Schumpeter's Century

The Coming Prosperity

2012-01-10T10:11:00.004-05:00

New book by Philip Auerswald, and the subtitle is: How Entrepreneurs are Transforming the Global Economy. You can preorder at Amazon. Doing so affects the publishers decision to print more or fewer copies of the book, so if you think it's interesting, order now.

Phil has started blogging the book. Here's one discussion on fear (Ch. 13), from his section on what's ahead for America.

Here's a talk he gave on the Hill, summarizing some of the main points behind his approach.

Publication of NoVa Clean Energy Economy Report

2011-08-05T16:49:00.002-04:00

Produced by GMU's David Hart and a small team. Some details:

The Clean Energy Report represents an effort by a small group at the George Mason University School of Public Policy to estimate the size and sketch the contours of the “clean energy economy” of northern Virginia. It is, by any definition, a rough draft. We relied on publicly available data in order to identify firms, government agencies, and other organizations that contribute to improving the region’s energy efficiency and expanding its renewable energy use. We have sought to make our methods and findings as transparent as possible.

The report and additional info are here. The authors are currently seeking feedback so if you want to help out take a look and see what, if anything, they're missing.

xkcd on standards proliferation

2011-07-22T14:13:00.003-04:00

Schumpeter in Africa??

2011-06-15T11:17:00.011-04:00

Few people will contest the assertion that most of the entrepreneurial growth in this century will take place in BRIC countries (actually mostly India and China).

But Africa?? Africa, we hear, has too many little nondescript inchoate domains with a big-man at the top calling themselves nation states, while still struggling to curve a synthetic national identity out of the vestiges of a colonial past.

I argue that all that is changing; has changed.

Africa is democratizing, Africa is integrating. Africa is growing up.
The so-called “Arab Spring” is in fact the tail end of a long African Summer.

The newest of the regional integration programs is COMESA-EAC-SADC Tripartite Summit. The Tripartite is an umbrella organization consisting of three of Africa’s Regional Economic Communities (REC’s), namely: the East Africa Community (EAC), the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC).

COMESA-EAC-SADC Tripartite Summit will focus on expanding and integrating trade and include the establishment of Free Trade Areas (FTA’s), Custom Unions, Monetary Unions and Common Markets, as well as infrastructure development projects in transport, information and communications technology and energy.

With more than 527 million people and a Gross domestic product (GDP) of approximately 624 Billion US Dollars, the 26 member countries of the Tripartite make up 57% of the population of the African Union (AU) and just over 58% in terms of contribution to GDP.

Africa: 53 Countries, One Union – The New Challenges conference

2011-06-15T09:40:00.012-04:00

‘Africa: 53 Countries, One Union – The New Challenges‘ conference will take place in Washington, DC on June 15 and 16, 2011.

Download the preliminary Conference Program

The main objective is to offer to senior policy makers and experts the opportunity to discuss the relevance of regional and continental integration in the solution of major African problems, including those generated by recent developments which now challenge our concepts of freedom and democracy.

The Conference will focus on the roles of the United Nations, African Union, European Union and the United States and China governments. International organizations such as the World Bank, African Development Bank, World Trade Organization, and Economic Commission for Africa will also be involved.

Some Growth

2011-06-13T11:43:00.004-04:00

We're pleased to introduce the newest contributor to our blog, Jeremiah Mitoko, a PhD student at George Mason's School of Public Policy. He will be writing about entrepreneurship, development, investment, and microfinance in Kenya and Sub-Saharan Africa more broadly. We look forward to many new and exciting posts from Jeremiah.

