete examples. Have you ever read about how labor and management used to act at General Motors? There used to be jets for the upper level managers. Special dining rooms for them. Separate bathrooms for them. The company was struggling, and the employees (the managers) were giving themselves all kinds of cushy perks. The relationship between the board and the shareholders was terrible. The shareholders couldn't do anything against management and the workers. In ordinary cases such a company would have gone belly up after shareholders lost faith and committed capital elsewhere. Instead, the government propped up GM with defense contracts, government contracts, and finally a bailout. It was government intervention that allowed rent-seeking by individuals to continue.
- jamesblonde 9y ago
  Anybody can play this game. You give me you 2 examples of inefficient organizations and then generalize. I live in Sweden and can give you 2 counter examples of where govt organizations are efficent and effective (healthcare and public transport). I won't generalize, though. I will agree that without mechanisms, individuals will play the office game. Two mechanisms in Sweden are "offentlighetsprincipen" - anybody working for a govt job can have their costs/emails/documents/etc examined by other citizens by requesting them (no need to even motivate the request - but some docs are kept secret). "The right to roam" is another one that keeps rent seeking behaviour under control when it comes to property - a billionaire keeping the public off a big beach (like Khosla near the Valley) cannot happen - http://www.mercurynews.com/2016/04/27/martins-beach-appeals-court-hands-khosla-win-and-loss/ http://www.mercurynews.com/2016/04/27/martins-beach-appeals-....
RodericDay 9y ago
> James Bessen of Boston University has provided suggestive evidence that rent-seeking behavior has been increasing. In a 2016 paper Bessen demonstrates that, since 2000, “political factors” account for a substantial part of the increase in corporate profits. This occurs through expanded regulation that favors incumbent firms. Similarly, economists Jeffrey Brown and Jiekun Huang of the University of Illinois have found that companies that have executives with close ties to key policy makers have abnormally high stock returns. I honestly don't understand the point of reporting such "phenomena" in such stilted, euphemistic, academic terms. Every time I read such a milquetoast description of corruption, I'm reminded of this essay discussing the ways in which well-meaning "discoveries" in economics and political science serve mostly as a prophylactic against the immediacy, urgent, and valid claims made in other epistemic registers. It really feels like some people just don't want to "give credit" to the angry mob for realizing something that eluded them for so long, so they come up with these strange parallel constructions that quantify, and "prove", what was already obvious to everyone else, but in slightly different/more mathy ways, to make it seem like fresh knowledge. However, in doing so, they de-legitimize the ways that other people used to arrive to such conclusions, such as a cursory reading of Marxist literature. It's such a weird dance. https://clrjames.blogspot.ca/2014/04/ideas-whose-time-has-belatedly-come-or.html https://clrjames.blogspot.ca/2014/04/ideas-whose-time-has-be...
- TearsInTheRain 9y ago
  > This occurs through expanded regulation that favors incumbent firms > such as a cursory reading of Marxist literature. I never knew Marx was so anti-regulation
  - RodericDay 9y ago
    You should read "Marx's Inferno" then.
  - olewhalehunter 9y ago
    http://www.panarchy.org/engels/freetrade.html http://www.panarchy.org/engels/freetrade.html "But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade."
deleted 9y ago
[deleted]
twa19999 9y ago
I think that the worst enemy of capitalism, is paradoxically, the stock market. Original idea behind capitalism was that entrepreneur is building his company for a profit, and to reach that profit he must take a risk. Because of the risk involved one must be very careful and make well-thought business decisions because bankrupting the company meant bankrupting its owner. Now, with a stock market the valuation of your company is tied to a public perception of how your business is doing, not to how it is actually doing. That's why companies publish non-GAAP financial reports (non-GAAP basically means "bullshit") - after posting higher-than-expected profits your stocks skyrocket, so you sell some of them, turning some of that "perception" into a real cash. Being publicly traded also gives you easy way out if something goes wrong - just sell all your stocks and you are in the clear. Plus, as a majority shareholder you can hire a CEO and use him as a scapegoat in any illegal activity your company chooses to engage in. Privately held companies are much better in terms of holding their owners accountable for company's actions.
