Reputation and Social Entrepreneurship

Economists know a lot about entrepreneurship and have more or less even settled on a defition for the field. Auerswald (2009) writes: "For all the different notions of entrepreneurship that have been floated over the past century, the most fundamental and enduring is the definition of the entrepreneur as the “residual claimant” in a new venture—the person who walks away with, or (alternately and importantly!) is liable for, whatever is left over when the accounting is done—plus or minus."

He then goes on to define a social entrepreneur as the residual claimant for an enterprise, but that in this case one prime residual is reputation and not financial gain. He cites some good examples and goes on to flesh out the idea more fully. Along similar lines I was just reading the Cathedral and the Bazaar (yes, my geek credentials are weak) and one section on Linus Torvalds and the creation of Linux really seemed to capture this point:

The "utility function" Linux hackers are maximizing is not classically economic, but is the intangible of their own ego satisfaction and reputation among other hackers. (One may call their motivation "altruistic", but this ignores the fact that altruism is itself a form of ego satisfaction for the altruist).

Voluntary cultures that work this way are not actually uncommon; one other in which I have long participated is science fiction fandom, which unlike hackerdom has long explicitly recognized "egoboo'' (ego-boosting, or the enhancement of one's reputation among other fans) as the basic drive behind volunteer activity.

[...] We may view Linus's method as a way to create an efficient market in "egoboo"—to connect the selfishness of individual hackers as firmly as possible to difficult ends that can only be achieved by sustained cooperation.

[...] Many people (especially those who politically distrust free markets) would expect a culture of self-directed egoists to be fragmented, territorial, wasteful, secretive, and hostile. But this expectation is clearly falsified by (to give just one example) the stunning variety, quality, and depth of Linux documentation. It is a hallowed given that programmers hate documenting; how is it, then, that Linux hackers generate so much documentation? Evidently Linux's free market in egoboo works better to produce virtuous, other-directed behavior than the massively-funded documentation shops of commercial software producers.

I'm sure this is all really well known to people by now, but I still find it fascinating and certainly worth sharing and talking about during Global Entrepreneurship Week.

Godin on Upside vs Downside Risk

Seth Godin has a good post about the change that occurs when a firm achieves economies of scale and ceases to be entrepreneurial:

A new restaurant might rely on fresh vegetables and whatever they can get at the market. The bigger, more established fast-food chain starts shipping in processed canned food. One is less reliable with bigger upside, the other—more dependable with less downside.

Here's a rule that's so inevitable that it's almost a law: As an organization grows and succeeds, it sows the seeds of its own demise by getting boring. With more to lose and more people to lose it, meetings and policies become more about avoiding risk than providing joy.

This is another way of saying that firms become less entrepreneurial and it's the reason scholars care so much about hi-growth firms, or so-called gazelles - those companies that go from zero to IPO faster than Tony Stewart's stock car gets up to speed. Once they hit the IPO stage they face a whole different set of problems and usually become more risk averse and boring, as Godin says.

This is also one of the reasons it's been so difficult to find good reprenentation for entrepreneurs in Washington. The people running the most entrepreneurial firms are very busy and are focused on bringing their dreams to reality. They simply do not have time to come to DC to talk to politicians about the cancellation of indebtedness issue, or some other specific and arcane bit of tax policy. Several initiatives from the Kauffman Foundation have tried to alleviate this problem, but it remains. Nevertheless, their latest initiative, Build A Stronger America, will hopefully broaden the audience and stir up the debate about the importance of entrepreneurhsip. And let's not forget that next week is Global Entrepreneurship Week.

Tools not Stuff

PopTech 2009 Social Innovation Fellows from PopTech on Vimeo.

Reimagining the Smithsonian

A call to action: given new ways of learning, how can the Smithsonian Institution be more relevant in a digital age?



Much more on their wiki.

The Pay Pal Wars

I read The Pay Pal Wars upon Tim Kane's recommendation. Radley Balko at Reason wrote a favorable review as well. Do check it out. It's a wonderful look at entrepreneurial individuals and their experiences as they went from startup to IPO. Fascinating reading.

Perhaps I should mention, in order to comply with the FCC and all, that I either purchase books myself or get them from the library, but do not receive free copies or have other incentives to recommend any readings.

Startup Nation

At a recent event Robert Litan of Brookings and the Kauffman Foundation strongly recommended Dan Senor and Saul Singer's Startup Nation. I haven't read it, but it seems promising. If you have an interest though, Dan Senor is speaking next week as part of Politics and Prose speaker series at the Sixth & I Historic Synagogue in Washington, DC. Note that there is a fee associated with the event ($6). Some details about the book from P&P:

Senor, a business analyst, wanted to know how it is that Israel—a country of just over 7 million, only 60 years old, with no natural resources—produces more start-up companies than large, peaceful, and stable nations like Japan or the UK. He and Saul Singer, editorial editor of The Jerusalem Post, attribute Israel’s success to the social networks and leadership training afforded by the nation’s mandatory military service, and to an open immigration policy that continually restocks Israel’s population from people around the world. They note that the Jewish tradition of questioning also fosters openness and self-criticism. Publishers Weekly says this is a book “not just for business leaders and policy makers, but for anyone curious about contemporary Israeli culture.”

Interested readers may also find Innovation and the State: Political Choice and Strategies for Growth in Israel, Taiwan, and Ireland, by Dan Breznitz to be rewarding as well, if a bit more academic.

Impatient Optimists

Bill Easterly is skeptical.

Post hoc, ergo propter hoc

It's also worth recommending this Wired article about Scott Adams.

A Web Database of Social Entrepreneurs on Twitter

Help create a big list of Social Entrepreneurs that use twitter. TweepML aggregates lists of twitter users and are setting up one for social entrepreneurs. You can enter yourself or your group or nominate others. Please participate and make the service more valuable. (HT)

Information Overload

Lots of wisdom in that FT piece. Here's a bit more (FT):

Those under 30 tend to consume media and entertainment in a different way to their older peers: they refuse to pay for content, they like interaction, and they use electronic screens rather than paper. They also use various devices at once, and they want everything accessible via their mobile.

And Tyler Cowen, writing for a special feature in The Wilson Quarterly about "The Future of the Book," touches on similar themes:

The arrival of virtually every new cultural medium has been greeted with the charge that it truncates attention spans and represents the beginning of cultural collapse—the novel (in the 18th century), the comic book, rock ‘n’ roll, television, and now the Web. In fact, there has never been a golden age of all-wise, all-attentive readers. But that’s not to say that nothing has changed. The mass migration of intellectual activity from print to the Web has brought one important development: We have begun paying more attention to information. Overall, that’s a big plus for the new world order.

It is easy to dismiss this cornucopia as information overload. We’ve all seen people scrolling with one hand through a BlackBerry while pecking out instant messages (IMs) on a laptop with the other and eyeing a television (I won’t say “watching”). But even though it is easy to see signs of overload in our busy lives, the reality is that most of us carefully regulate this massive inflow of information to create something uniquely suited to our particular interests and needs—a rich and highly personalized blend of cultural gleanings.

The word for this process is multitasking, but that makes it sound as if we’re all over the place. There is a deep coherence to how each of us pulls out a steady stream of information from disparate sources to feed our long-term interests. No matter how varied your topics of interest may appear to an outside observer, you’ll tailor an information stream related to the continuing “stories” you want in your life—say, Sichuan cooking, health care reform, Michael Jackson, and the stock market. With the help of the Web, you build broader intellectual narratives about the world. The apparent disorder of the information stream reflects not your incoherence but rather your depth and originality as an individual.

