The Latest from Hans Rosling

Via Donald Marron

Making a Failure

According to Scott Sandage, an associate professor of history at Carnegie Mellon University and author of Born Losers: A History of Failure in America (Chronicle):

America's relationship with failure has evolved over time, noting that the word initially applied only to matters of business, not character. Up until the Civil War, he argues, people who suffered economic misfortune were described as making a failure, not being a failure. Sandage asks: "Why have we as a culture embraced modes of identity where we measure our souls using business models?"

From a longer article in The Chronicle of Higher Education on the importance of creativity. The pendulum certainly seems to be shifting back towards a conception of failure as a form of learning by doing. As a result, the stigma that's historically been attached to it seems to be fading.

The Labor-Leisure Tradeoff: Asia/Spain Edition

Against the backdrop of the latest French strike, Michael Schuman's latest post at the Curious Capitalist blog is worth pondering (Time):

Can the Spanish continue to enjoy their wonderful lifestyles as the world changes around them? In other words, can the people of Europe – and for that matter, everywhere else -- find the proper work-life balance in the increasingly intense country-eat-country world we live in?

When I compare lifestyles in a rising Asia and a struggling Europe, the answer seems to be a resounding no. In Hong Kong, the subways are crammed with people furiously emailing or talking business on their iPhones. In Spain, don't expect anyone to respond to your emails on Friday afternoons, or take a phone call during their long lunches. In South Korea, many Koreans consider it inappropriate to use their allotted vacation days, to the point where the government has had to implore them to take holidays. During the hottest weeks of summer in Spain, good luck finding people in the offices after 3pm. In Hong Kong, you can do some serious shopping at 10pm. While visiting the town of Jerez in Spain, I had a terrible headache but couldn't find an open pharmacy for an entire Thursday afternoon.

After my travels in Spain, there was little question in my mind why Asia is leaping from strength to strength while Europe is mired in slow growth and unemployment. According to statistics from the OECD, people from emerging markets or nouveau riche nations generally tend to work longer hours. The Koreans worked more hours in 2009 than anyone else in the OECD (2,074), followed by Poland and Mexico. The Spanish, by comparison, worked 1,615 hours, roughly in line with the British and Portuguese. The poorer countries appear hungrier. They want what the Spanish and other residents of the most advanced economies have had for decades, if not centuries.

The Sad State of Haiti

Even before the earthquake, progress in Haiti was not going so great. It has the dubious distinction of being one of only a handful of countries (six total?) to actually see its real per capita income decline between 1960 and 2007 (the only data available from the Penn World Tables). But as Denis O'Brien writes in the latest Innovations (pdf):

Analysis of where Haiti goes from here inevitably turns around the problems, over and over again. Haiti’s past is picked over, its failures held up to the light, each new dawn that didn’t deliver examined under the microscope as to find out what went wrong. And it is important that lessons are learned. But not enough attention is paid to the positives. Let’s for a change not get stuck in the detail and let’s look at what is right with Haiti.

That is the goal of the latest issue, released at the Clinton Global Initiative, 2010. Check it out.

The Valley of Death

It's well known that it can be very difficult to move from scientific invention to market. It's a Miracle has a humorous take on this phenomenon, couched in terms of things scientists say versus what they really mean. For example:

What they say: I think we’ve set the stage now and we’re actively looking opportunities to commercialize our invention.

What they mean: I think we can get a patent out of this, but I have no clue how an actual commercial entity works and what they look for in potential products.

The Global Canon

From the World Policy Journal:

Is there, as World Policy Journal suggests in every issue, a truly global network of creativity—not only in the written word, but in art, drama, music, film, television and beyond? The answers arrived and the results, we believe, will surprise and entertain. For the first time in our quarter century as a publication, we consider poetry, music, painting, internet art, film from Nigeria, plays from Peru—the entire gamut of human creativity—to arrive at the conclusion we suspected from the start: That today, for perhaps the first time in human history, a Global Canon has arrived.

The full contents are here, and the articles are currently free.

Soft Power

From the Department of State:

In a new initiative responding to President Obama’s June 2009 speech in Cairo, the U.S. Department of State is bringing 25 science teachers from as many countries to the United States for an International Visitor Leadership Program called “A New Beginning: Science, Technology, Engineering and Math (STEM) Education,” September 27 through October 15.

The teachers will engage in a professional, cultural and educational examination of the building blocks of STEM education at the primary and secondary levels in seven cities across the United States. Participants will visit several schools to explore how to nurture and support hands-on science education, how to demonstrate the relevance of science for children, and how to create a setting in which children actively engage in scientific learning.

This exchange will lay the groundwork for long-term relationships and foster international collaboration in an effort to develop rising leaders in the field of science and technology. After the teachers return home, their students and those of their American counterparts will be invited to take part in global “virtual” science fairs.

"The Agenda for Development Economics"

A special symposium in the Journal of Economic Perspectives. Apparently the agenda does not feature entrepreneurship. A quick word search reveals that "entrepreneur," or one of several derivations is used only once in the text of these articles - the article by Rodrik. Nor are these authors reading much about entrepreneurship - only two citations from these six essays include some variation of the word entrepreneur.

The International Attractiveness of US Universities

Seth Roberts, a psychology professor at Berkeley, bumped into a small group of first year students from Beijing. He asked a few questions and got some interesting answers, such as why they wanted to study in the US (Seth's Blog):

But they preferred an American college to a Chinese one for two main reasons: 1. They can choose whatever major they want. At Chinese universities students are often forced into a major they don’t want if their scores are high enough to get into a prestigious university but not high enough to get into the major they want at that university. 2. They believe that if they graduate from an American university they will have more opportunities. Where did they get the idea of coming to Berkeley? I asked. Online, they said. Their English was really good.

Essays on Entrepreneurship in Honor of William Baumol

In 2006 the American Economic Association arranged three special sessions in Baumol's honor. Since his name just came up in a previous post, I thought this would be worth highlighting again.

