
Is America Encouraging the Wrong Kind of Entrepreneurship? - SQL2219
https://hbr.org/2017/06/is-america-encouraging-the-wrong-kind-of-entrepreneurship
======
vonnik
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
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
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
> 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
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.

~~~
chii
so what's the difference? is it the same reason as why healthcare sucks in
america?

~~~
Tyrek
Regulatory capture and ineffectual politicians. If politicians pay no heed to
the civil service, the civil service has no impetus to improve.

------
TheMagicHorsey
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.

~~~
FridgeSeal
> 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.

Is this comment satire? It's seriously so deep in some kind of magic-market-
fetishism that I actually can't tell.

If anything, the less several years has shown us that the magic hand of the
'market' is neither effective, nor it seems, even real: as soon as things turn
slightly against them, those businesses with the means simply change the game
so that it favours them again which makes the argument that 'the market is the
ecosystem...kill the decrepit organisations' pretty much moot. Look at Fannie
May and Freddie Mac (spelling? I'm not American so I'm not terribly familiar
with them) 'too big to fail' they said. Until they failed. And then, instead
of failing like they would in a 'real' free market system, they went and
groveled so that the Government had to step in and save them. Real good free
market system there.

~~~
closeparen
Your argument is that the market doesn't work because bad things happen when
we bypass it?

Shall we not bother with firefighting, since the fire only gets worse when you
replace the water in the hoses with oil?

------
danschumann
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
> 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
In my experience this is the big difference between a conservative and a
liberal -- is money earned by providing value or extracting it.

------
contingencies
_“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/Baum...](http://www.colorado.edu/ibs/es/alston/econ4504/readings/Baumol%201990.pdf)

~~~
keenerd
> _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.

------
a_c
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
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.

------
anovikov
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
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-
doesn...](https://medium.com/token-economy/the-analysis-filecoin-doesnt-want-
you-to-read-e60d5243f17c)

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.

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

------
known
Privatize profits, Globalize loses

------
kelukelugames
> 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.

~~~
sjbase
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
Betteridge's law of headlines says the answer to question headlines is "No".

[https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headline...](https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headlines)

~~~
tinalumfoil
[http://www.nationalgeographic.com/environment/global-
warming...](http://www.nationalgeographic.com/environment/global-
warming/global-warming-real/)

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.

------
RodericDay
> _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-
be...](https://clrjames.blogspot.ca/2014/04/ideas-whose-time-has-belatedly-
come-or.html)

~~~
Method-X
Hasn't this always been the case in every scientific field? It seems like
every other week there's a new study that proves something everyone
intuitively knew. The point of doing the research is to gain actual scientific
data (e.g. mathy stuff, as you put it) via the scientific method that will add
to a preexisting body of knowledge.

~~~
Houshalter
> It seems like every other week there's a new study that proves something
> everyone intuitively knew.

Beware of hindsight bias!!
[http://lesswrong.com/lw/im/hindsight_devalues_science/](http://lesswrong.com/lw/im/hindsight_devalues_science/)