The "Establishment" in a Digital Era

The FT channels Clay Shirky (FT):

We have entered the Digital Age, but most of those in control in business, and indeed politics, are not digital natives. By the time they get to be the definitive boss, leaders are generally in their 50s. At that point in their life, they are unlikely to be ready to reinvent what they and their company do. “The Establishment” is just that – by nature, they are not dramatic reformers.

Unfortunately, a chief executive only a few years from retirement is hardly motivated to sack loyal colleagues to bring on board lots of teenagers to turn their company upside down. Psychologically, we are congenitally opposed to tearing down what we have helped create in order to build anew. Hence the status quo prevails, even if it is the demoralising task of managing decline with no salvation in sight. And so all efforts are applied to preservation in spite of a realisation that the economic model is broken – because no one is forcing the company in a new direction.

[...] If you have enjoyed the heyday of legacy media industries such as newspapers, magazines, radio or books, today’s tumbling sales, margins, profits, salaries and influence seem an unfolding tragedy. But lamenting change is like regretting the weather – futile and destructive. The only answer is to hire as many bright young things as you can afford and hope their dynamism will counteract the inevitable conservatism of an existing institution. [emphasis added]

The Power of Data Visualization

Last year NY Times Graphics Directer Steve Duenes answered a bunch of reader mail. Among many insightful bits, Duenes pulled out this email from Nicholas Kristof regarding the Gates Foundation and how Bill and Melinda settled on the idea of supporting public health initiatives. It makes for fascinating reading (NYT):

From: Nicholas Kristof Subject: the power of art

in september i traveled with bill gates to africa to look at his work fighting aids there. while setting the trip up, it emerged that his initial interest in giving pots of money to fight disease had arisen after he and melinda read a two-part series of articles i did on third world disease in January 1997. until then, their plan had been to give money mainly to get countries wired and full of computers.

bill and melinda recently reread those pieces, and said that it was the second piece in the series, about bad water and diarrhea killing millions of kids a year, that really got them thinking of public health. Great! I was really proud of this impact that my worldwide reporting and 3,500-word article had had. But then bill confessed that actually it wasn't the article itself that had grabbed him so much -- it was the graphic. It was just a two column, inside graphic, very simple, listing third world health problems and how many people they kill. but he remembered it after all those years and said that it was the single thing that got him redirected toward public health.

No graphic in human history has saved so many lives in africa and asia.

Business Schools Increasingly Focusing on Social Entrepreneurship

Social Entrepreneurship is gaining ground at business schools (WSJ):

This type of social entrepreneurship – that is, building a for-profit company with a social conscious or linked with a social cause – is becoming increasingly attractive to would-be business founders. The idea is to make money while either directly impacting consumers with its services or funneling a portion of profits to charities. Often, these companies employ people or source resources from economically depressed areas of the world that then also benefit from the charitable donations from the profits.

And with an increased interest in socially-responsible money-making, business schools have been pushed to create a whole host of courses and study tracks to help M.B.A. students sort out the best way to pull it off. Schools like University of Oxford, Cornell University and Dartmouth College have all seen increased demand for instruction in social entrepreneurship.

Some administrators say it's a generational progression of business-school students who have grown up more socially aware. Others say a lack of traditional jobs has spurred an interest in entrepreneurial ventures—and the focus on societal impact is partly a matter of trying to escape the stigma of the "greedy M.B.A."

"I think the interest in entrepreneurial ventures with social value [is about] more than the fact that people can't get jobs as easily," says Colin Mayer, dean of Oxford's Saïd Business School in the U.K. "There's also a sort of underlying sense of guilt about what happened during the crisis."

Obviously a company doesn't have to be a for profit enterprise to fall under the banner of social entrepreneurship. I also don't believe guilt from the financial crisis is much of a motivating factor. Social entrepreneurship's been on the rise for decades and has been a legitimate academic field for at least ten years. But the basic point that more schools are offering courses is very important. Traditionally social entrepreneurship has been taught in public administration departments with a focus on non-profit management, so it's definitely important to move to a broader conception and educational curriculum that reflects the true diversity of these entrepreneurs.

A New Era of Rent-Seeking?

A couple of months ago the always awesome Michael Lewis wrote, in the voice of a Goldman Sachs executive (Bloomberg):

Every time we hear the phrase “the United States of Goldman Sachs” we shake our heads in wonder. Every ninth-grader knows that the U.S. government consists of three branches. Goldman owns just one of these outright; the second we simply rent, and the third we have no interest in at all. (Note there isn’t a single former Goldman employee on the Supreme Court.)

While GS won't be able to get anybody on the Court in time for this session, they are going to have an interest in what's being discussed (NYT):

The new Supreme Court term that begins Monday [October 5, 2009] will be dominated by cases concerning corporations, compensation and the financial markets that could signal the justices’ attitude toward regulatory constraints at a time of extraordinary government intervention in the economy.

The term will provide important hints, said Richard H. Pildes, a law professor at New York University, to “how much the worst economic crisis since the Depression is going to shape the court’s general stance toward markets and economic regulation.”

The Boy Who Harnessed the Wind

Via @auerswald, this video is wonderful. And from @stevecase: Congrats!!! RT @wkamkwamba: I can't believe it. "Boy Who Harnessed Wind" just got into top 10 on Amazon http://bit.ly/9ZVz5.

For those still unfamiliar with Twitter, "RT" simply stands for re-tweet. It is a way for people to forward something from another writer.

The Barefoot College is an amazing organization, but Mr. Kamkwamba was entrepreneurial enough to build a windmill with no training at all and seeing just a few pictures from a library book. It's an empowering story and Jon Stewart gets a great line in about half way through the interview. Mr. Kamkwamba gets the last laugh though. Do watch the whole video.

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
William Kamkwamba
http://www.thedailyshow.com/
Daily Show Full Episodes Political Humor Ron Paul Interview

The Extraordinaries

The Extraordinaries is a for-profit social enterprise micro-volunteering platform. If that is too confusing you can see the video below.



After months of anticipation and tons of press, the platform is now up and running. From a recent email, here's a rough sketch of what's already been accomplished:

14,000 image tags.
33 U.S. Senate votes tracked.
6 defibrillators mapped.
And counting...

You are doing extraordinary things. From helping BigCatRescue.org track animal abuse cases, to helping Americorps Alumni compile congressional voting records, to helping Christel House bring words of encouragement to school children around the world, YOU are Being Extraordinary... and it's about to get even better!

There is a live feed of what is being accomplished at their site. The Extraordinaries are currently applying to become a B-corp, something we've talked about before. This is just another example of the enabling power of cell phones.

Assorted Links

1. The NYT considers one proposal to give firms tax breaks if they hire new workers. Greg Mankiw's take seems to make the most sense, but also read Mark Thoma if you want to read someone who's in favor of the proposal.
2. A great couple of sentences from Tim Kane (growthology): "And isn't a bigger deal whether we continue to mix the war on drugs with the war on terror? My guess is that we can win one of those wars, or lose both."
3. A few more great sentences, this time from the ImmigrationProfBlog: "[A]ll six Nobel Prize winners announced so far this week are U.S. citizens. Here's something else you should know: Four of those winners were born outside the U.S. We should be particularly proud that these people did not go to Russia or Germany, but came here."
4. Zoltan Acs on the Global Entrepreneurship Index.
5. The Boston Globe profiles Iqbal Quadir, the founder of Grameenphone, Director of the Legatum Center at MIT, and co-editor of Innovations (via @auerswald).
   