William Baumol Special Session on Entrepreneurship, Innovation and Growth I: Theoretical Approach

Presiding: ROBERT LITAN, Kauffman Foundation

WILLIAM BAUMOL, New York University—Entrepreneurship and Invention: Toward Their Microeconomic Value Theory

EDWARD LAZEAR, Stanford University—Leadership and Entrepreneurs: Where They Produce the Most Value

EDMUND PHELPS, Columbia University—Further Steps to a Theory of Innovation and Growth—On the Path Begun by Knight, Hayek and Polanyí

CARL SCHRAMM, Kauffman Foundation—Entrepreneurial Capitalism and the End of Bureaucracy: Reforming the Mutual Dialogue of Risk Aversion

William Baumol Special Session on Entrepreneurship, Innovation and Growth II: Empirical Approach

Presiding: YING LOWREY, U.S. Small Business Administration

DAVID AUDRETSCH and MAX KEILBACH, Max Planck Institute of Economics—Entrepreneurship Capital -- Determinants and Impact on Regional Economic Performance

YING LOWREY, U.S. Small Business Administration—An Examination of Entrepreneurial Effort

STEVEN KAPLAN, BERK SENSOY, and PER STROMBERG, University of Chicago—What Are Firms? Evolution from Birth to Public Companies

PAUL GOMERS, ANNA KOVNER, JOSHUA LERNER, and DAVID SCHARFSTEIN, Harvard University—Venture Capital Investment Cycles: The Impact of Public Markets

William Baumol Special Session on Entrepreneurship, Innovation and Growth III: International Approach

Presiding: LEORA KLAPPER, World Bank

SIMON PARKER, Durham University—New Agendas in the Economics of Entrepreneurship: Optimism,Education, Wealth and Entrepreneurship

SAUL ESTRIN, London School of Economics, and RUTA AIDIS, University College London —Weak Institutions, Weak Ties and Low Levels of Productive Entrepreneurship in Russia: An Exploration

JINGLIAN WU, Development Research Center of Chinese State Council, and SHAOQING HUANG, China Europe International Business School—The Entrepreneurship and Institutions: A Perspective to Interpret China's Economic Growth in Its Transformation

SIMEON DJANKOV, World Bank, YINGYI QIAN, University of California, Berkeley, GÉRARD ROLAND, University of California, Berkeley, and EKATERINA ZHURAVSKAYA, CEFIR—Entrepreneurship in Development: First Results from China and Russia

The Savage Life of a Food Truck Vendor

Good WSJ article about the confrontational life of a food truck entrepreneur. (WSJ):

For the most part, the trucks have battled everyone but each other. First there were turf wars with the push-cart food vendors. Then there were spats with the stores they park in front of. And now, inevitably, some are warring with each other.

"Obviously all of these kinds of things will continue to happen," Mr. Ponorovsky said. "Simply because the amount of trucks out there is growing. Whereas before, whatever confrontations occurred were between old school and new school, now it's going to be new school against new school."

A follow-up blog post includes video.

The Microtheory of Innovation

This new book is the culmination of a brilliant career. Baumol, perhaps more than anyone, deserves the econ nobel. His new book is self-recommending, as they say and it is automatically one of the best nonfiction books of the year. The introduction is online (pdf). A blurb:

Entrepreneurs are widely recognized for the vital contributions they make to economic growth and general welfare, yet until fairly recently entrepreneurship was not considered worthy of serious economic study. Today, progress has been made to integrate entrepreneurship into macroeconomics, but until now the entrepreneur has been almost completely excluded from microeconomics and standard theoretical models of the firm. The Microtheory of Innovative Entrepreneurship provides the framework for introducing entrepreneurship into mainstream microtheory and incorporating the activities of entrepreneurs, inventors, and managers into standard models of the firm.

William Baumol distinguishes between the innovative entrepreneur, who comes up with new ideas and puts them into practice, and the replicative entrepreneur, which can be anyone who launches a new business venture, regardless of whether similar ventures already exist. Baumol puts forward a quasi-formal theoretical analysis of the innovative entrepreneur's influential role in economic life. In doing so, he opens the way to bringing innovative entrepreneurship into the accepted body of mainstream microeconomics, and offers valuable insights that can be used to design more effective policies. The Microtheory of Innovative Entrepreneurship lays the foundation for a new kind of microtheory that reflects the innovative entrepreneur's importance to economic growth and prosperity.

CSR in the Food Service Industry

It seems like its tough enough just making it in the food industry, what with the changing (fickle) taste of consumers, regulation, and a constant stream of new competitors, but a new entrant is promising to pay 1% of profits to local charities. CSR is often labeled by its detractors as a clever marketing gimmick and it's something we normally see in larger, more established industries (to be clear, I'm not saying small businesses don't give back to their communities - simply that what's most visible are the large companies that sponsor sports complexes, and the like).

I'll skip the cynicism for now and just say that this is perhaps another good reason for supporting the new food vendors that we've recently been discussing. So here is a bit about TaKorean, from their blog:

Having worked in outdoor specialty retail for over seven years, I was always inspired by Patagonia’s pledge to donate 1% of all sales to environmental causes around the globe. Patagonia started giving 1% for the planet in 1985, and since then businesses around the world have become involved. It was an easy decision for me to incorporate that same philosophy into DC Street Food, Inc. and TaKorean locally. Washington, DC is where I was born and raised, and along with delivering mouthwatering Korean BBQ tacos throughout the city, I’d like to do my part to better the community that has given so much to me throughout my life.

Each month we will blog about our chosen monthly charity in which we are donating 1% of our sales. Over the course of the year we will be able to give back to several different types of charitable organizations, fulfilling our goal of truly giving back to the local community. We at TaKorean believe that businesses have a responsibility to give back to the communities that give us the opportunity to serve them, and we are more than happy to do our part. Delicious food and a positive impact on our neighborhoods, our youth, our forests, our waterways, and our people is responsible business.

TaKorean is set to hit the streets August 30th.

