

Ask HN: do entrepreneurs serve as pawns for economic development? - TriinT

My thesis is that entrepreneurs serve as pawns for economic development.<p>This might sound a bit far-fetched, so please allow me to explain in the following lines. As a prelude, I claim that:<p>1) most societies need entrepreneurs to innovate, to grow, and to prosper. When the state is the sole agent of business innovation, mediocrity and inefficiency tend to reign supreme.<p>2) wherever there are business opportunities, there is competition. Thus, statistically speaking, entrepreneurs are destined to fail.<p>The point I am trying to make is that societies need entrepreneurs to advance economically, even though most will fail. Hence, my claim that entrepreneurs serve as <i>pawns</i> (or <i>canon fodder</i>, if you prefer) for economic development. A happier metaphor would be to say that entrepreneurs are the <i>shock troops</i> of capitalism (as Schumpeter put it).<p>For centuries, emperors and warlords recruited their soldiers with promises of land and loot. Are entrepreneurs today's <i>useful idiots</i> to be sacrificed for the advancement of the economy? The promise is no longer land nor loot, but a successful IPO, early retirement, etc.<p>I know this might sound extreme. What do you guys think about it?
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swombat
It's quite extreme and overly simplistic...

The danger, as always, is that there is some truth to what you say, but that
truth is stretched and blurred in various direction so as to be mostly
meaningless.

Almost every high-reward human endeavour, from drug dealing to movie stardom
or stock trading, generates large amounts of competition. That's one of the
main reasons a free market is a productive way to allocate resources - it
places high rewards on things of high value, and allows anyone to compete, so
that more people will provide these high-value things, thus driving their
price back down. In that way, your suggestion is true.

However, there are three implicit assumptions in your thesis that are very,
very shaky.

The first and least harmful is the idea that "being a pawn" is somehow
implicitly bad. You haven't established that at all. There is no absolute
"bad", so you must be implying that it is worse than something else. I'd be
curious as to what that thing is, in your mind. Perhaps, if you dig, you might
find that actually, being an entrepreneur (pawn or not) is quite a good deal,
better than most others.

The second false premise is that there is some kind of specific group of
people who are deciding this, manipulating this system for their benefit.
There is no such group. Or rather, there is - this group is all of us. We all
benefit from a system which encourages innovation and competition and rewards
it. There is no conspiracy to exploit entrepreneurs by somehow making them
compete against all odds. Nobody sat down and thought "I wonder if I can get
all these useful idiots to start lots of innovative businesses so that...
what?"

The third misconception is the idea that entrepreneurs are somehow being
manipulated by this system beyond their understanding. If anything, I'd say
it's the opposite. Entrepreneurs set out to shape the system around them to
provide them with rewards.

The fact that some types of businesses have high failure rates (I still don't
really believe those 95% business failure rates... I strongly suspect very
shoddy statistics that have a very poor definition of "success") doesn't mean
that somehow most entrepreneurs are being suckered into starting business.

I think you need to rethink this idea from the ground up, carefully examining
your assumptions as you go along, and maybe talking to some entrepreneurs too.
You will, I believe, find it has no substance in reality.

~~~
TriinT
Thank you very much for your insightful response.

Having worked for a couple of hi-tech startups, I am a little bit acquainted
with the entrepreneurial world. Since both startups failed after a few painful
years, I am also acquainted with failure and burn-out. No complaints. I knew
how slim the odds were ;-)

I am fully aware that my thesis is quite ludicrous indeed. It may be a
metaphor, but it is also an overly far-fetched one. All in all, I entirely
agree with everything you wrote. Allow me to explain where this heretic
thought of mine comes from:

I come from Europe. My country is literally dominated by interest groups. With
the end of European imperialism, my home country declined both in influence
and affluence, as many others. Most people still live in the grandiose and
glorious past, and haven't realized the world has changed. The country no
longer produces much, and there's no longer an empire to supply the home land
with resources at an affordable price.

Some "bright politicians" (pun intended) thought of a solution: to create a
clone of Silicon Valley in their land. As a result, there are tons of
government-funded "innovation agencies" whose goal is to pro-actively promote
entrepreneurship. Moreover, successful entrepreneurs show up on TV as rock
stars. The old bankers inherited their wealth from their families. These guys
are self made men, and since the country hasn't had many of those, they are
admired.

There really is an effort to promote entrepreneurship, as it is perceived as
the one and only salvation to the impending economic debacle. I would not call
it a _conspiracy_ (what an over-charged word!), but everyone in positions of
power is promoting the idea that the country needs startups. Politicians,
business leaders, distinguished academics. The _meme_ is that starting a
business is almost a patriotic duty!! Serve your country!! Found a company! No
joke.

Overall, I believe this is good because the country needs to renew itself.
However, I think the risks are being left out of the propaganda. These people
are luring kids with the promise of fame, a comfortable lifestyle, and a
meaningful career. Most of the kids being "brain-washed" will fail, though
they haven't yet realized it. Of course, the rich kids are still going into
politics, law, management consulting and banking. It's the middle-class kids
who are being lured into this. Again, I know this is an over-stretched
metaphor, but to me it looks a tiny bit like those war-time recruiting ads for
the military where they emphasize the "adventure", but minimize the grim
survival statistics.

Once again, thanks for your input. It did put things in perspective :-)