New Faculty

Some new faculty joined the School of Public Policy at GMU this year. I've included brief bios, from the most recent issue of Currents, below. The article has more info but you can also see their home pages.

William Schneider, a leading U.S. political commentator, is the Hirst Professor of Public Policy at George Mason University. He is also the Cable News Network's senior political analyst and a contributing editor to National Journal and The Atlantic Monthly.

Michael V. Hayden is a Distinguished Visiting Professor with Mason’s School of Public Policy. He is a retired United States Air Force four-star general and former Director of the National Security Agency (1999-2005) and the Central Intelligence Agency (2006-2009).

Robert L. Deitz joins School of Public Policy as Distinguished Visiting Professor & CIA Officer-in-Residence. He was Senior Councillor to the Director of the Central Intelligence Agency between 2006 and 2009. Between 1998 and 2006 he was the General Counsel at the National Security Agency where he represented the NSA in all legal matters. Professor Deitz has also held positions as Acting General Counsel at the National Geospatial-Intelligence Agency and as Acting Deputy General Counsel, Intelligence, at the Department of Defense. He began his career as a law clerk to the Honorable Justices Douglas, Stewart, and White of the United States Supreme Court. He has also been in private practice and was Special Assistant to Deputy Secretary of State Warren Christopher and to Secretary of Health, Education and Welfare Joseph Califano during the Carter Administration.

Katrin Anacker joins School of Public Policy as an Assistant Professor. Her research interests are housing, housing and urban policy, race and public policy, real estate markets, statistical methods, qualitative methods, and research writing.

Todd Olmstead is an Assistant Professor in the School of Public Policy at George Mason University, where he conducts health services research and economic analyses, primarily in the field of addiction. His current research interests include the impact of substance abuse treatment on health services utilization, estimating the elasticities of demand for illicit drugs, and the cost-effectiveness of using computer-based therapies to treat drug addiction. In addition to his recent work in the field of addiction, Dr. Olmstead has published in the areas of intelligent transportation systems, highway safety, and administrative rulemaking.

The Evolving Textbook Market

Outside Innovation has a great post about scitable.com:

Just over a year ago, Nature Publishing Group's new Education Division quietly launched the Beta of a revolutionary idea: Replace expensive textbooks with a free collaborative learning space for science. Scitable.com went live in January, 2009 and has quickly become a magnet for serious students of genetics (the first field that Nature is addressing).

A follow-up post looks at how the founder, Vikram Savkar, identified the broken parts of the textbook market and how he seized the opportunity to redress them, when given the chance.

Charter Cities

William Easterly interviews Paul Romer. One bit from Romer (Aid Watch):

To understand how to alleviate poverty, we must understand growth and progress. Progress comes from new and better ideas. Ideas come in two flavors, technologies and rules. To foster growth and development, the world’s poorest residents need an opportunity to copy existing technologies and existing rules that are known to work well.

Guinnessometrics

The Guinness Brewery celebrated its 250th birthday this past Thursday, September 24th. In its honor, economist Stephen Ziliak wrote an aricle, "Great Lease, Arthur Guinness—Lovely Day for a Gosset!" (pdf) for a special issue of the Journal of Wine Economics entitled "Beeronomics." The article is a profile of Guinness brewer William S. Gosset, better known to economists and statisticians as "student" a pseudonym that became famous as Student's T-test, a widely used test for statistical significance. The story is fascinating, especially since Gosset was trained as a chemist but learned stats on his own.

For more coverage see the FT and Economist's View.

Obligatory Homer quote: "Beer... Now there's a temporary solution."

Kiva's Lending

More Kiva news, this time looking at what factors affect lending times. Johnny Price at Kiva put together the excellent slide show below, and a few findings follow after the slideshow.

What factors affect loan funding times

View more presentations from kivamicrofunds.

Some of the early conclusions are:

• Single entrepreneurs are funded relatively more slowly than group loans
• On average, the length of the description does not appear to affect funding time, although the "quality" of the description does
• Entrepreneurs that look affluent seem less likely to be funded quickly
• Lower partner risk ratings do not appear to deter lenders
• The quality of the photo does not appear to have a significant effect on funding time, but the inclusion of a video does speed up funding time
• And smiling helps :)

For more see Johnny's post on Kiva's blog.

Kiva Gets Yet Another Endorsement

Via @mattflannery.

"Business Owners Smile More Often"

According to a new Gallup survey of occupational happiness, small business owners have the highest overall level of well-being. From Gallup's press release:

The high well-being of self-employed business owners is particularly interesting in light of recent findings that business owners work longer hours than do people in any other occupational category. Their high well-being, despite working longer hours, supports Gallup research showing that working long hours is only highly detrimental to well-being for those who are less engaged in their work. In terms of income, business owners, on average, make slightly less than professionals and managers/executives, but still eclipse these groups in well-being. The three occupations highest in well-being are, in fact, those with the highest household income.

Additional coverage in the WSJ. This seems to mesh with Scott Shane's work showing that many entrepreneurs are motivated to start a business simply because they don't want to work for anyone else. While overall they may not form high growth firms, they fare well financially and enjoy being their own boss.

The rest of the results:

The Prius Effect

Constent with the previous post: "Chance a U.S. household that owns a Prius also owns an SUV: 1 in 3."

From Harper's Magazine (HT). An alternative and more positive story is that people used to have an SUV and then buy a Prius and garage the dirty, evil SUV - or more formally we would want to know the conditional probability of owning a Prius/hybrid vs. a non-hybrid, given that the first car a family owns is an SUV. I am not sure which effect dominates.

When Green Consumption is Bad

Dan Ariely writes about the Prius effect (Technology Review):

When University of Toronto researchers Nina Mazar and Chen-Bo Zhong recently looked into the topic, they found that exposure to green products can under certain circumstances license us to act imorally.

Through a series of experiments, Mazar and Zhong drew the following distinction between two kinds of exposure to green: When it’s a matter of pure priming (i.e., we are reminded of eco products through words or images), our norms of social responsibility get activated and we become more likely to act ethically afterwards. But if we take the next step and actually purchase the green product (thereby aligning our actions with our moral self-image), we give ourselves the go-ahead to then slack off a little and engage in subsequent dishonest behavior.

The Policy Views of Economists

A survey of AEA members, in the Econ Journal Watch (pdf).

The results show disagreement on many issues but evidence of considerable agreement on others, including a consensus that the benefits of Wal-Mart stores typically outweigh their costs, that Americans save too little and that economic growth in developed countries increases well being. The survey finds a consensus in favor of eliminating trade barriers, eliminating or cutting ethanol subsidies, allowing payments to organ donors, and against requiring employers to provide health insurance.

Green Bubbles?

From Time (Why the Solar Industry is Struggling):

Last summer the future of the solar industry looked bright. Demand was high thanks to generous government subsidies, and solar stocks were soaring. But now it resembles a classic bubble. The solar industry overbuilt and is now struggling under the weight of excess capacity and falling prices.

Then there's Hawaii (NYT):

With the most diverse array of alternative energy potential of any state in the nation, Hawaii has set out to become a living laboratory for the rest of the country, hoping it can slash its dependence on fossil fuels while keeping the lights on.