Barriers to Entry

This seems like a natural follow up to yesterday's post. Word is that several area establishments and business improvement districts (BIDs) are upset by the wave of new food vendors and are trying to keep them away from existing businesses. A few details here. A good summary here. The DC government has a site for the proposed rulemaking here. My mind turns immediately to Jack High's The Politics of Purity, one of the best case studies of federal rulemaking (a relatively understudied topic) and about the politics of food quality and regulation.

Kirzner's Arbitrage Entrepreneurship

When I first moved to the DC area the food scene was just beginning to pick up. If you went to a local farmers market you were more likely to see fruit from CA than anything local. Too many of those experiences (it wasn't even organic) soured me on local farmers markets for quite a while - but thankfully things are better now.

One area that's seen particularly rapid growth is food trucks, despite red-tape and other hurdles. A new competitor, Red Hook Lobster (@lobstertruckdc) hit the streets this month and rolled into my neighborhood today. A coworker of mine went to see what the fuss was about. He waited in line for 40 minutes, came back to the office, ran some errands, and the woman who was behind him in line was still waiting (reference photo below). The funny thing is that McCormick & Schmick's is right around the corner and they sell lobster, albeit not lobster rolls. While a bit more expensive, there wasn't an hour and a half wait. Doesn't economics teach us that life is all about tradeoffs?



But of course there is no novelty and no fun in going to something old and familiar. The lobster truck is successful in part because it is new, but also because it is innovative. Here's a bit of background about the lobster company:

The Red Hook Lobster Pound was founded by Ralph Gorham and Susan Povich. While sitting at their dining table in Red Hook, Brooklyn, devouring fresh lobsters that they had just brought back from a friend in Portland, Ralph proposed to his wife Susan that they open a lobster pound in the empty storefront in the building that they owned, and were unable to develop due to the contracting credit markets.

Given that Susan’s family is from Maine, the idea was not that far-fetched. Ralph and Susan opened the Red Hook Lobster Pound six months later and it became the food success of the year, with people coming from hundreds of miles to sample the freshest lobster in NYC. Ralph drives to Maine each week, to pick out the freshest catch he can find. Susan oversees the lobster roll extravaganza, in 2009, the Red Hook Lobster Pound sold over 15,000 lobster rolls and 15,000 pounds of lobster. RHLP also puts on lobster boils all spring, summer and fall at various friends venues, including bars and restaurants. 2010 looks even better!

And of course, you know the story from there. This is a great example of Kirzner's version of entrepreneurship (background). In contrast to Schumpeter, Kirzner argued that entrepreneurs drive the economy towards equilibrium through arbitrage. In this case, our intrepid entrepreneurs, who were not able to start a different business because of credit constraints, recognized that they had access to a good (Maine lobster) that people couldn't get in NYC.

So they settled all of the tough logistical challenges and soon lucky New Yorkers were eating fresh Maine lobster. In much the same way, our entrepreneurs recognized that DC was also lacking, that is wasn't really that far away, and that it might be feasible, not to mention relatively low cost, to start a food truck here. That's to our benefit of course, and I'm thankful they didn't launch in Manhattan, Philly, or Baltimore first.

In my mind, one of the reasons economists continue to focus so much attention on perfectly competitive markets, however unrealistic they may be, is because the model presents a clear picture of the benefits from consumer surplus that emerge in equilibrium. While the real world is complex and dynamic, entrepreneurs like Ralph and Susan improve our options for consumption, increase competition, thereby limiting monopoly pricing, and generally bring the world closer to some hypothetical perfect equilibrium.

These days it's hard not to skim the blogosphere without hearing about interest rates, the Federal Reserve, quantitative easing, or aggregate demand, but it's important to recognize that while all of this is important, macroeconomists frequently (always?) miss the link between entrepreneurs and growth. Likewise, while our politicians frequently talk about entrepreneurs, few have any real conception of their importance, as Carl Schramm ably noted back in January in his State of Entrepreneurship Address (pdf):

But even when policymakers do speak of entrepreneurship, it is most often in abstract terms—how much entrepreneurs contribute to this or that indicator, as if they were more a statistic than a living, human phenomenon. And even that perspective can’t be taken for granted.

The dominant schools of economic thought in the 20th century downplayed or ignored the role of entrepreneurs, preferring instead to see all economic activity as the creature of three fundamental forces: big business, big labor, and big government. Forgotten in this equation was the fundamental fact that every big company had to start small. There are no Athenas in business, no companies that spring fully formed from the mind of their founder. They all begin with one person and an idea.

That person is an entrepreneur … and the idea is what sets him or her apart from the crowd, what compels him to leave a job, strike out on her own, and take a big risk. When that risk pans out, the result is a fast-growing company, hundreds and possibly thousands of new jobs, new wealth invested in every sector of the economy and spent in every corner of society, and—most fundamentally—a new product, service, or business model. Nearly everything we take for granted in our daily lives today began its own life in this way, as the creation of an entrepreneur. Think about automobiles, air conditioning and, more recently, software and search engines.

The bottom line is that we should all be grateful for the efforts of entrepreneurs like Ralph and Susan. While I'm not going to wait in line for an hour and a half right now, I'm sure that in time demand will settle down (0r they'll get a few more trucks) and I'll be able to enjoy a tasty Maine lobster roll. When I do I'll think about what a wonderful service they're providing, but also about the impacts their decisions will have on our world. At the same time, I'm sure their competitors will also be thinking of ways to poach their clientele. All of this competition, while difficult for producers, makes our world a much better place.

Philanthropy and Wealth Creation

Steven Pearlstein directs some much merited attention towards Phil Auerswald and Zoltan Acs' article in The American Interest from last year. The article discussed the unique role that philanthropy plays in American capitalism. While heaping some praise on their work, Pearlstein spends the remainder of his precious allotment of words on the importance of unions and the government and the hollowing out of the middle class. Phil wrote a very thoughtful follow up on his blog, which you should check out (The Coming Prosperity). Here's part of what caught my attention:

Pearlstein's lament about the hollowing-out of the American middle class--while accurate as stated--misses a bigger trend moving in the opposite direction. The fact is that, on a global scale and using measures that mean more than income, inequality has been shrinking dramatically.