contingencies 9y ago
“Schumpeterian” entrepreneurs, those that are “creatively destroying” the old in favor of the new, are critical for breakthrough innovations and rapid advances in productivity and standards of living. Awesome term, explained in a referenced paper[0] as one of the following: 1. A new product. 2. A new method of production. 3. A new market. 4. A new supply of raw materials or components. 5. The re-organization of an industry. The question, then, would be "what isn't covered by Schumpeterian?" .. rent-seeking only? [0] http://www.colorado.edu/ibs/es/alston/econ4504/readings/Baumol%201990.pdf http://www.colorado.edu/ibs/es/alston/econ4504/readings/Baum...
- keenerd 9y ago
  > The question, then, would be "what isn't covered by Schumpeterian?" .. rent-seeking only? Normal businesses that are created for traditional reasons. For example, to partake in a gold rush (like phone apps a few years ago). Or to attempt to get a slice of economic pie, typically in a "perfect competition" market that precludes monopolies. Anyone who produces a commodity by standard methods. These aren't rent seeking, they are adding fair competition to an (un)established market. They aren't Schumpeterian either, they are more-of-the-same to help the market meet demand. Arguably a rational actor would invest their money in the commodity to allow existing companies to grow, but some people prefer to get their hands dirty instead.
WalterBright 9y ago
The more powerful the government is, the more regulations there are, the more opportunities for rent-seeking behavior there are.
danschumann 9y ago
I think even in non-government backed startups, many people could be considered "rent-seeking", putting more focus on raising money than anything productive. Also, shows like shark tank(while entertaining) give some non-entrepreneurs the perspective that business is a lottery. So many people, when I talk to then about starting a company, they mention some mythical day when I suddenly become rich, and it just doesn't happen that way. The best definition of money I use is, "money is nothing but a reflection of value you create for other people" -Tony Robbins
- chii 9y ago
  > The best definition of money I use i bet many other people use a different definition : "money is the measure of value i extract from other people's production"
  - Consultant32452 9y ago
    In my experience this is the big difference between a conservative and a liberal -- is money earned by providing value or extracting it.
anovikov 9y ago
What's bad about rent-seeking behavior? If anything, that is where the business starts (as opposed to a job: meaning, something which has a value for which it can be sold. you can sell a business but can't sell your job). A business is an unfair advantage which creates rent, and thus has a value. Say Facebook has an advantage of network effect, so any new social network can't overtake it because it is a catch-22: you need to have many people already in to get any people in. That is an unfair advantage (Facebook founders could have been a lot more stupid and your product may be actually a lot better, but it doesn't matter), and it creates rent, and is worth billions. No business can create value or profit without having that. Business is rent on capital, either invested or created.
gwenzek 9y ago
I think the title of the article raises a good question. But I think pointing the finger at the public sector is the easy thing to do coming from HBR. What about entrepreneur focusing on raising money for themselves ? Example from this week: https://medium.com/token-economy/the-analysis-filecoin-doesnt-want-you-to-read-e60d5243f17c https://medium.com/token-economy/the-analysis-filecoin-doesn... I think parasite entrepreneur will always exist. Before they were selling miraculous potion for hair growth, now they are selling cryptocurrency or promises of unicorn startups.
known 9y ago
Privatize profits, Globalize loses
a_c 9y ago
We have seen much discussion about rent-seeking behaviour. Be it patent troll, lobbying, the actual renting in housing market or whatever. But what are the potential remedies? The article "tragedy of the commons" in wiki mentioned privatization or regulation as potentials solution to "tragedy of the commons". While I am not trying to equate the two terms, I think the solution to rent seeking behaviour deservers more discussion
- panic 9y ago
  Check out the "non-governmental solutions" section of that article. If you can manage to form a community around a common resource, you can establish rules and procedures to govern its use. This kind of solution won't work for all shared resources, but it's at least worth considering: the people using the resource usually know better how to manage it than a centralized government body, and these communities can think longer-term than a market which tends toward short-term exploitation.