Every island has at least one energy accent: waves in Maui, wind in Lanai and Molokai, solar panels in Oahu and eventually, if all goes well, biomass energy from crops grown on Kauai. Here on the Big Island of Hawaii, seawater is also being converted to electricity.

As with other technologies, in the long-run cheap prices will drive adoption by consumers looking to reduce costs, so I take the fall in prices as a generally good thing, reflective of increasing scale. In the short-run the glut will probably be short lived as governments around the world prepare to increase their consumption of alternative energy sources.

Open Innovation

Berkeley's Center for Open Innovation put up their speaker series for the fall just a bit ago. Hank Chesbrough kicked off the series. There are no links to papers or topics for the fall, but there are videos and links to presentation materials from the Spring 2009 speaker series, so at least check those out.

For a quick primer on open innovation see Chesbrough's short article in Technology Review.

Thank God it's Thursday (TGIT)

Last year Utah became the first state to mandate a four day, 40 hour work week for most of its government employees. Time magazine addresses a number of benefits from lower energy costs for both the state and its employees to much higher job satisfaction. A few other benefits:

The advantages of a so-called 4-10 schedule are clear: less commuting, lower utility bills. But there have been unexpected benefits as well, even for people who aren't state employees. By staying open for more hours most days of the week, Utah's government offices have become accessible to people who in the past had to miss work to get there in time. With the new 4-10 policy, lines at the department of motor vehicles actually got shorter. Plus, fears that working 10-hour days would lead to burnout turned out to be unfounded — Wadsworth says workers took fewer sick days and reported exercising more on Fridays. "This can really make a difference for work-life balance," says Jeff Herring, Utah's executive director for human resources.

Phelps on Innovation

Howard R. Vane and Chris Mulhearn interviewed Nobel Laureate Edmund S. Phelps at the 2009 AEA meetings. The discussion did not turn to entrepreneurship, but there was this bit on innovation:

VANE and MULHEARN: Does academic knowledge largely progress through the lead taken by a small number of creative innovators?

PHELPS: That’s such a good question. It resonates with a subject in the area of innovation theory. The old guys like Arthur Spiethoff thought that progress was due to the great discoveries of the scientists and navigators. Schumpeter (1934) didn’t depart altogether from that, he simply said, well, that’s right but you’ve got to have some entrepreneur to actually implement it. But don’t think there’s much creativity there—everybody knows what’s in the air. And it’s very rare that anything new really gets created in the course of this development work. But now we don’t think about innovation in that way so much. We recognize that once in a while there is a big leap which creates the ground for a surge of innovations to follow. Nowadays we realize that an awful lot of innovation just comes from business people operating at the grass roots having ideas on the basis of what they see around them. Nothing to do with science—it’s just creative mankind chipping away at things.

I know that the Sens and the Mundells and the Lucases are towering figures,but they couldn’t have become so if they hadn’t read a lot of papers by, well, pretty average people who are just doing a good job of exploring a question and giving inspiration. I guess the towering figures are people with just a little more drive, a little more imagination, just a little cleverer in putting some things together. In other words, I don’t know the answer to the question [laughter].

All around a fascinating interview, with a focus on economic growth and the micro-foundations of macroeconomics.

The paper appears in the Summer issue of the Journal of Economic Perspectives. (Ungated PDF)

Age and Entrepreneurship in France

The Time article about the auto-entrepreneurship program we just talked about also contained some interesting information about age:

So far, two-thirds of that group are men, aged 40 on average. About 33% are salaried employees starting up a sideline business, 25% are unemployed and 6% are retirees.

This shouldn't be surprising given research from the Kauffman foundation and Scott Shane, but it remains a hard pill to swallow for many.

France Gets Entrepreneurial

I resisted putting a question mark in the title, but I was surprised to read this (Time):

Could the French fondness for a single job for life be giving away to a new spirit of entrepreneurialism? The number of new private businesses launched in France is soaring. June saw an all-time record, and figures in July were only slightly off that pace. French officials estimate that by the end of 2009 France will be about half a million new firms better off. In 2008 just 328,000 small companies were created, and in 2007 the figure was 321,000.

The motor driving all that bustling start-up action is an innovation known as auto-entrepreneur, a government scheme introduced in January to help would-be bosses bypass the formidable process of founding a small business. The scheme cuts through the jungle of administrative red tape usually required to launch a company, and dramatically lightens the heavy taxes and social charges companies pay.

It's not all good news however:

If business starts booming, neophyte owners who take on employees have to register under the normal labor regime, which means assuming the taxes and salary-linked social charges that prove so dissuasive to many would-be entrepreneurs in the first place.

Still, it's a start.

A Look at the Self-Employed

The IRS just released the summer edition of its Statistics of Income Bulletin (pdf) and it includes one article on the self-employed, along with a couple of data tables. From a summary of the article:

For Tax Year 2007, there were about 23.1 million individual income tax returns that reported nonfarm sole proprietorship activity, a 4.7-percent increase since Tax Year 2006. Reported profits for these sole proprietorships were $280.6 billion in 2007, representing a decrease of 1.8 percent (in constant dollars) since 2006. Profits also decreased 0.4 percent (in constant dollars) between Tax Years 2005 and 2006. This was the first time that profits (in constant dollars) have decreased for 2 consecutive years since before 1988.

Professional, scientific, and technical services had the largest profits of any sector in 2007, at $71.6 billion, representing 25.5 percent of total sole proprietorship profits. The largest sole proprietorship industrial sector, based on business receipts, was construction, which accounted for 17.4 percent of receipts and reported a 2.4-percent decrease in 2007. Finance and insurance showed the largest percentage increase in both receipts and deductions, reporting a 14.1-percent increase in receipts and a 17.3-percent increase in deductions. Real estate and rental and leasing, which reported the largest decline in profits in 2006, at 18.5 percent, reported a 17.7-percent decline in profits in 2007.

Interested readers may also find the article on S Corps (2006 data) interesting as well.

Unchain the Office Computers!

As someone used to using Firefox, I was really disapointed when I found out I would have to use IE6 on my work computer. Have you ever gotten used to something (tabbed browsing in this case) and then had that removed? It's painful and breeds resentment, let me tell you. Our staff were also admonished for spending too much time on the Washington Post website. That's the equivalent of telling an academic they can't use JSTOR. Anyway, on to Farhad Manjoo's excellent article (Slate):

Computers, like airplanes, can be dangerous things—they can breed viruses and other malware, they can consume enormous resources meant for other tasks, and they're portals to great expanses of procrastination. So why not lock down workplace computers?

Here's why: The restrictions infantilize workers—they foster resentment, reduce morale, lock people into inefficient routines, and, worst of all, they kill our incentives to work productively. In the information age, most companies' success depends entirely on the creativity and drive of their workers. IT restrictions are corrosive to that creativity—they keep everyone under the thumb of people who have no idea which tools we need to do our jobs but who are charged with deciding anyway.

[...] Indeed, there's no empirical evidence that unfettered access to the Internet turns people into slackers at work. The research shows just the opposite. Brent Corker, a professor of marketing at the University of Melbourne, recently tested how two sets of workers—one group that was blocked from using the Web and another that had free access—perform various tasks. Corker found that those who could use the Web were 9 percent more productive than those who couldn't. Why? Because we aren't robots; people with Web access took short breaks to look online while doing their work, and the distractions kept them sharper than the folks who had no choice but to keep on task.