~~~
johnnybgoode
Now I see why this problem is on your mind. In my original reply to you
(<http://news.ycombinator.com/item?id=646561>), I made the point that people
should be free to choose how much risk they want to take. If your government
is using propaganda and other methods to encourage people to take a bigger
risk than they would otherwise, then it's not surprising that there are bad
effects.

------
3-
I think you're generally along the right lines. I can offer a different
explanation. Most of my own thesis comes from reading Eisenstein's "Ascent of
Humanity", though I've put a little of my spin on it.

The basis of civilization - the good and the bad - comes down to our concepts
of money and property. I'm only going to speak of the bad here.

Money earns interest, hence if you have it you are compelled to hold on to it;
as well, because it compounds, a quick cash grab may theoretically exceed the
return of any sustainable venture.

Property, on the other hand, makes us seek to control our world so that others
can't. It started with land, but it's spread to just about everything,
including abstract concepts.

Most competitive forces can be attributed to this volatile combination.

But the entrepreneur's motives may differ from competition; instead of
grabbing money and holding on to it, or taking other people's land,
resourcefulness and efficiency is another goal, and it is usually the one that
produces the most successful businesses.

What civilization has done is to use money and property as proxies for
efficiency, which for the entrepreneur encourages all negative externalities,
and for society as a whole causes a lot of deep rifts and strife.

But I think that, ultimately, technology - by increasingly giving power to all
individuals - is going to make the money and property concepts irrelevant.
It's already doing so online, albeit with a lot of friction because we have to
use side-channels to translate online "currencies" (popularity, utility,
reputation) into money.

~~~
caffeine
_The ascent of humanity_

Sorry, but Eisenstein's (the author of that book) ideas are bunk. He is just a
guy on the net with opinions, which in itself is inoffensive. But they are
terribly researched, economically laughable opinions, which he claims to back
up with economic theories - and which therefore duly require debunking.

His main thesis is that "we should make interest negative" - as though the
time value of money were some sort of law by fiat! We set interest rates, yes
- but that's like putting a dam on a river. Making interest negative is like
making laws that water must henceforth flow uphill.

He's also in cahoots with the Law of Attraction people (a slightly creepy new-
age religious group), who use all sorts of pseudoscientific garbage to justify
their existence. Quotes on Eisenstein's website by Bruce Lipton (among others)
seriously call his credibility into question. (Bruce Lipton was a genuine
biologist who fell off the rails in the early 90s and started writing a bunch
of nonscientific mumbo jumbo about quantum theories of consciousness and
evolution - published by Mountain of Love (!) publications).

Eisenstein uses similar techniques - pseudoeconomics instead of pseudoscience.
I don't know if you're quoting him, but "money and property as proxies for
efficiency" is absolute codswallop. (The phrase "proxy for efficiency" is, so
far as I can tell, completely devoid of meaning. )

We use money because it is _more efficient_ than e.g. goats as a unit of
economic value. Before money was called money, it was called gold (and the
ancient Japanese used rare seashells, and prisoners use cigarettes).

Your final point is also incorrect - the possibility of monetizing the
efficiencies gained through improved communication _has driven_ the current
wave of technology, not been replaced by it. Finally, technology absolutely
does not give power to all individuals - at best, it confers advantages to
those (often small) groups who adopt it.

Please help debunk people like Eisenstein. Let's be honest: economics is hairy
enough as it is without people spreading that sort of twaddle.

~~~
3-
OK, to be honest I've been looking for someone to actually debate this with.

First of all, "proxy for efficiency" is my own terminology and seems quite
sensible to me. We talk about productivity in terms of GDP per capita.
Implicit in that is the assumption that money is its own value, which it isn't
- money is at best a marker of value. But we reward people with the marker,
not the value.

Second, your point of money being more efficient than other goods as a unit of
value doesn't go anywhere. It does not get at the point Eisenstein presents,
which is that the concept of trade exists because of ownership of scarce
resources. If nobody owns anything, trade is nonsense.

Third, the Eisenstein thesis doesn't mention interest. Negative interest is
mentioned in the form of demurrage in one of his closing chapters, as another
way to define money. But his overall thesis is non-economic: that we have set
ourselves up, in a variety of ways, to battle against nature and against each
other. "Separation of self" is the term he uses, along with a variety of
colorful New-Agey terms. I'm focused on the economic points in part because I
hold a B.A. in economics myself, and there are some solid points made about
economic systems outside our mainstream viewpoint - particularly with respect
to prehistoric gift economies.