169 points by SQL2219 9y ago

> Is America Encouraging the Wrong Kind of Entrepreneurship? Question titles like this fall under clickbait. Also HBR is awful...as illustrated by their clickbait titles and fluff for content.

wyas 9y ago
Care to elaborate why HBR is awful? Article needs to provide more evidence that political regulation from rent-seekers is higher than ever before, but ultimately there's nothing that I would consider "clickbait" here.
- maehwasu 9y ago
  Clickbait is only one of many failure modes.
sjbase 9y ago
I once saw the claim: for any headline ending in a question mark, the answer is always "we don't know." I have never found a counterexample.
- humanrebar 9y ago
  Betteridge's law of headlines says the answer to question headlines is "No". https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headlines https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headline...
  - tinalumfoil 9y ago
    http://www.nationalgeographic.com/environment/global-warming/global-warming-real/ http://www.nationalgeographic.com/environment/global-warming... Not too hard to find exceptions. IMO it's a pretty worthless law even if only stated for entertainment value. A lot of times a yes-no question, like above, is just used as a low-effort intro to a low-effort article but sometimes a yes-no question could act as a well-thought-out intro to a well-thought-out article. It doesn't take too much experience to understand when a title is just being vague to draw you into a bad article.

deleted 9y ago

[deleted]

vonnik 9y ago

Rent-seeking regulatory capture shouldn't be called entrepreneurship at all. America's mania for privatizing government work does indeed encourage that form of rent-seeking, as does any other system in which a government awards contracts to private enterprise to get work done. One thing many businesspeople and founders (outside of Palantir) are unaware of is that a single government contract can be several orders of magnitude larger than their wildest revenue projections.

adrianratnapala 9y ago
This is true, but difficult to avoid in some form or another. The Queen does not personally take away my rubbish, or lay the city water pipes. The government pays people to do that, and private contracting is one way of organising that. State-owned corporations (or whatever you want to call them) are other. Sure there are opportunities for rent-extraction by contractors. But the same opportunities exist for bureaucratic empire builders and public-sector unions.
- nickpinkston 9y ago
  I'm fine with having public and private companies compete for services. I'm pretty sure a government internet service would beat Comcast, and likely force all ISPs to up their game quickly. Monopoly on contracts is my issue with purely a state-owned approach. Some well-run countries do seem to make it work though.
  - chii 9y ago
    > I'm pretty sure a government internet service would beat Comcast, and likely force all ISPs to up their game quickly. the point is that if it were only a gov't service, that ISP would be just as bad as comcast. The problem is not due to it being gov't or not, but due to lack of competition!
    - Tyrek 9y ago
      I'm not sure that this is absolutely true - in the American experience it has been a consistent experience; but in other countries there have been state owned monopolies that blow Comcast out of the water.

TheMagicHorsey 9y ago

Comments in this thread and similar threads on Reddit make me dispair for the future. "America's fetish for privatization promotes rent-seeking" "Not having single payer healthcare is the single biggest reason we have so much rent seeking in healthcare" A society with fully socialized means of production is not free of rent-seeking. On the contrary, every single job in every organization in the economy is rent-seeking in that case. Anyone with experience in Indian public industries pre-liberalization, will tell you. Human beings in large organizations will often try to act in their own interest as opposed to the organizations interest. It is up to the organization to build up structures and culture to fight this innate tendency in humans. The problem is, organizational cultures tend to drift over time. Though an organization may be founded small, with a lot of idealism, and selfless workers, in the long run, political players will infiltrate the upper ranks ... you soon see people trading influence for their own benefit. The worst aspects of this are seen in India still, where people get a job, and then use whatever powers the job grants to extract rents from co-workers, the public, etc. The market plays a role in preventing this. The market is the ecosystem which provides predators which hunt and kill the decrepit organizations that have too much rent-seeking behavior internally. When a government company is full of rent-seekers there is no solution except to wait for some revolution to occur, because its never politically feasible to fire so many public sector workers. In the case of private companies, unless the government intercedes, an organization that is inefficient and full of rent-seekers will soon be overtaken by spry rivals who focus on consumer benefits. Let me give you some concrete examples. Have you ever read about how labor and management used to act at General Motors? There used to be jets for the upper level managers. Special dining rooms for them. Separate bathrooms for them. The company was struggling, and the employees (the managers) were giving themselves all kinds of cushy perks. The relationship between the board and the shareholders was terrible. The shareholders couldn't do anything against management and the workers. In ordinary cases such a company would have gone belly up after shareholders lost faith and committed capital elsewhere. Instead, the government propped up GM with defense contracts, government contracts, and finally a bailout. It was government intervention that allowed rent-seeking by individuals to continue.