The bigger trend of course is the development of a robust middle class in China, and also in India, and the connection of their populations to global supply chains and to the world stage. As these countries have prospered some of their entrepreneurs have succeeded wildly, just as entrepreneurs like Bill Gates have done here. But this begs the question of what role these new entrepreneurs will play in society. One road is to follow Russia and lock them up (a gross simplification and over generalization, I know). Another path is starting to take shape in China (WSJ Wealth Report):

Bill Gates and Warren Buffett corralled some big names when they released a list of 40 rich donors who pledged to give more than half of their fortunes to charity. But the list was underweight in one area: billionaires outside the U.S.

So the question was a natural one for Li Ka-shing, the Hong Kong billionaire who ranks as one of the richest men in Asia as well as the world. Mr. Li is already a pioneer in this area: In recent years he pledged a third of his wealth to his Li Ka Shing Foundation, which supports Chinese colleges and other causes and was among the first major charitable endeavors of Asia’s new ultrawealthy class.

(similar stories abound). Will China, India and Mexico follow the US example and incorporate successful entrepreneurs into the growing philanthrocapitalist movement or is our case something unique, another element of the American Exceptionalism that Seymour Martin Lipset wrote so eloquently about? There are countless examples of how we might treat the truly wealthy, and we've just touched on a couple of options - and I don't mean arguing about the Bush tax cuts.

But once we start thinking about the role of public policy in an entrepreneurial economy, we really hit on some of the core issues of what it means to be an American (or Chinese, or ...). Our society has a clear story built around success and potential. We believe strongly in equality of opportunity and we take great pride in rags to riches stories, however representative they may or may not be.

As developing countries begin to wrestle with these issues, they will have to define more explicitly what type of society they are and what values they hold dear. Some might go in the direction of Finland or France while others might choose a course more similar to our own. While growth is not inevitable, the rapid success in many parts of the developing world, and the fact that we are even talking about the role of billionaires in these societies, is clearly the most important development of this century.

Interviews with Hayek

GMU folks might enjoy this interview by Jack High of Nobel Laureate F.A. Hayek. There are several other videos in the series, which should appeal to everyone, especially if you want to know a bit more about Hayek than what was in the Hayek vs. Keynes rap video.

Some Reasonable Thoughts on the Stimulus

I normally steer clear of such topics, but Megan McArdle offers some good thoughts:

Wading through the online debates, I note that opinions on stimulus are nearly 100% correlated with the composition of that stimulus, and the opinionator's prior view of that activity. So when Democrats are in power and stimulus is mostly spending, liberals think that the stimulus is an issue of fierce moral urgency stymied by venal greed and rank idiocy, while conservatives develop deep qualms about budget deficits. When Republicans are in power, and stimulus consists mostly of tax cuts, Democrats get all vaporish about deficits and the income deficit, while Republicans suddenly realize that the normal rules don't apply in an emergency. When out of power, both sides will grudgingly concede that some small amount of highly temporary stimulus might be all right, but note (correctly) that the other side seems to be trying to make permanent as much of this "stimulus" as possible.

For me, then, this mostly ends up as a proxy war over the level of government spending, a war I'd rather fight honestly on value grounds rather than attempting to disguise my preferences with a shoddy veneer of "scientific" logic.

Consequences of Entrepreneurial Finance

From the NBER Digest:

Some of the 'softer' features of entrepreneurial financing, such as angels' mentoring and networks of business contacts, may have helped the new ventures the most.

Angel investment groups are an important and growing source of entrepreneurial finance. These groups - which are typically semi-formal networks of high-net-worth individuals - meet regularly to hear aspiring entrepreneurs pitch their business plans before deciding whether to invest in such ventures. In The Consequences of Entrepreneurial Finance: a Regression Discontinuity Analysis (NBER Working Paper No. 15831) co-authors William Kerr, Josh Lerner, and Antoinette Schoar analyze the role of these "angel" entrepreneurial financiers in the success and growth of new ventures. Their approach also exploits breakpoints in the funding process to separate the role of matching (that is, good entrepreneurs pairing with good investors) from the value provided by the angel investors.

What is the ROI from Higher Education?

Bloomberg this morning offers its analysis of this question. MIT comes out on top, with the highest net return on investment (about $1.7 million over 30 years), although it doesn't have the highest annualized rate of ROI. That honor goes to the Georgia Institute of Technology, which has an annualized net ROI of 14.2%. By comparison MIT's is 12.6%.

One story about the relative merit of attending MIT versus a public school with much lower in-state tuition is that entrance is equivalent to purchasing a lottery ticket (Brad DeLong discusses one version of this). MIT students will no doubt find an excellent job upon graduation, but some will find a job that is so excellent that they will soon be millionaires. Presumably the odds of becoming super-rich are higher from one of the elite schools than for one of the bargain schools. Of course, it could simply be that MIT is a great school and offers a superior education or perhaps that students who enroll are more motivated and thus just do better after graduation. Thoughts?

The Big Questions: Health Edition

From the World Policy Journal: "What is the most pressing health issue and how can it be solved?" The intro article offers several answers by a panel of experts (PDF). The TOC for the full issue, which is focused on issues of global health, is here. John Barry, the author of the wonderful The Great Influenza, has a free, ungated article on the next big pandemic (PDF). It is self-recommending, as they say.

Beer and Entrepreneurship...?

"We wanted to celebrate entrepreneurship — and good beer!" That's Rep. Betsy Markey, cited by Tim Haab at Environmental Economics. The broader context is (Politico):

House Resolution 1297, sponsored by Rep. Betsy Markey, supports "the goals and ideals of American Craft Beer Week."