The Silicon Valley of the East

2011-06-10T09:33:00.003-04:00

From a supplement to National Journal (NJ), also reposted on the Atlantic's site, with a different title (Atlantic):

Fairfax County is home to a quarter of all immigrants in metropolitan Washington and to 40 percent of the area's foreign-born Indians. It's no wonder that on a recent Thursday night at Worldgate Centre, a strip mall one block north of the Dulles Toll Road, almost 20 South Asians--mostly young families or groups of young men--streamed through the glass doors in just a matter of minutes to catch a movie.
KiranTeja Chadalawada was with friends on his way to see the Telugu-language film 100 Percent Love. A 22-year-old immigrant from southern India who is pursuing a master's degree in telecommunications at George Mason, he moved to Fairfax County in 2009 for school because a friend from India recommended it. "A senior from college was studying here and said it was a great [place] to learn and get an internship," Chadalawada said. After racking up a few years of experience in Virginia, he hopes to start a company of his own--but not in Virginia: He and his pals "are looking to go back to India," he said.
Increasingly, the members of the next generation of Indian entrepreneurs are looking to the East. They feel pulled by India's economic vigor and also pushed out by the daunting rules for U.S. visas. Advocates of immigration find it foolish to force smart, ambitious people to leave the United States simply because they were born elsewhere, especially after American taxpayers have invested so much in educating them.
"These guys create jobs," said Michael McVicker, an immigration lawyer whose Reston, Va., office is near the Dulles Toll Road. "They've created jobs for thousands of people, the vast majority of whom are Americans."

It was time for immigration reform a long time ago, but now is a fine time to get started.

Science Progress

2011-05-05T14:05:00.004-04:00

A couple of FB friends have posted links to articles on Science Progress in the past couple of days, so I figured they're worth passing along here.

The first article covers elementary school teachers and the crisis in STEM education:
Prospective teachers can typically obtain a license to teach elementary school without taking a rigorous college-level STEM class such as calculus, statistics, or chemistry, and without demonstrating a solid grasp of mathematics knowledge, scientific knowledge, or the nature of scientific inquiry. This is not a recipe for ensuring that students have successful early experiences with math and science, or for generating the curiosity and confidence in these topics that students need to pursue careers in STEM fields.
The second covers data driven vs hypothesis driven research:
the change in approach is this: Instead of designing an experiment to test a defined, preconceived hypothesis, researchers first amass large banks of information and then wade through them with the aid of powerful computers to unearth biologically pertinent findings.
I'll add a third article, to make this a nicely numbered list. "Waves of Innovation" discusses innovation cycles:
In As Time Goes By: From the Industrial Revolutions to the Information Revolution, a seminal work in cliometrics—the study of economic history—Chris Freeman and Francisco Louçã use historical data on technological advances, economic structure, salaries, and political unrest to derive a clear pattern linking innovation to the performance of the economy. These generational cycles of invention, expansion, and depression are called “Kondratiev waves” in honor of Nikolai Kondratiev, the Russian economist who first postulated their existence.

Some Links

2011-04-27T13:25:00.003-04:00

Lessons From 175 Years of Innovation, in Fortune (via @TheBIF). A profile of Proctor & Gamble's Connect & Develop program and P&G's emphasis on open innovation. Here is an HBR study by two researchers within P&G.
For academic types, SSRN's CiteReader is pretty amazing. Check out a project update here.
Francis Fukuyama has been out promoting his latest book, The Origins of Political Order: From Prehuman Times to the French Revolution. He spoke at SAIS on Monday and the video is below.
Banerjee and Duflo's piece in Foreign Policy has been getting tons of press, befitting two scholars of their stature. Worth a read.

Frontier Economics

2011-04-14T09:56:00.003-04:00

Brink Lindsay at Kauffman has a new paper titled Frontier Economics: Why Entrepreneurial Capitalism is Needed Now More than Ever (pdf). The gist is that, "the changing nature of economic growth means that prosperity is actually more, not less, reliant on free, competitive markets." And:

The richer nations get, the more they "rely on innovation to keep growth going – and, therefore, the more we need free-market policies that foster the creation of new businesses and the implementation of new ideas," Lindsey said in the report. "If we are to rise out of the current slump and launch a new, 21st-century boom, it is in the direction of freer, more competitive markets that our policies must turn."

