Thursday, August 5

The changing nature of entrepreneurship: No longer loser vacuums?

From Kansas Policy Institute.

The Changing Nature of Entrepreneurship: It’s Nothing Like Grandma Used to Make

By Patrick Parkes

“Actually, high corporate taxes are great mechanisms in helping to socialize entrepreneurial risk.”

Were my ears deceiving me? Did I just hear socialism invoked at a conference on entrepreneurship?

The conference I attended recently was a diverse gathering of academics, state policymakers, and economic development officers from around the country. Even my initial reading of the event announcement got me excited imagining the diversity of minds and experiences that would converge around a single purpose: thinking about how states and localities could create ideal environments to foster market-driven entrepreneurship. These types of open, multifaceted discussions are oftentimes the best catalysts for broad coalition building leading to truly positive and substantive change. As such, the Ewing Marion Kauffman Foundation ought to be commended for its leadership in getting this particular discussion started in the name of entrepreneurship.

This discussion — as good ones often do — challenged me to evaluate even my own understandings and convictions on the subject. I was hearing all of these hip, glossy buzzwords and catchphrases about how state and local governments could use taxpayer money to advance the nebulously defined goal of “economic development.” Heck, even well-established businesses could benefit from strategic handouts designed to help them “scale-up” and contribute to a broader local “entrepreneurial ecosystem.” One thing became clear to me very quickly: this wasn’t my “grandma’s” idea of entrepreneurship!

I have always thought of entrepreneurship as a “may the best man win” sort of scenario. Governments can maintain the playing field with strong property rights, intellectual property provisions, and other key legal protections. However, businesses’ successes and failures ought to be self-determined by their own abilities to attract customers and keep them coming back. This largely hands-off approach is akin to how my grandma used to deal with living room wrestling matches. She would depart with a single admonishing ground rule: “Loser vacuums.” It was her subtle way of maintaining the playing field without influencing the outcomes of anything that took place on it.

State and local governments may think their use of taxpayer money to fund entrepreneurship is simply about creating and maintaining a playing field. Yet, this practice looks more like influencing outcomes by picking winners and losers. It’s no longer just about scoring points (i.e. profits, community admiration) on the field; it’s also about winning the government eye tests and popularity contests (i.e. subsidies) off of it. The issue is even more fundamental than that though. Put simply, entrepreneurship doesn’t and should never discriminate. Ideas for new businesses can strike anyone at any time. But, when governments take money from countless potential entrepreneurs and hardworking families and use it to subsidize a few politically connected firms, these governments start to — perhaps unknowingly but inherently — discriminate. The game becomes rigged, and entrepreneurship ceases to be entrepreneurship. It’s only a government-sponsored former shell of itself.

New York Times columnist David Brooks mused about this changing nature of entrepreneurship long before I did here. His analogy focused on the statue in front of the Federal Trade Commission building. It depicts a muscular man restraining an unruly horse. Brooks notes how the horse and rider used to epitomize modern-day liberalism. The horse was capitalism, and the rider was government. The rider kept the horse in line much like (liberals believed) government harnessed capitalism and made it work for the masses. Today, Brooks laments, the relationship has changed. Government wants to be the horse .. not just reining in business and job growth … but driving and being the sole purveyor of such growth. To be clear, this is not an endorsement of Brooks’ view on what constitutes appropriate liberalism amidst the changing nature thereof. The essence of liberalism — regardless of its scope — still tends to work against the all-important power of consumers to engage in free markets in order to best meet their needs via voluntary exchange.

Brooks’ analogy is instructive though because it depicts the same Orwellian morphing of entrepreneurship I observed a number of attendees celebrating and advancing at the Kauffman conference.

One conference bright spot was a presentation of research by Dr. Nathan Jensen on the Promoting Employment Across Kansas (PEAK) incentive program. Jensen’s main findings (I will blog more in-depth about them soon.) point to the fact that firms receiving government subsidies through the PEAK program do not add any more jobs than non-subsidized firms do. These findings call into question not only the efficacy of the PEAK program but also the need for its existence at all.

Outside of this presentation, however, I came away the conference largely disappointed. I attended hoping to be energized, hoping to help nurture a broader sense of understanding that entrepreneurs can lead this country’s cities and states to great new heights if only city and state governments will stand back and let them innovate freely. Instead, I left the conference alarmed by the expansive role even these smallest of governmental units felt they could play in not only regulating but also generating “free” enterprise.

What ever happened to “loser vacuums” in entrepreneurship?