"We've got quite a number of microbreweries and entrepreneurs that are creating jobs, and we wanted to celebrate that this is a craft," Markey told POLITICO.

"I think beer has been a tradition since this country was founded," said Markey.

Is it possible that the term "entrepreneurship" is used too frequently and with too loose an interpretation?

High Growth Firms

There is some great research on the important role of gazelles and young firms in driving growth and job creation. An interesting new study takes another look at some of these results. The abstract:

Prior studies have defined high-growth firms (HGFs) in terms of sales or employment, and analyzed their contribution to employment growth. We define HGFs by employment and sales and add definitions of value added and productivity. We examine the contribution of HGFs to employment growth, economic growth, productivity growth, and sales growth. All HGFs give a disproportionately large positive contribution to economic growth and most also give large positive contributions to growth in employment, productivity and sales. Although HGFs of different definitions are usually not the same firms, young firms are more likely to be HGFs irrespective of definition.

The paper is by Sven-Olov Daunfeldt,Niklas Elerta, and Dan Johansson, and is focused on Sweden. The results seem comparable across countries however.

"The economic contribution of high-growth firms: Do definitions matter?" (PDF)

The Degree Gap

Mark Perry has a great post about the number of female versus male collegiate graduates. One sentence (carpe diem): "For associate's, bachelor's and master's degrees, women will receive 1.823 million college degrees, which will be 571,000 more degrees than men will earn (1.252 million) this year."

The post is fascinating, and it has a link to the underlying data. Do check it out.

Esther Duflo on Randomized Trials

At Ted, Esther Duflo gives an overview of how randomized control trials can help answer questions in public health and education (via Alex Tabarrok).

The State Dept View of Entrepreneurship

Jeff Cornwall has a funny post about an email he recieved from the U.S. Department of State, which reflects, in part, how government thinks about entrepreneurship policy. Jeff is too hard on Josh Lerner, who's done great work on innovation policy, but otherwise it's something to keep in the back of your mind as the President prepares to kick off his Summit on Entrepreneurship.

Say's Law

What is Say's Law? It doesn't matter, Say's Law is Dead. Or maybe it isn't? This should give you a sense for why microeconomists don't much care for macroeconomics.

Randomized Control Trials

Since Professor Duflo is known mostly for her innovative field experiments, perhaps a backgrounder is timely. Interested readers might like to check out, "In Pursuit of Balance: Randomization in Practice in Development Field Experiments," by Bruhn and McKenzie. The article was published in the AEA Journal in Applied Economics last October. The link will take you to an ungated version.

Here is an excellent contrarian take on RCTs.

The 2010 John Bates Clark Award

The winner this year is Esther Duflo, of MIT. Her award is based on her work on randomized control trials. From her bio:

Duflo has been a leader in using randomized field experiments to address important questions concerning public policy in developing countries. In one series of papers, she and various coauthors study the impact of female political leadership on local government spending and attitudes toward women by examining a policy that required one-third of India’s villages, selected at random in each election cycle, to choose a woman as council head. She finds, for example, that villages forced to choose female council heads shift local government spending away from education and towards drinking water and (in some areas) roads. Another series of papers measures the effects of various randomized educational interventions, such as the introduction of teacher aids (local women with some secondary education but no formal teacher training), a computer-assisted math program, reductions in pupil-teacher ratios, ability grouping, various forms of monitoring and incentives to reduce teacher absenteeism, and programs designed to encourage community participation. For example, in work with Abhijit Banerjee, Rukmini Banerji, Rachel Glennerster, and Stuti Khemani, she investigates the effects of three randomly assigned programs targeting community participation. The first informed villagers about opportunities to participate in school governance and monitoring committees, the second trained villagers to use a testing tool, and the third organized literate villagers to hold remedial reading classes for illiterate children. The study concludes that the interventions had no impact on community involvement in the schools, no impact on teacher effort, and no impact on students' achievement in school.

In work with Emmanuel Saez, Duflo has also used field experiments to study issues concerning U.S. pension policy. One article reports the results of a study in which a random sample of employees in some departments of a major university were provided with monetary incentives to attend a benefits fair. The incentives increased attendance of both the targeted employees and employees in the same departments who were not targeted, and significantly raised enrollment in tax deferred accounts for both groups. Thus, the effects of the intervention appear to have been ransmitted through social channels.

Her website is here and her papers are here.

Entrepreneurial Policy

Dane Stangler writes (Growthology):

Policymaking around entrepreneurship is evidently not clear-cut as there is still quite a bit we do not understand regarding startups. In the coming weeks we will try to explore these questions and illuminate the world of startups for policymakers. We’ll start with the lowest-hanging fruit of all, though one that may seem like poison to some in Washington: immigration.

The rest of the post is focused around brain circulation, which deserves more attention than simply talking about brain gain or brain drain. Stay tuned for the rest. Dane, Tim and the other bloggers do a great job with Growthology and it remains one of my favorite blogs.

Searching for Entrepreneurial Solutions

“The people who make all these decisions don’t live like the way I do,” Mr. Mann added, echoing other uninsured people in his income group. “They don’t live like the rest of us.”

From the NYT. This was in reference to the new health care bill, but it immediately reminded me of the Millenium Villages and a professor in New York. From Owen's blog:

O&G: What is it like being a Millennium Village?
Shopkeeper: Very good. We have lots of things.
O&G: Does everything work well?
Shopkeeper: No, not all of it. But we are much better off now.
O&G: Who decides what to change? Do you have a village council, or is there an Elder who decides?
Shopkeeper: It is all decided by a Professor in New York.
O&G: Really? Do you know his name?
Shopkeeper: No. But he is a very famous man

And obviously we can extend this line of reasoning into many different policy areas. It's good there are people out there making the case for entrepreneurs.

C.K. Prahalad

HBR is running a nice page of rememberance for Dr. Prahalad, author of The Fortune at the Bottom of the Pyramid, among other famous works. They provide links to obituaries and to some of his columns for the HBR, many of which are free. Dr. Prahalad passed away last Friday at the very young age of 68.