Social Entrepreneurship: Water Edition

From yesterday's Fresh, Inc.:

From social networking to social giving. When we caught up with Michael Birch last year, he and his wife had just made a handsome little profit selling their social networking site Bebo to AOL for $850 million. In the interview, Birch told us that he was looking to dedicate more time to social entrepreneurship. Turns out over the last six months, Birch and two others have been building CharityWater.org, the website for the popular non-profit charity:water, TechCrunch reports. Since its launch yesterday, the site has raised more than $7,000.

Incidentally, I really liked this short update from Steve Case: So cool to be walking through "Water" exhibit at Field Museum and see @PlayPumps featured! http://bit.ly/2aUo9 http://playpumps.org

Social Entrepreneurs in the Aftermath of Hurricane Katrina

The 2009 issue of Local Knowledge, published by the Mercatus Center at George Mason University, looks at the role played by social entrepreneurs and nonprofits in rebuilding New Orleans. Last year Local Knowledge looked at the role of the commercial sector in the rebuilding efforts (2008 issue).

After disasters, how do social entrepreneurs and nonprofit groups affect rebuilding efforts?

That's the question the Mercatus Center at George Mason University asked four years ago, when we began a five-year project to learn from the rebuilding of the Gulf Coast after Hurricane Katrina.

In four years, we have interviewed over 450 people from Louisiana and Mississippi about the rebuilding process, learning what works in the nonprofit, commercial, and public sectors.

We are pleased to present Caring Communities: The Role of Nonprofits in Rebuilding the Gulf Coast which brings together scholarly analyses of work on the ground, journalists' overviews of trends in the nonprofit world, and inspiring accounts from people rebuilding their communities. Because this year's issue is available exclusively online, you can listen to these entrepreneurs tell their story in their own words through video interviews.

Some Links

1. BusinessWeek's Small Business Blog offers up a slideshow of 20 entrepreneurship writers you should follow on twitter.
2. The TaxProfBlog on donating and deducting gift cards to charity
3. James Hamilton has a fascinating new paper looking at the Taylor Rule. In his blog post about the paper he finishes by looking at Fed policy before and after 2000 (Econbrowser):
   

   We document two important changes in the perceived policy rule over time. After 2000, the market believed that the Fed would eventually have a stronger response to inflation than it had prior to 2000, but also that the Fed would take longer to implement those changes, responding to news more sluggishly than it had before 2000.
   
   We study the consequences of these changes using a simple new-Keynesian model. We find that the first change (a stronger long-run response to inflation) would be something that would have made output less variable, whereas the second change (a smaller immediate response) would have made output more variable. According to these simulations, increased Fed inertia undid some of the benefits it could have otherwise obtained with its anti-inflation policies.
   
   Our conclusion is that the measured pace at which Greenspan increased interest rates over 2004-2005 may have been counterproductive, and that economic performance might have been improved if the Fed instead had raised interest rates more quickly to the higher warranted levels.

Empowering Women

Nicholas Kristof and Sheryl WuDunn write (NYT):

In general, aid appears to work best when it is focused on health, education and microfinance (although microfinance has been somewhat less successful in Africa than in Asia). And in each case, crucially, aid has often been most effective when aimed at women and girls; when policy wonks do the math, they often find that these investments have a net economic return. Only a small proportion of aid specifically targets women or girls, but increasingly donors are recognizing that that is where they often get the most bang for the buck.

The authors are promoting their new book, Half the Sky: Turning Oppression into Opportunity for Women Worldwide, due out September 8th. It includes generous coverage of Bill Drayton and Ashoka, and of the importance of microfinance. It should instantly become a must read.

What to do About Systemically Important Institutions

Apparently someone at the Cleveland Fed's been reading Dan Roam's The Back of the Napkin. For more see the site the Cleveland Fed has set up to document its ideas on this matter. Via the Browser.

Social Entrepreneurship Class

The syllabus (pdf) for Zoltan Acs' course, Social Entrepreneurship and Public Policy, was posted a couple of days ago. I took the same class with Phil last year. Because the class is aimed at both MPP (master's) and PhD students it is not just a reading/writing course, but also involves a practical component. Check it out, there are lots of good readings, if you are interested in this field.

The Standardization of English in European Higher Education

A new NBER working paper, The Americanization of European Higher Education and Research, is very interesting. The abstract:

Over the past two decades there has been a substantial increase in the mobility of students in Europe, while also research has become much more internationally oriented. In this paper we document changes in the structure of research and higher education in Europe and investigate potential explanations for the strong increase in its international orientation. While higher education started to grow substantially around 1960, only a few decades later, research and higher education transformed gradually to the American standard. Decreased communication costs are likely causes for this trend. This transformation is most clearly revealed in the change of language used in research from the national language, Latin, German and French to English. Smaller language areas made this transformation earlier while there are also clear timing differences between research fields. Sciences and medicine tend to switch to English first, followed by economics and social sciences, while for law and arts only the first signs of such a transformation are currently observed. This suggests that returns to scale and the transferability of research results are important influences in the decision to adopt the international standard.

It's gated, but here's a working paper version. It is part of a forthcoming book, American Universities in a Global Market. Chapter drafts are currently freely available, so be sure to check it out if you don't normally have access to NBER papers.

Call for Papers

I don't normally list these, but this is for a special issue of the International Journal of Entrepreneurial Venturing on "Research on Global Entrepreneurship Monitor Data." The GEM data is an important look at entrepreneurship across countries and Zoltan has played an important role in its development, writing or coathoring several important papers since its inception. Due note that the deadline is Sept 15.

You can find the CFP here, and more about GEM data through the consortium website. I assume that if you are working in this area you already know that the consortium does not like to make the latest data available online, but it's available elsewhere.

50 Most Important Economic Ideas

Donald Marron is preparing a list of the 50 most important economic ideas of the past century for a book publisher. He currently has over 60 ideas, but some are older (Marxism?) and the list is not complete. A few commenters have offered suggestions, but you should check it out and see if you have any ideas for improvement.

Perhaps he is missing something about economic sociology, or economic imperialism if you prefer? By this I mean the Becker, Murphy, Freakonomics style work that applies economic principles to every other social science, starting with Becker's work on marriage. Economic sociology is broader than that of course, but perhaps that would be one place to start.

What about science, technology and information economics? How well are those covered by his list? Thoughts?

All told though, he's done a great job. It's a great study guide for anyone looking for the major ideas of the discipline.

Forum on Biofuels and Green Energy

Put on by the Milken Institute, Aug 26, 2009. Details here. A bit from their advert:

From 2008 to 2018, biofuel revenue is predicted to leap from $34.8 billion to $105.4 billion annually. Major market players have begun to invest significant capital in the sector. Exxon, for example, is investing $600 million in Craig Venter's Synthetic Genomics, a company focused on developing biofuel from algae. Additionally, Boeing successfully tested several bio-jet-fuel blends in late 2008 and early 2009.

This Forum brings together a panel of biofuel experts to talk about the growth of this sector and its potential for creating a greener economy. They will discuss current energy trends, scientific advances, environmental impacts, regulatory constraints and the challenges and opportunities for investors and businesses.

If you don't happen to be in Santa Monica there will be a webcast and the event will be online afterwards, in case you miss it.

Bubble in Microfinance?

From the WSJ:

Today in India, some poor neighborhoods are being "carpet-bombed" with loans, says Rajalaxmi Kamath, a researcher at the Indian Institute of Management Bangalore who studies the issue. In India, microloans outstanding grew 72% in the year ended March 31, 2008, totaling $1.24 billion, according to Sa-Dhan, an industry association in New Delhi.