jamesblonde 9y ago
Anybody can play this game. You give me you 2 examples of inefficient organizations and then generalize. I live in Sweden and can give you 2 counter examples of where govt organizations are efficent and effective (healthcare and public transport). I won't generalize, though. I will agree that without mechanisms, individuals will play the office game. Two mechanisms in Sweden are "offentlighetsprincipen" - anybody working for a govt job can have their costs/emails/documents/etc examined by other citizens by requesting them (no need to even motivate the request - but some docs are kept secret). "The right to roam" is another one that keeps rent seeking behaviour under control when it comes to property - a billionaire keeping the public off a big beach (like Khosla near the Valley) cannot happen - http://www.mercurynews.com/2016/04/27/martins-beach-appeals-court-hands-khosla-win-and-loss/ http://www.mercurynews.com/2016/04/27/martins-beach-appeals-....

RodericDay 9y ago

> James Bessen of Boston University has provided suggestive evidence that rent-seeking behavior has been increasing. In a 2016 paper Bessen demonstrates that, since 2000, “political factors” account for a substantial part of the increase in corporate profits. This occurs through expanded regulation that favors incumbent firms. Similarly, economists Jeffrey Brown and Jiekun Huang of the University of Illinois have found that companies that have executives with close ties to key policy makers have abnormally high stock returns. I honestly don't understand the point of reporting such "phenomena" in such stilted, euphemistic, academic terms. Every time I read such a milquetoast description of corruption, I'm reminded of this essay discussing the ways in which well-meaning "discoveries" in economics and political science serve mostly as a prophylactic against the immediacy, urgent, and valid claims made in other epistemic registers. It really feels like some people just don't want to "give credit" to the angry mob for realizing something that eluded them for so long, so they come up with these strange parallel constructions that quantify, and "prove", what was already obvious to everyone else, but in slightly different/more mathy ways, to make it seem like fresh knowledge. However, in doing so, they de-legitimize the ways that other people used to arrive to such conclusions, such as a cursory reading of Marxist literature. It's such a weird dance. https://clrjames.blogspot.ca/2014/04/ideas-whose-time-has-belatedly-come-or.html https://clrjames.blogspot.ca/2014/04/ideas-whose-time-has-be...

TearsInTheRain 9y ago
> This occurs through expanded regulation that favors incumbent firms > such as a cursory reading of Marxist literature. I never knew Marx was so anti-regulation
- RodericDay 9y ago
  You should read "Marx's Inferno" then.
- olewhalehunter 9y ago
  http://www.panarchy.org/engels/freetrade.html http://www.panarchy.org/engels/freetrade.html "But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade."

deleted 9y ago

[deleted]

twa19999 9y ago

I think that the worst enemy of capitalism, is paradoxically, the stock market. Original idea behind capitalism was that entrepreneur is building his company for a profit, and to reach that profit he must take a risk. Because of the risk involved one must be very careful and make well-thought business decisions because bankrupting the company meant bankrupting its owner. Now, with a stock market the valuation of your company is tied to a public perception of how your business is doing, not to how it is actually doing. That's why companies publish non-GAAP financial reports (non-GAAP basically means "bullshit") - after posting higher-than-expected profits your stocks skyrocket, so you sell some of them, turning some of that "perception" into a real cash. Being publicly traded also gives you easy way out if something goes wrong - just sell all your stocks and you are in the clear. Plus, as a majority shareholder you can hire a CEO and use him as a scapegoat in any illegal activity your company chooses to engage in. Privately held companies are much better in terms of holding their owners accountable for company's actions.