Wise Words

If solutions are known, need $$. If solutions are knowable, need evaluations. If solutions are evolving, need entrepreneurs.

That's the punchline to an excellent post about Jeff Sach's work, from @auerswald's blog, The Coming Prosperity. He's been promising some new posts on entrepreneurship in connection with the Skoll World Forum, so check over there in the next few days.

The Labor-Leisure Tradeoff

From the Times:

AN overseas holiday used to be thought of as a reward for a year’s hard work. Now Brussels has declared that tourism is a human right and pensioners, youths and those too poor to afford it should have their travel subsidised by the taxpayer.

See the rest of the story. Every day I respect Seymour Martin Lipset a little more that I did the day before.

Handbook of the Economics of Innovation

A handy reference for innovation/entrepreneurship scholars. It is the latest in Elsevier's Handbook Series. The newly released two volume set is packed with great articles, but at almost $250 on Amazon, it's really suited for specialists in the field (those with lots of grant money). But look for it at your nearest university library, if it's not your immediate field and you have an interest.

It is edited by Bronwyn H. Hall and Nathan Rosenberg, two leaders in the field. Check it out.

Digital Learning

According to the Association of American Publishers (pdf), e-book sales accounted for about 1.3 percent of total net sales in 2009. This is basically a rounding error, but what is interesting is how fast this sector is growing. Granted, it's from a small sales base, but the e-book category grew at about a 71 percent compound rate between 2002-2009.

The closest category was Higher Education, which increased 5 percent over the same time period. Even if the growth rates of e-books slow substantially, they look set to overtake sales from book clubs, which are declining in $ output, in just a few years. Some numbers below:

E-books sales: $ value (w/growth rate in parentheses)
2002: $7,337
2003: $19,772 (169.5%)
2004: $30,271 (53.1%)
2005: $43,832 (44.8%)
2006: $54,396 (24.1%)
2007: $67,233 (23.6%)
2008: $113,220 (68.4%)
2009: $313,167 (176.6%)
71.0% (cumulative growth rate)

See the short pdf for a table with the other categories. Additional coverage in the NYT and elsewhere.

The NYT also surveyed the current state of digital learning this weekend, in case you missed it. See here for starters. Lots of big ideas and hopes in this space, but so far I see little entrepreneurship, and what little there is, such as private online edu, seems to garner lots of animosity. It's all fascinating though.

Immigration, Innovation, and the Time to Publish

About two years ago we talked about a new paper by Jennifer Hunt entitled, "How Much Does Immigration Boost Innnovation." That paper has now been published, with a new coauthor, in the AEA journal on Macroeconomics. You can find the abstract here, and you can see our previous post for the ungated working paper version.

Congratulations to Donald Marron

The Tax Policy Center, a joint venture of Brookings and the Urban Institute has hired Donald Marron to be its new director. This is great news for both Donald and the organization. Hopefully Donald will maintain his blog when he assumes his new job duties in May. It is a great source for solid economic analysis. Donald has now served as the director of quite a prestigous list of acronyms here in DC: JEC, CEA, CBO, and now TPC. On a more personal note, you can read about his near brush with Somali pirates on his personal travel blog. Once again, congratulations.

On the Upcoming Nomination to the Supreme Court

Tim Kane wonders why there are no economists on the Supreme Court (Growthology):

There are nine justices, and nowhere in the Constitution does it say that a law degree is a qualification. Yet, what we have now is a monopoly of lawyers on the Court. A monopoly. All I'm suggesting is that a mere one of the nine have an economics degree. And to assuage the fears of the status quo, a nominee with dual degrees would be more than fine. My own colleague, Bob Litan, has a Ph.D. in economics from Yale AND a law degree from Yale.

The problem is even more concentrated than Tim lets on. This morning CQ Today had an article focused on why recent nominations have all been federal appellate court judges. Senate Judiciary Chairman Patrick J. Leahy has been pushing for a bit more competition in the selection process. From the article, which is gated:

In 1960, for example, the court included a former governor, an ex-senator, a law professor, a former U.S. attorney general, a former state judge and a former head of the Securities and Exchange Commission. As recently as 1971, Republican President Richard Nixon nominated a pair of non-judges, Lewis F. Powell and William H. Rehnquist, to the court at the same time.

But the trend toward selecting federal appellate judges, which began under GOP President Dwight D. Eisenhower, has accelerated in the past 30 years, said Lee Epstein, a Northwestern University law professor.

Perhaps Tim is right and we need more competition from other fields, but maybe even a different composition of lawyers would lead to more diversity of thought and perhaps even results that would be more agreeable to economists. The economomic analysis of the law has been around for some 50 years (often dated from Coase/Calabresi in 1960s) and I see no reason why someone with this background should be excluded from the Supreme Court, although I can't say that having vocal ideas on these issues will help anyone get appointed, since we seem to be fairly risk averse these days.

But by the same token there is no reason we shouldn't consider someone with a strong focus on science and technology and innovation policies more broadly. Perhaps the question is why we end up with so many generalists and so few specialists. Anyway, the basic principle is that innovation is generally good, even in non-high tech areas. So maybe Tim's call will get some traction.

The Valley of Death

There are a lot of interesting components to the recent health care bill, once you go looking in the weeds. From FasterCures:

Medical research leaders and patient advocates yesterday participated in a forum that spotlighted the Cures Acceleration Network (CAN) provision of the Patient Protection and Affordable Care Act signed into law by President Obama on March 23, 2010. Speakers and participants were eager to discuss CAN and its potential to transform the medical research enterprise by supporting efforts specifically designed to bridge a gap in the therapeutic development pipeline between basic and clinical research.

Senator Arlen Specter (D-PA) introduced CAN to bridge this gap, often referred to as the “Valley of Death,” where research lies dormant and ideas come to a halt because the necessary next steps to take basic research discoveries and turn it into a safe and effective therapy are not taken. The forum was convened by Parkinson’s Action Network and FasterCures.

