On the rise of unproductive entrepreneurs like Travis Kalanick
Bonus: Is America Encouraging the Wrong Kind of Entrepreneurship?
Bonus Bonus: Entrepreneurship: Productive, Unproductive, and Destructive
These are must reads on entrepreneurialism.
Including the scathing review of Uber (which, by the way I reluctantly and regrettably used recently for the first and hopefully only time when I was stranded without a driver’s license or money. Long story…), these are great reads for a number of reasons. The first is the notion that there is a fixed number of entrepreneurs in the world and their behavior is determined by incentives. These incentives can be good and bad. The best example of a bad example is higher rent for land. In other words, entrepreneurs simply raise the price of rent every year for the sake of making more money. This does not provide any real value to the economy and in fact lowers consumer surplus and detracts from the purchasing of other goods.
While I agree and appreciate the idea of bad incentives, I disagree with the theory that there are a set number of entrepreneurs in the world. If this were true, I theorize, regardless of the incentives, entrepreneurship will diminish as the proportion of entrepreneurs to non-entrepreneurs increases to a point where the denominator overwhelms the numerator and it goes to zero (or, some insignificant value). I actually believe the number of entrepreneurs fluctuates as a percentage of the population. Some people are simply willing to take risk (if the incentive is there) for a larger payoff. And some people are simply content with the status quo regardless of the potential incentives that come with taking a risk. This is a human behavioral trait. These traits are likely developed based on your experiences.
In my view, the reason for lower productivity is a lack of business startup due 1) the individuals at the entrepreneurial stage of their lives are heavily indebted with student loans, 2) a loss of assets from the financial crisis, and 3) tighter credit restrictions.
On the other hand, the below quote explains that productivity is lower because entrepreneurs are focusing on unproductive and disruptive ventures.
What this implies is that innovation and output doesn’t necessarily languish because of a lack of entrepreneurs willing to take risk. It languishes because entrepreneurs are incentivised to direct their efforts to parasitical ventures based on rent-seeking, monopoly formation or unproductive vanities — that potentially includes everything from fintech and the digital app industry to the re-emergence of luxury artisanal or service-oriented craft ventures.
This is important because in my mind innovation and output is not weak because entrepreneurs are focusing on unproductive ventures but rather there are less entrepreneurs entering the market altogether. Could this be a result of the growth of the middle class and increased standard of living has made life comfortable to the point where taking risks is viewed unfavorably?
To close, I wanted to provide more quote about Uber.
Uber’s strategy was always to skip the hard “create real economic value” parts of this process, and focus strictly on the pursuit of artificial market power that global dominance would provide. As noted, Uber’s $13 billion investment base was used to fund the predatory competition needed to drive more efficient competitors out of business. This was 1600 times the investment funding Amazon needed prior to its IPO because Amazon could fund its growth out of positive cash flow. By contrast, Uber’s carefully crafted “narrative” allowed it to pursue predatory competition for seven years without serious scrutiny of its financial results or whether its anticipated dominance would improve industry efficiency or consumer welfare.