Your claim that the current wave of technology - by which you presumably mean
online communications - was driven by monetizing efficiencies....that one
seems a bit faulty. The Internet started as a military/academic project, not
as an attempt to build a consumer market. As well, most open source software
isn't built with a monetization in mind, but rather is a way for others to
reduce their costs. In general the market doesn't build the technology, the
market commercializes the technology after it becomes self-evident. The reason
we have zillions of web startups is that the web still has so many new
concepts to explore that everyone can be a do-gooder and monetize at the same
time. The fact that a lot of people _aren't_ monetizing the things they do
online(for example, HN being free and user-driven) is the interesting part.
That's a huge reversal of so much of history.

Your statement of technology not giving power to individuals seems incredibly
wrong. The Industrial Revolution was organization-driven, but our current
revolution, whatever you might call it, is acting to take apart organizations.
Blogs vs. newspapers. Social media vs. mass media. Central office vs. virtual
office.

~~~
caffeine
I agree that money is a proxy for value. That still does not justify the
unsupported claim that it "encourages all negative externalities", and causes
"deep rifts and strife." I agree that economic activity can have negative
consequences - but how is this caused by the mere existence of money?

Being rewarded with the value is _not_ more helpful than being rewarded with
the marker - most people appreciate using their paycheck at their choice of
restaurants, rather than simply trading code for hogs at the local bazaar.

 _If nobody owns anything, trade is nonsense._

Barring slavery, nearly everyone owns their time. Thus people own something.
Until a startup solves death, that remains a scarce resource. The existence of
scarce resources with ownership is thus fundamental to the human condition.
Much (most?) trade involves the exchange of labor for "markers." Any time you
do a favor for anyone, it's trade. Sometimes, they do you a return favor by
giving markers. We can rename money to markers and trade to favors, but that's
what it is.

As for physical resources - their "ownership" is basically just a way of
prioritizing access. So - you might prefer other ways, like waiting in line,
or lotteries. When people have tried those ways, they've found that letting
the guy with the most markers have the resource works out for the best.
Obviously, you know this - so what do you think works better as a means of
resource allocation?

 _Third, the Eisenstein thesis doesn't mention interest_

He mentions several times (I'm referring primarily to his videos) an
enthusiasm for instituting money that "decays," like bread, so that we are
tempted to spend it more quickly rather than attempting to save it. I can't
describe this idea as anything other than crazy, so I'm glad that you reject
it as well.

 _Monetizing efficiencies....that one seems a bit faulty_

It's true - I expressed myself poorly, and indeed the idea was unclear in my
mind at the time. I think neither of us was right in our characterization of
this so far. Technology and markets are, to me, each the seed of the other.
Yes, technology creates new markets - but markets capitalize new (usable)
technologies. You don't have to call them markets - you can call them patrons,
such as those that financed da Vinci. Once again, however, markets appear to
do a better job than feudal patrons. Increasingly, groups of patrons acting
with good information can do a good job as well - but it remains a market,
just a better-informed one.

 _Our current revolution_ (/me degrades into general rant:)

... is not a revolution at all. The "Web2.0" line of innovation seems quite
trivial - office online instead of offline, social voting - these are simply
efficiency improvements on existing organizational memes. It's probably
impolite to post such a comment on a YC board, but nonetheless - does anybody
_seriously_ think that this stuff is earth-shaking? Culturally, it might be;
but technologically, it's just variations on a theme. Go check out the stem
cell labs in Singapore; _they're_ innovating.

------
johnnybgoode
You can think of an "entrepreneur" as someone who has chosen to take higher
risk for the potential of a greater reward. People should of course be free to
choose a lower risk pursuit, but the potential reward is also lower.

You're saying many entrepreneurs fail and that this sucks. But your post kind
of assumes that _who_ is an entrepreneur is predetermined. Instead, as I said,
people should be free to choose the amount of risk they're willing to take,
and yes, many of the people who choose to take big risks will fail. That's how
it's supposed to work.

Also, obviously each person doesn't have to make this choice once for their
entire life. They can fail and try something else.

------
jganetsk
By the definition of capitalism, we are all pawns of the invisible hand of the
market, as much as we are the benefactors.

------
brk
_What do you guys think about it?_

I think your theory is without merit.

Most entrepreneurs fail because they take on an endeavor they are not cut out
for.

Additionally, it is not like the government randomly selects people and tells
them they must go try to start a business.

Generally speaking, entrepreneurial types go into the battle knowing that the
odds are stacked against them, but for whatever reason, they feel this is a
better approach than a more "safe" career working for another organization.

Even in the tech startup world, there really is no "recruitment" of
entrepreneurs, VCs typically reject meetings rather than go out and try to
drum up business.

~~~
TriinT
My detailed reply to yours and other people's responses can be found here:

<http://news.ycombinator.com/item?id=646616>