Forum on Social Entrepreneurship

McKinsey & Company has a special "What Matters" dedicated to social entrepreneurship. Currently there are six writers and it's expanding. They are all top names. A couple to check out would be Bill Drayton's essay entitled, "Tipping the world: The power of collaborative entrepreneurship," Sally Osberg's piece, "Driving change: It's not just about size," and J. Gregory Dees, "Creating large scale change: Not 'can' but 'how'." But do check out the rest.

Tap Tap

In Praise of Partisanship

Mark Harris writes in praise of partisanship in his latest column for Entertainment Weekly (don't laugh, it's one of Tyler Cowen's favorite magazines). Along the way Harris discovers public choice theory from watching Parks and Recreation. The show's heroine, Leslie Knope, played by Amy Poehler (not yet online) :

[...] loves the idea of elected office; she thinks ambition is cool; she has a bedrock conviction that politics itself is awesome. Sadly, her day-in, day-out decision-making is somewhat hindered by the fact that she has absolutely no coherent ideas or belief in any particular policies except the ones that might allow her to keep her office or make people like her. Leslie occasionally remembers to mouth some garbled syllables about public service and making the world a better place. Mainly though, she's just terrified of losing the gig. Also, she wants to be president.

The idea that politicians are motivated by self-interest and are primarily concerned with their next election, or that they care more about keeping their job than searching for entrepreneurial solutions to challenging problems is often dismissed as a deeply cynical view of the world. It is, however, not so far off, and it's nice to see that the show apparently throws public choice theory front and center.

As a disclaimer I should add that I am not one of the six or seven people that actually watch the show.

Social Entrepreneurship in the Middle East

Just when I write that there are few examples of social entrepreneurship in the Middle East comes this press release about the Acumen Fund working with Saudi Arabia's King Khalid Foundation (MENAFN):

Jeddah, 31 March 2010: Social enterprises -businesses that provide goods and services to undeveloped segments of the society - are increasingly recognized as effective tools against poverty. Saudi Arabia's King Khalid Foundation - a Royal foundation, established in 2001 to make a positive impact in people's lives by providing innovative solutions to critical social and economic challenges in Saudi Arabia - and Acumen Fund - an international not-for-profit venture fund that invests in enterprises delivering critical goods and services to low-income customers - are partnering to recruit a Saudi national for Acumen Fund's Fellows Program. Fellows receive an opportunity to work with high impact social entrepreneurs for one year.

via @auerswald.

Clay Shirky on Incumbency

From Principled Innovation:

Earlier this week at the South by Southwest Interactive (SxSWi) conference in Austin, Here Comes Everybody author Clay Shirky told attendees, “institutions will try to preserve the problem to which they are the solution.” The relevance discussion feels like a reflexive institutional response to the loss of control associations have experienced over the last 20 years as their stakeholders have become less dependent on them for access to information, education and connections. We may say we’re searching for fresh answers, but it is not clear to me that we are willing to ask different questions.

Searching for Social Entrepreneurship in the Middle East

"Fewer than 10 percent of Muslims in the West Bank have checking accounts." That's a pullquote from a new article in the World Policy Journal (pdf) on microfinance and the Muslim world. The article focuses, in part, on the efforts of Reef Finance ("rural" in Arabic), a microfinance organization based in Ramallah, Palestine. There are few good examples of entrepreneurship, let alone social entrepreneurship in the Middle East, so this is a bigger story than it might look at first glance. (The interested reader should also see the profile of Sekem in Innovations).

Check it out. The summary:

These efforts described here are still quite new, but so far, they seem to be working for both financiers and rural Palestinians. So, while the amount of funds being loaned may be relatively small, the goals are anything but. Building a sustainable economic foundation in the rural West Bank is a powerful inducement to keep young men off the streets, and a big step forward in the march to a lasting peace in the Middle East. If international aid efforts are to be focused on this particular goal, a dramatic expansion in shariah-based microfinance is likely to bear enormous dividends, far beyond any immediate economic impact.

Congestion Pricing

Matthew Yglesias offers up another reason to support congestion pricing and sees some form of road pricing as inevitable:

As I said before, someday people are going to look back on the Unpriced Road Era and be baffled. Then someone will point out that for the first several decades of the relevant period, the technology simply didn’t exist to do the tolling in a feasible way. That created an unpriced road status quo, which became extremely psychologically powerful for years after the unpriced road model had become technologically obsolete.

I actually wrote a paper about this topic a couple of years ago and even made up a cute acronym for the legislation that would make such pricing a reality. Our goal was to think of a policy that is not currently in place but would be in 100 years and that a future society would find inconceivable that we didn't have said policy in our dark early days. Apparently the professor only wanted us to write about gay marriage, which she mentioned frequently, because she found my topic very boring and dull. I'm glad Matt doesn't agree.

R&D Funding

From the Science and Engineering Indicators: 2010. This came out back in January but I'm just getting to it. You can find plenty of other coverage elsewhere (start here). What's immediately obvious is that the share of funding for R&D from the government has shrunk from a high of about 65% in the 1960s to about 25% in 2008. The other striking change is the increased share from business. I didn't label three other categories, universities and colleges, nonfederal government, and other nonprofit, which together make up about 6% of funding.

A few clarifying points are in order. First, total expenditures have grown over this entire period and for all groups. It is not the case that private funding is somehow crowding out public funding, even if it looks like this from the graph. The government increased its funding of R&D in almost every year since 1953 (as far back as the data go). But the growth rate from business investment has been higher. Thus, even though R&D funding from business started off with a smaller base ($2.2 versus $2.7 billion), by 1980 private investment passed government and the gap has widened ever since.

Despite the shrinking share of funding, government policy is important, and government politics even more so. So here's a simple reform, to make this post policy relevant. Rather than waiting until the end of the year, as they did in 2009, perhaps Congress could approve an extension to the R&D tax credit in a more timely manner. Uncertainty seems to be the word de jour, but it is applicable. Unfortunately, in the midst of a recession, policy uncertainty shouldn't be what we're talking about all the time. This is a simple legislative act, which would improve planning and reduce uncertainty.