"We fear a bubble," says Jacques Grivel of the Luxembourg-based Finethic, a $100 million investment fund that focuses on Latin America, Eastern Europe and Asia, though it has no exposure to India. "Too much money is chasing too few good candidates."

Ex post, many people blame the Fed for not popping the housing bubble. Should the Reserve Bank of India raise interest rates to protect the poor from incoming funding or should they focus more directly on controlling inflation and worrying about the broader state of the economy? To the degree that this extends beyond India's borders, should we look for some global coordination to try to smooth out lending? Who would be the global organization best suited for the purpose? Should we beware of money flowing into microfinance that is not from private philanthropists and the government (i.e. stable donations)? Private equity has been known to move quickly from one lucrative deal to another, in some cases creating currency crises and the like. I have many more questions but no good answers. Thoughts, or additional questions?

Social Entrepreneurship Blogs

The top 50, according to Evan Carmichael. Via Campus Entrepreneurship.

Alternative Governance Structures

1. Paul Romer's Ted talk on Charter Cities is now online.
2. Alex Tabarrok suggests Romer's idea is very similar to Patri Friedman's idea of seasteading.
3. Robin Hanson writes about Futarchy for the BBC. Here is an earlier version of his ideas.
   

Sam Savage's Short History of the World

This is my own adaptation from his book, but i've stayed pretty true to his words:

1. Humans learn to read and write and can transmit information between generations.
2. Humans invent machines and we get the industrial revolution. Primacy of math and physics. This is followed by the rise of engineering. Finally we get the field of industrial design, which gives everything handles and switches to make them operational (like your light switch).
3. Machines learn to read and write during WWII. The birth of computer science and the start of the informational revolution. Unlike physics, which ultimately we grasp with our hands, information is understood through our mind. The equivalent of the industrial engineer is the informational designer.

To get a sense of what an informational designer does, I'd recomend this set of slides from Zach Gemignani of Juice Analytics. I don't think it's a stretch to say that effective use of data through analytics is the key driving force in Google's success.

Echo Chambers

duketheuninteresting reviews a paper, How citation distortions create unfounded authority: analysis of a citation network, by Steven A Greenberg, a professor of neurology at Harvard Medical School. duke writes (scatterplot):

In short, Greenberg identifies several mechanisms that can impair the ability of the scientific process to reach an accurate result. “Citation Bias” is the preferential citation of supporting evidence (whatever supporting is in your case) and the discounting or ignoring of critical evidence. This is particularly the case with critical primary (i.e. using data) research. “Citation Diversion” is the citing of papers that say something relevant to your claim, but which do not say precisely what you imply or state they say. Note that this is not lying about what the citation supports but more akin to stretching it through interpretation. “Invention” relates to the use of citations to introduce new material. Often this is an over-statement of what is contained in the cited article. So, for example, the article says, “We hypothesize that x is related to y” while the citation of that article reads, “So and so demonstrated that x is related to y”. The newer, and much stronger, claim has essentially been invented. Finally, “amplification” emerges when articles that lack primary data (e.g. review articles) are cited as authoritative sources for demonstrating that some particular thing is true. In that these articles are effectively just recycling and collating earlier work, they provide a sort of echo chamber that lends additional legitimacy to a claim without lending it additional substantive support.

I found the whole discussion interesting, but Ryan's our resident expert on science and citations, so I'll turn to him for the last word.

It's Getting Better All the Time

Good news seems scarce these days, especially about a place like Africa, which is frequently portrayed as an entire continent of failed states, so it's refreshing to read Charles Kenny's article in Foreign Policy, Think Again: Africa's Crisis.

Kenny is working on a book on development, tentatively titled, The Success of Development: Innovation, Ideas and the Global Standard of Living. You can read a synopsis at his blog and find a link to a full draft of the manuscript. He initially planned to leave the book up through early August - it's still up now, but may not be for much longer.

Via @auerswald, @bill_easterly, and @FP_Magazine.

Small Business Employment

A new paper from CEPR (An International Comparison of Small Business Employment) is getting lots of attention. The basic thrust is that in the U.S. few people are self-employed because of the lack of free healthcare:

One plausible explanation for the consistently higher shares of self-employment and small-business employment in the rest of the world’s rich economies is that all have some form of universal access to health care. The high cost to self-employed workers and small businesses of the private, employer-based health-care system in place in the United States may act as a significant deterrent tosmall start-up companies, an experience not shared by entrepreneurs in countries with universal access to health care.

Via Paul Krugman, who adds a couple of quick points. Jeff Cornwall weighs in with two posts [1, 2]. Cornwall offers some pretty good advice for would-be entrepreneurs:

First, when I advise entrepreneurs I tell them that they need to build a business that takes care of their needs. This includes income needs, wealth needs and lifestyle needs. Income needs includes the cost of your total lifestyle. If your business model is unable to give you adequate income to cover your expenses -- including healthcare -- then the model is not right for you to pursue. And for goodness sake make sure you can cover these expenses until your business is profitable through other income and personal savings.

Finally, on the question of health care and job lock, see this good post by Tim Kane. Kauffman/Rand have done some interesting research into this area, and there are a few good academic papers, but I read the findings as mostly mixed. It's probably worth a seperate post so I'll write that up.

Charter Cities

Paul Romer recently spoke at Ted about his newest initiative, Charter Cities. You can find a summary of the talk here, and some twitter commentary summarized here. All worth a read. I've expressed skepticism, but will pay close attention to his efforts. David Warsh recently covered Romer's latest initiative with some good and important background information. You can keep up to date on all of this through the Charter Cities blog.

The Age of Amateurs

Reviewing Chris Anderson's Free, Virginia Postrel writes:

But there are hints throughout the book that the future of this radical price is to be found in the past, when satisfying work was what one did on the income provided by less satisfying toil, or by investments, patronage or marriage. “Doing things we like without pay often makes us happier than the work we do for a salary,” Anderson writes, adding, “No wonder the Web exploded, driven by volunteer labor — it made people happy to be creative, to contribute, to have an impact and to be recognized as expert in something.”

I'd push Anderson's statement much farther. Some of us still work for the man, or whatever, but a much greater percentage of people now have careers that they love, and what they do for fun has a greater overlap with what they do for pay. Google's 20 percent rule is the most obvious case of this, but more generally this is reflected in the rise of flatter organizations built around collaborative innovation, or in some cases collective innovation. See Clay Shirky's excellent book for more on these topics. If we think of our salaried work and our "real" work in terms of a venn diagram, then the overlap has grown over time. While we are not yet to a single circle, that is the direction we are headed. Read the rest. Via Tim Kane.

Immigration

Zoltan Acs introduces his newest paper (cauthored with David Hart and Spencer Tracy), which quantifies the role of immigratis in high-tech entrepreneurship in the United States. Over at the Creative Class blog, Zoltan writes:

Only about three percent of the founders of high-impact, high-tech companies are foreigners (60 out of 2034). 97 percent are U.S. citizens, and specifically 87 percent are U.S.-born, while the other 10 percent are naturalized U.S. citizens. Furthermore, most foreign-born founders lived in the US for decades. These founders are statistically very similar to the average U.S. population in terms of birth and immigration status.