contingencies 9y ago

“Schumpeterian” entrepreneurs, those that are “creatively destroying” the old in favor of the new, are critical for breakthrough innovations and rapid advances in productivity and standards of living. Awesome term, explained in a referenced paper[0] as one of the following: 1. A new product. 2. A new method of production. 3. A new market. 4. A new supply of raw materials or components. 5. The re-organization of an industry. The question, then, would be "what isn't covered by Schumpeterian?" .. rent-seeking only? [0] http://www.colorado.edu/ibs/es/alston/econ4504/readings/Baumol%201990.pdf http://www.colorado.edu/ibs/es/alston/econ4504/readings/Baum...

keenerd 9y ago
> The question, then, would be "what isn't covered by Schumpeterian?" .. rent-seeking only? Normal businesses that are created for traditional reasons. For example, to partake in a gold rush (like phone apps a few years ago). Or to attempt to get a slice of economic pie, typically in a "perfect competition" market that precludes monopolies. Anyone who produces a commodity by standard methods. These aren't rent seeking, they are adding fair competition to an (un)established market. They aren't Schumpeterian either, they are more-of-the-same to help the market meet demand. Arguably a rational actor would invest their money in the commodity to allow existing companies to grow, but some people prefer to get their hands dirty instead.

WalterBright 9y ago

The more powerful the government is, the more regulations there are, the more opportunities for rent-seeking behavior there are.

danschumann 9y ago

I think even in non-government backed startups, many people could be considered "rent-seeking", putting more focus on raising money than anything productive. Also, shows like shark tank(while entertaining) give some non-entrepreneurs the perspective that business is a lottery. So many people, when I talk to then about starting a company, they mention some mythical day when I suddenly become rich, and it just doesn't happen that way. The best definition of money I use is, "money is nothing but a reflection of value you create for other people" -Tony Robbins

chii 9y ago
> The best definition of money I use i bet many other people use a different definition : "money is the measure of value i extract from other people's production"
- Consultant32452 9y ago
  In my experience this is the big difference between a conservative and a liberal -- is money earned by providing value or extracting it.

anovikov 9y ago

What's bad about rent-seeking behavior? If anything, that is where the business starts (as opposed to a job: meaning, something which has a value for which it can be sold. you can sell a business but can't sell your job). A business is an unfair advantage which creates rent, and thus has a value. Say Facebook has an advantage of network effect, so any new social network can't overtake it because it is a catch-22: you need to have many people already in to get any people in. That is an unfair advantage (Facebook founders could have been a lot more stupid and your product may be actually a lot better, but it doesn't matter), and it creates rent, and is worth billions. No business can create value or profit without having that. Business is rent on capital, either invested or created.

gwenzek 9y ago

I think the title of the article raises a good question. But I think pointing the finger at the public sector is the easy thing to do coming from HBR. What about entrepreneur focusing on raising money for themselves ? Example from this week: https://medium.com/token-economy/the-analysis-filecoin-doesnt-want-you-to-read-e60d5243f17c https://medium.com/token-economy/the-analysis-filecoin-doesn... I think parasite entrepreneur will always exist. Before they were selling miraculous potion for hair growth, now they are selling cryptocurrency or promises of unicorn startups.

known 9y ago

Privatize profits, Globalize loses

a_c 9y ago

We have seen much discussion about rent-seeking behaviour. Be it patent troll, lobbying, the actual renting in housing market or whatever. But what are the potential remedies? The article "tragedy of the commons" in wiki mentioned privatization or regulation as potentials solution to "tragedy of the commons". While I am not trying to equate the two terms, I think the solution to rent seeking behaviour deservers more discussion

panic 9y ago
Check out the "non-governmental solutions" section of that article. If you can manage to form a community around a common resource, you can establish rules and procedures to govern its use. This kind of solution won't work for all shared resources, but it's at least worth considering: the people using the resource usually know better how to manage it than a centralized government body, and these communities can think longer-term than a market which tends toward short-term exploitation.