Even better of course would be to just pass a permanent extension of the credit and be done with it. Forget budget dilemma's over how to offset the cost with payfors. Just count higher GDP as the offset and move on.

On a related note, interested readers might want to check out the Economist's recent conference on innovation:

The Economist believes that the world is governed by ideas. Because human progress relies on the advancement of good ideas, we are launching a new series of events that brings together top thinkers from around the world to discuss and debate the most important ideas of our time. By focusing on Innovation, Intelligent infrastructure, and Human Potential, we imagine an ecosystem where good ideas move from concept to implementation, fueled by the power of human ingenuity, and only the best survive. Welcome to the Ideas Economy.

Some good writeups from IBD here and here.

Pulling in Multiple Directions

We've mentioned this before, but government to government aid is about much more than just poverty reduction. The latest example of this is the cybersecurity bill that is winding its way through Congress. From the new new internet:

A broader proposal that is gaining political momentum would create a cyber post at the State Department and establish cybersecurity attachés at U.S. embassies. It would also mandate that the State Department identify countries that are havens for cybercrime and which ones are doing little to combat it. The findings, updated annually, would be used to prioritize foreign-aid programs to combat cybercrime, but countries that fail to make progress fighting cybercrime could also face U.S. penalties. The president would have a variety of options to sanction noncompliant nations—from limiting new foreign aid to restricting financing from the Overseas Private Investment Corp., a U.S. agency that helps U.S. businesses invest overseas.

When we tie foreign aid to specific reforms, we are using a carrot and stick approach. But there are limits to how many reforms we might request. We might give money conditional on fiscal policy reforms, or changes to a country's regulatory structure - and sometimes we lend with no conditions. By tying foreign aid to cybersecurity we are affirming our belief in this important goal, but at the same time tying our hands in other areas. We are, in a very real sense, trading off economic reforms for security. This may be optimal, but we should account for these changes when looking at the effectiveness of foreign aid in alleviating poverty. Simply put, foreign aid isn't, and hasn't been for a very long time, simply about improving living standards. For that, we need entrepreneurs.

A Few Things

I've been negligent in posting but there have been a number of positive developments that are worth celebrating. So the good stuff, in no particular order:

1. Fazle Abed, founder of BRAC, was knighted by the Queen. This was a wonderful honor and it was bestowed on one of the most humble men alive. See the economist for coverage and then check out Sir Fazle Abed's recent article in Innovations, entitled, Beyond Lending: How Microfinance Creates New Forms of Capital to Fight Poverty (pdf). His name should be as well known as Nobel Laureate Muhammad Yunus.
   
2. David Miller has a new blog - don't worry, it's not replacing Campus Entrepreneurship - covering Under Armour and its founder, Kevin Plank. See this post for more details, and here is his new blog, Under Armour Files.
3. Speaking of David, he links to a great article at Techcrunch from Vivek Wadhwa on whether entrepreneurs can be made. See David's writeup for more.
   
4. The latest from Xavier Sala-i-Martin, African Poverty is Falling...Much Faster than You Think! (PDF), and the gated NBER version.

2010: The Year of Innovation

Thomas Friedman issues the call, which should be shouted from the rooftops (NYT):

What the country needs most now is not more government stimulus, but more stimulation. We need to get millions of American kids, not just the geniuses, excited about innovation and entrepreneurship again. We need to make 2010 what Obama should have made 2009: the year of innovation, the year of making our pie bigger, the year of “Start-Up America.”

The Coming Prosperity

Phil's (@auerswald) latest blog, "The Coming Prosperity" is up. Check it out. The précis:

In our lifetimes the majority of the world's population will join the global economy. This is not just a good thing. It is the biggest and best development in human history.

But progress toward global prosperity is not inevitable. The very magnitude of the changes already in process and those to come creates significant obstacles to their realization. The choices that each of us make will determine the extent and reach of the coming prosperity, and our part in it.

This blog, and a book I am writing by the same title, is about the coming prosperity and the opportunities it creates for each of us to make the most of humanity's moment.

Start with his lead post, The Coming Prosperity.

The Invention of Enterprise

The new edited volume by David S. Landes, Joel Mokyr, and William Baumol will be out next week. Most edited volumes aren't interesting, but this is a different story and fills a void. I haven't read it but it is self-recommending. The full title is: The Invention of Enterprise: Entrepreneurship from Ancient Mesopotamia to Modern Times, and it is part of the Kauffman Foundation Series on Innovation and Entrepreneurship. Pre-order now. Chapter 1 is available from Princeton University Press (pdf). Here is the table of contents and here is a brief abstract:

Whether hailed as heroes or cast as threats to social order, entrepreneurs--and their innovations--have had an enormous influence on the growth and prosperity of nations. The Invention of Enterprise gathers together, for the first time, leading economic historians to explore the entrepreneur's role in society from antiquity to the present. Addressing social and institutional influences from a historical context, each chapter examines entrepreneurship during a particular period and in an important geographic location.

The book chronicles the sweeping history of enterprise in Mesopotamia and Neo-Babylon; carries the reader through the Islamic Middle East; offers insights into the entrepreneurial history of China, Japan, and Colonial India; and describes the crucial role of the entrepreneur in innovative activity in Europe and the United States, from the medieval period to today. In considering the critical contributions of entrepreneurship, the authors discuss why entrepreneurial activities are not always productive and may even sabotage prosperity. They examine the institutions and restrictions that have enabled or impeded innovation, and the incentives for the adoption and dissemination of inventions. They also describe the wide variations in global entrepreneurial activity during different historical periods and the similarities in development, as well as entrepreneurship's role in economic growth. The book is filled with past examples and events that provide lessons for promoting and successfully pursuing contemporary entrepreneurship as a means of contributing to the welfare of society.