The role of the frontier has been studied by Zoltan Acs and David Miller as well, although their conception is slightly different (see here for starters). Hopefully David will read the paper and offer his thoughts, although I imagine, like me, he'll mostly agree with the main ideas.

The Information Economy

2011-03-24T12:45:00.003-04:00

From Google's new magazine/book, Think Quarterly:

In 2010, the human race created 800 exabytes of information, from tweets and Facebook updates to PowerPoint presentations and photographs. That’s 800 billion gigabytes, or the amount of data you can fit on 75 billion 16-gig iPads. To put that into context, between the dawn of civilisation and 2003, we only created five exabytes; now we’re creating that amount every two days. By 2020, that figure is predicted to sit at 53 zettabytes (53 trillion gigabytes) – an increase of 50 times.

The rest of the article is about Hal Varian, Google's 441st employee and Chief Economist.

For those in DC, James Gleick is talking about his newest book, The Information, at Politics and Prose at 7 pm. Here's one positive review. I've read the first chapter and so far it is very good.

Reinvisioning High School

2011-03-15T14:09:00.005-04:00

By now we all know the Amy Chua story (WSJ):

Western parents try to respect their children's individuality, encouraging them to pursue their true passions, supporting their choices, and providing positive reinforcement and a nurturing environment. By contrast, the Chinese believe that the best way to protect their children is by preparing them for the future, letting them see what they're capable of, and arming them with skills, work habits and inner confidence that no one can ever take away.

In today's NYT, Susan Engel reports on a small group of students who created their own high school curriculum. Despite Chua's depiction, the American school system provides students with virtually no say in curriculum development. Maybe some lazy Western kids will do a school play or have a sleepover, but it rarely occurs to educators to ask students what they want to read and study; there is simply no individuality in American education. As Engel writes (NYT):

The students in the Independent Project are remarkable but not because they are exceptionally motivated or unusually talented. They are remarkable because they demonstrate the kinds of learning and personal growth that are possible when teenagers feel ownership of their high school experience, when they learn things that matter to them and when they learn together. In such a setting, school capitalizes on rather than thwarts the intensity and engagement that teenagers usually reserve for sports, protest or friendship.

It's also worth going back to her article from last year, Playing to Learn, for another interesting take on education reform.

How Seriously Should We Take the Coase Theorem?

2011-02-17T10:09:00.003-05:00

Economist Ed Glaeser, in Triumph of the City, writes:

Cities should replace the current lengthy and uncertain permitting process with a simple system of fees. If tall heights create costs by blocking light or views, then form a reasonable estimate of those costs and charge the builder appropriately. If certain activities are noxious to neighbors, then we should estimate the social costs and charge builders for them, just as we should charge drivers for the costs of their congestion. Those taxes could then be given to the people who are suffering, such as the neighbors who lose light from a new construction project.

Planetizen's response (I took the above quote from them as well) sums up the animosity against Coase: "But should developers be able to build whatever they want by giving a one-time payout to the neighbors? That sacrifices comprehensive, intentional planning for a one-time infusion of cash, and later generations may not thank us."

The fact that it sacrifices comprehensive planning is, of course, precisely Glaeser's point. There are generational issues to consider, and how you price the present value of perpetuities can be complicated, but the proposal shouldn't be dismissed outright. Just further proof that the Coase Theorem is an economic idea that's hard to popularize.

The Dispersion of Hourly Wages

2011-02-16T17:12:00.006-05:00

CBO just issued a report, Changes in the Distribution of Workers' Hourly Wages Between 1979 and 2009, that contains some interesting data on the economic return to education (Summary, Full Report, blog post), which is pretty easy to see the in the figure below:

Can we Hope for Stable Democracy in Egypt?