An interesting but unanswered aspect of the study is how these high-tech immigrants (many not new), part of the international creative class, help integrate U.S. business in a post-American world? Do they as some have claimed strengthen America in a post-American world, or is it a non-issue? If they strengthen our connection to the rest of the world through “brain circulation” is the flight of the creative class not a major public policy issue?

Via @auerswald, naturally. The full report: High-Tech Immigrant Entrepreneurship in the United States (pdf). A shorter executive summary is also available.

Rhetoric and Persuasion

From the Washington Post:

President Obama has framed the health-care debate in Washington as a campaign against insurance companies whose irresponsible actions, he repeatedly says, must be reined in to control costs and improve patient care. In North Carolina this week, he told an audience that the existing system "works well for the insurance industry, but it doesn't always work well for you."

The message is no accident, as the president's chief pollster made clear in a rare public speech last month. Joel Benenson told the Economic Club of Canada that extensive polling revealed to the White House what many there had guessed: People hate insurance companies.

"Take the public plan, for example," Benenson said. "Initial reaction to it wasn't as positive as it is now. . . . But we figured out that people like the idea of competition versus the insurance company, and that's why you get a number like 72 percent supporting it."

Tangentially, I read lots of writers, like Ruth Marcus, who say the Wyden/ Bennett proposal would be their first choice for health care reform and immediately afterward say that there's no chance anything like it would ever be adopted. This is no doubt true but framing it as something unattainable doesn't do much to improve the bill's chances. I guess they use such statements to indicate that they "get" the political reality and all that, but analysts have a higher calling than just talking about what's politically viable at any one point in time. So, what kind of the rhetoric would push the Wyden/Bennett bill off the back burner?

Time Management and Procrastination

Since it's been a week since I've posted, this seems like a timely topic. Tyler Cowen doesn't mince words (CNN): "Always tackle your most important task first thing in the morning." The rest of the short article is generally full of good advice.

Ryan recommends a recent article by Paul Graham, Maker's Schedule, Manager's Schedule. It is very good. A quick bit:

Most powerful people are on the manager's schedule. It's the schedule of command. But there's another way of using time that's common among people who make things, like programmers and writers. They generally prefer to use time in units of half a day at least. You can't write or program well in units of an hour. That's barely enough time to get started.

Finally, for academics, Tomorrow's Professor had a good note in June about completing the PhD. The whole thing might not interest everyone, but their last point about Watson's Syndrome is too good to pass up:

Avoid Watson's Syndrome. Named by R.J. Gelles, this syndrome is a euphemism for procrastination (2). It involves doing everything possible to avoid completing work. It differs from writer's block in that the sufferer substitutes real work that distracts from doing what is necessary for completing the dissertation or for advancing toward an academic career. The work may be outside or inside the university. Examples given by Gelles include:
* remodeling a house
* a never-ending literature review (after all, new papers are being published all the time and they must be referenced)
* data paralysis-making seemingly infinite Statistical Analysis System (SAS) and Statistical Package for Social Sciences (SPSS) runs
* perfectionism that doesn't let you submit until you think it is perfect (and it never is perfect) If you suffer from Watson's Syndrome, finding a mentor (see Hint 5) who pushes you to finish will help you get done. For many, however, particularly those who always waited until the night before an examination to begin studying, the syndrome is professionally fatal.

Needless to say I will get back to blogging on a more regular basis. And again thanks to Ryan for recommending Tomorrow's Professor. Now back to work! ... okay, if you want just a bit more distraction from your day, here is one more list from Tomorrow's Professor about avoiding writing procastination.

Regulatory Capture

The NYT reports (NYT):

Two weeks ago, the French Energy Regulatory Commission, the C.R.E., decided that Voltalis, a company that installs electricity management devices in homes and businesses and then manages their use, would have to, in effect, pay power producers for the power that it saves.

Voltalis’s Bluepod boxes, free to consumers, plug into the home electrical panel and communicate back to the company’s computers by Internet. When, for example, summer demand on the electrical grid nears a peak, the system would automatically turn off air-conditioners for hundreds or thousands of consumers willing to give up the coolers for a short time to avoid the need for additional electrical production to come on line.

Naturally the ruling by the French authorities is being denounced as a case of too much coziness but it should serve as a warning for other "smart grid" companies. Google, for its part, already seems to be knee deep in talks with policymakers and other influential decisionmakers, both domestically and abroad (Google European Public Policy Blog).

Support for Community Colleges

Despite the stigma associated with them, community colleges boast small class sizes, excellent faculty whose sole job is good teaching, and many smart and highly motivated students. I took a personal finance class at my local community college while in high school and was pleasantly surprised to find my professor was a Harvard MBA. He fell in love with the California foothills and decided to trade a high paying job for a better lifestyle. He was far from unique.

Since I took that class, the faculty have only improved further. There are simply fewer good tenure track positions available so more PhDs now apply to teach at local community colleges. And some fields, like English, continue to crank out way more graduates than the university market can reasonably bear, so many end up teaching at two year schools. Obviously not all PhDs make good teachers, and many in fact have little interest in teaching, but I just want to drill home the point that for the money and the personal attention you receive, there is no greater value in education than two year schools. Oh, and it also helps applicants when they apply for college as transfer students.

Anyway, it's good to see that President Obama shares my enthusiasm (Time).

Inaugural Martin Feldstein Lecture

The inaugural lecture was delivered July 10, 2009 at the NBER Summer Institute. Stanford economist John Taylor presented on Empirically Evaluating Economic Policy in Real Time. The link will take you to a video of the presentation along with a link to his slides.

Members Only

The growing importance of closed Ning networks for social entrepreneurs and local charities (Stanford Social Innovation Review).

Social Finance in India

Social Earth interviews CapitalConnect about the bottom of the pyramid in India.

SocialEarth: Can you describe the social entrepreneurship environment in India?

CapitalConnect: Indian social entrepreneurship space has myriad of hybrid models with a one billion thinking structure. One billion thinking necessitates cost effective models involving the bottom of the pyramid. The majority of these models are scalable and replicable. In terms of numbers, microfinance space may have the lead over other social enterprises although social enterprises are blooming in other domains as well with the majority of the players operating in service space.

E-Books and the University

The WSJ profiles some university pilot programs that replace conventional textbooks with e-book readers, such as the Sony Reader. The article gives the impression that results were about mixed, at best. So many students are used to video and other supplemental online content that the e-books seem antiquated relative to a similarly sized netbook. But in general, it seems like many students were happy enough to be rid of their textbooks. It looks like the question will be what device students end up using, rather than print vs. digital.

For me, I like reading linear stories on the Kindle and it would probably be wonderful for English majors that want to highlight lots of text and add annotations, but it has some major problems displaying equations properly - as in, sometimes it just puts up wierd squiggley marks rather than the numbers you should see - and isn't so great for flipping around, even with the search features. The good news is that technology is constantly improving.

New College Graduates, the Business Cycle, and the Prospects for New Firm Formation

In what should be a familiar theme to our readers by this point, below is the abstract for an interesting new paper on the link between entrepreneurship and the business cycle. Stopping Start-ups: How the Business Cycle Affects Entrepreneurship, by Li Yu, Peter F. Orazem and Robert W. Jolly at the Iowa State University. Abstract:

This study analyzes whether economic conditions at the time of labor market entry affect entrepreneurship, using difference in business start-ups between cohorts of college students graduating in boom or bust economic conditions. Those graduating during an economic bust tend to delay their business start-ups relative to boom period graduates by about two years. Our results are consistent with additional findings that higher unemployment rates at time of graduation significantly delay the first business start-up across all college graduation cohorts over the 1982-2004 period. The adverse effect of a bust is temporary, delaying but not preventing self-employment over the life-cycle.

