Do entrepreneurs have a duty to undertake?

23/04/2012 § 2 Comments

Mike ‘MOD’ O’Donnell, techie, entrepreneur, and columnist, revives the old bach, boat, and beemer canard about New Zealand entrepreneurs. This is the idea that the siren song of the relaxed New Zealand lifestyle lures entrepreneurs away from what they really should be doing — building companies and wealth.

It occurred to me this morning that this story is completely incoherent, in the sense that it does not cohere. To explain, we have to remember what the study of economics is about. Modern economics started in the 18th century. As Helibroner explained in The Worldly Philosophers, people like Smith and (later) Ricardo tried to understand how people could produce and consume in a world that wasn’t fully organised by hierarchies of nobility or the church. How do people know how much food or cloth to produce if there’s no one telling them to do it?

This is still the question at the centre of economics. How do it all work? How is it organised? That’s why the economic disruptions of the last few years are so important. We want to understand how and why they happened, because they tell us what makes the economy work.

Each school of thought has a somewhat different idea of the key organising principle. Mainstream microeconomics is all about individual transactions and price signals leading to markets clearing. Individual optimising behaviour leads to a well-functioning economy. Marxism is about extracting surplus value, monetarism is about maintaining a predictable supply of money, etc.

The theory that the entrepreneur (someone who undertakes to do something, from the French) is the centre of economic growth is key to Austrian economics. An entrepreneur sees an opportunity, takes a risk, organises the necessary resources, and reaps the reward for creating more value than was there before.

This theory of entrepreneurship is focused on an individual, on the capabilities of a specific person. As such, it is part of the great conflict in the 20th and 21st centuries: society vs the individual. Austrian economics comes down firmly on the side of the individual.

The difficulty with the bach, boat, and beemer complaint is that it wants to have both the enterprising individual and the wider interests of society. The complaint is that these people could be doing more for the New Zealand economy, but they are instead choosing to relax. Their country needs them! How dare they pursue their own happiness rather than the good of the many. But focusing on the good of society immediately takes us out of Austrian economics into a more structural theory. Then you need to start explaining how multiple forces of socialisation lead to entrepreneurial behaviours, and why they might be privileged over other types of behaviours, and rewarded better, and who really is benefiting, and so on. Suddenly, the enterpreneur is no longer the canny individual rewarded for risk-taking, but is instead the unwitting expression of social forces.

This is the value of having an underlying theory of how the economy works. You can see how two contentions — We need to reward entrepreneurs! They should do something for the good of the country! — are inconsistent.

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§ 2 Responses to Do entrepreneurs have a duty to undertake?

  • Jez Weston says:

    I’m not sure that there’s such a strong distinction, or rather there may well be a strong distinction within the schools of thought that economics can apply here, but that says more about the state of economics than it does about reality.

    Surely the point here is that, being human, very few entrepreneurs have purely (or over-ridingly) selfish or social motives. You can equally argue that few motives are purely selfish or social and it is a drastic over-simplification to assume that they are. Hence I find myself waiting for evolutionary social and organizational psychology to start to make a difference in innovation theory, but for now I’ll just point to Men behaving nicely: public goods as peacock tails and ask you to think about how that line of reasoning applies to the production private goods.

    • Bill says:

      Re: public goods as signalling: if that’s the mechanism you offer, then that’s the one men will use. But, given their druthers, they might take a different approach:
      Zaphod: Hey! Is this guy boring you? Why don’t you come talk to me instead? I’m from a different planet. Seriously! You want to see my spaceship?

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