The Entrepreneurial Economy

A new study from Deloitte (The Shift Index) talks about the increase in competitiveness of the U.S. economy over the past 30-40 years. Alex Tabarrok has a very good summary of the piece along with two graphs from the paper. It is your must read post of the day.

Deloitte also released a version in the Harvard Business Review, available here as a pdf. I'll say more after I get a chance to read it. Also, if you need to know what the Herfindal-Hirschman Index (HHI) is just see Wikipedia or Investopedia.

What Matters: Innovation

McKinsey's What Matters features several important thinkers discussing innovation policy in a global economy. A few highlights: Robert Atkinson (ITIF) , and Iqbal Quadir (from MIT's Legatum Center; and co-editor, Innovations Journal), debate whether innovation is moving to China and India in the 21st century (McKinsey). On a related note, see the NYT for a discussion of China's increasing emphasis on renewable and green technologies, complete with its own de facto "Buy-America" provisions.

McKinsey's Jonathan Bays and Paul Jansen describe the increasing use of prizes, and Peter Diamandis, founder of the X PRIZE Foundation, discusses the same subject in a podcast. Richard Florida has two short articles that are adapted from Who's Your City (I think because the paperback was recently released). The first looks at knowledge and cities (Talentopolis). Interested readers should also look at two short pieces by Ed Glaeser (City Journal) and Luigi Zingales for a good perspective on these issues as they relate to New York City(City Journal). Florida's second short article revisits his Bohemian-Gay index as it relates to housing prices. Finally, there is a rich archive full of additional resources, so if you haven't spent any time on the What Matters site, do check it out.

Kiva's Lending

June was another good month for Kiva borrowers. Thus far Kiva's lending has weathered the credit crisis pretty well. Via Kiva's blog:

The total of all loans made through Kiva in June was $4,909,050.00 That makes June the fifth record month on Kiva in a row. To recap the past four record months:

February: $3,828,825.00
March: $4,282,625.00
April: $4,487,875.00
May: $4,643,100.00

Assorted Links

A few ideas I wish I had more time to discuss:

1. Who is The Small Business Majority? (NYT).
2. David Altig, from the Federal Reserve Bank of Atlanta writes a good post titled: "Markets work, even when they don’t." Or as the GMU Economists might say, "Markets fail, let's use markets." The article is a response to a Vanity Fair article by Joe Stiglitz.
3. Free is now free, in more than one form.
4. Taxes: (a) Who Pays No Income Tax? (b) is this a win for small business and entrepreneurs?
5. New Directions for SSRN? (Organizations and Markets)
6. Understanding the "common good" (The Entrepreneurial Mind)
7. Campus Entrepreneurs create new guitar company (Coil Guitars): An engineering professor became inspired after buying a new electric guitar that didn't perform as well as he expected. So he ended up teaching an engineering class on guitars: ENEE 159b: Electric Guitar Design, and with some students, and funding from the University of Maryland formed a new enterprise through the school's startup lab. You can now buy their guitars online. Also note that money from the company is now going back to the university to support research, part of the philanthropic cycle Zoltan Acs talks about.

Mobile Phones vs. Computers

From the same post I just linked to (Google Blog):

Last week's launch of SMS services in Uganda is the direct result of this research — it's based on listening to what people want and finding a way to get it to them. Our research enabled us to observe first-hand how people instinctively wanted to interact with a mobile phone. We let people select the language they wanted to use. We gained deep insights into the way people formulate their questions and what questions really matter to them. On top of that, we saw the excitement on people's faces when they got their first-ever search results, and we realized that some of the information we could deliver to these users, such as health information, has the power to truly change lives. These new services in Uganda are just one step on the path to providing information to people who have little or no access to the web. This research will help us as we continue to develop more services to increase access to
information all around the world.

It's not surprising how much you can accomplish just by asking people what they want and observing how they use a new technology. Short of internet cafes or other shared space, there's virtually no way that you can reach the same number of people via computers that you can with mobile phones. Especially among populations with limited education. So good job Google, and hopefully they keep working on what people actually want, rather than imposing top down solutions based on what they think people want.

Google's New SMS Services

The Google Blog has a post about their latest efforts in Africa and about the research that got them there. Very interesting. A teaser:

Last week, we announced a suite of SMS services in Uganda, a country where someone's first experience of the Internet is far more likely to be on a mobile device rather than a PC. We are really excited about this project in part because it is the result of more than a year of true user-centered research and design. We knew we wanted to build useful mobile services tailored to the needs of people in sub-Saharan Africa, but how could we find out what people want from the Internet when they don't have access to it already? What would people who had never used search before want to search for if we gave them a mobile phone and said "Ask any question you like"?

Read the rest.

Backlash Against Kiva

Last month Kiva began offering loans to entrepreneurs in the United States. I expected an outcry based on opposition to "payday lending," but so far that hasn't been a problem. However:

A group of about 400 Kiva lenders — originally called "Pissed Off Kiva Lenders," but now crusading as "Unhappy Kiva Lenders" — has signed on to a scathing critique on the Kiva site.

"The U.S. is the wealthiest and most resource-full nation in world history," Tom Behan of Seattle, leader of the insurrection, wrote on Kiva's site. "To think that we are asking lenders from around the world to even consider lending in the U.S. is a shameful, disgraceful decision by Kiva management, CEO Matt Flannery in particular."

Behan and others say Kiva has changed its mission. The U.S. borrowers on the site enjoy a higher standard of living than borrowers in the developing world. U.S. borrowers are low-income while many of their developing-world counterparts are no income. The critics worry that loans going to U.S. borrowers will divert money that otherwise would be loaned to the poor in developing countries such as Vietnam, India and Kenya.

Kiva's management is listening:

They are taking a poll on polldaddy.com that shows respondents, by a 5-to-4 ratio, approve of Kiva loans in the United States. And on July 15, they'll hold a worldwide conference call where interested parties can call in and voice their concerns over U.S. lending.

From Mike Cassidy at the San Jose Mercury News. TechCrunch has additional coverage. My own impression with Kiva is that there will be little to no crowding out from loans to US entrepreneurs. As it is Kiva is having trouble keeping up with growing demand and I see little reason for this to change. Even as the debacle in credit markets has curtailed lending in other sectors, Kiva has continued to increase its business, although there are some signs that lending is finally slowing. At the end of the day, I think lending to fellow Americans will increase the lending base for Kiva and will increase, rather than limit, loans for other entrepreneurs.

Textbook Rentals

Chegg.com, a textbook rental site, seems to be doing well after learning from an earlier flop (NYT):

Now, as Chegg prepares for its third academic year in the textbook rental business, the business is growing rapidly. Jim Safka, a former chief executive of Match.com and Ask.com who was recently recruited to run Chegg, said the company’s revenue in 2008 was more than $10 million. This year, Chegg surpassed that in January alone, Mr. Safka said.

Creative Bootstrapping:

Chegg began renting books before it owned any, so when an order came in, its employees would surf the Web to find a cheap copy. They would buy the book using Mr. Rashid’s American Express card and have it shipped to the student. Eventually, Chegg automated the system.

But as the orders multiplied, Mr. Rashid said, so did the traffic on his credit card, leading American Express to suspect fraud and threaten to suspend the account.