2011-02-11T14:11:00.006-05:00

As a back of the envelope guide, here's a quick check. According to Przeworski, et al (1996):

If a country, any randomly selected country, is to have a democratic regime next year, what conditions should be present in that country and around the world this year? The answer is: democracy, affluence, growth with moderate inflation, declining inequality, a favorable international climate, and parliamentary institutions.

More specifically:

Poor democracies, those under $1,000, have a 0.22 probability of dying in a year after their income falls (giving them a life expectancy of less than five years) and a 0.08 probability (or an expected life of 12.5 years) if their income rises. Between $1,000 and $6,000--the middle range--democracies are less sensitive to growth but more likely to die if they stagnate: they die at the rate of 0.059 when they decline, so that their expected life is about 17 years, and at the rate of 0.027, with an expected life of about 37 years, when they grow.

Egypt's per capita GDP is estimated at just over $6,000 for 2010.* Therefore, if the transition goes okay over the next few months and genuine, contestable elections are held in the fall, the prospects for continued democratic rule don't look too bad. This is especially true if the new government is able to tap into the large pool of skilled labor and create the opportunities for entrepreneurship and innovation that their people deserve.

* I have not adjusted the data for inflation. Przeworski et al use annual per-capita income, expressed in purchasing power parity (PPP) U.S. dollars in 1985 international prices, as given by version 5.5 of the Penn World Tables. I simply looked up per capita GDP in current international prices, so the data may overstate Egypt's prospects a bit. The IMF maintains the most recent data, available here.

What can we know?

2011-02-10T11:17:00.003-05:00

Recent events in Egypt (#Jan25), Tunisia and Jordan remind us that human behavior makes prediction possible over certain dimensions, but not others, such as time. To wit, here are a few great minds on the inevitability of the Egyptian protests:

“The events of the past two weeks in Egypt were not a surprise, but no one could have predicted the timing,” said Osman, one of a few authors whose new Egypt-related books come at a fortuitous time. “A socio-political eruption in Egypt, from within the middle classes, led by the youths, was inescapable."

“I have much to say, and the last chapter in my book talks about my view that neoliberal Cairo under Mubarak is a like a bomb in the tomb of a longer Egyptian history,” AlSayyad wrote in an email. “I predicted in the ‘Cairo’ book, as well as in my ‘The Fundamentalist City’ book released back in November, that it will ultimately detonate. I just could not have expected it to happen so soon.”

Both quotes come from this piece in the Washington Post. And from Twitter, we get the succinct (@auerswald):

How predictable was #Egypt #Jan25? Put heat on, water will boil. Seal lid, pot will explode. Moment unpredictable. Outcome not.

Also see this longer post, which includes a great quote by Gregory Bateson. The CIA expressed similar views (Wired). The inevitability of human freedom has become a resurgent topic given recent events and it is a theme we will explore in future posts.

2010 State Technology and Science Index

2011-01-27T13:50:00.003-05:00

From the Milken Institute. The subtitle is: Enduring Lessons for the Intangible Economy. The background:

The 2010 State Technology and Science Index looks at 79 unique indicators that are categorized into five major components: Research and Development Inputs, Risk Capital and Entrepreneurial Infrastructure, Human Capital Investment, Technology and Science Work Force, and Technology Concentration and Dynamism. It is one of the most comprehensive examinations of state technology and science assets ever compiled.

The top 10 (with previous index rankings in 2008):
1. Massachusetts (1)
2. Maryland (2)
3. Colorado (3)
4. California (4)
5. Utah (8)
6. Washington (5)
7. New Hampshire (9)
8. Virginia (6)
9. Connecticut (7)
10. Delaware (14)

The report and executive summary can be found here.

Celebrating Entrepreneurship

2011-01-21T17:22:00.004-05:00

If you think the Lemelson Center for the Study of Invention and Innovation is a national treasure that should be expanded and scaled up, then you might want to support The Center for Entrepreneurship and Innovation (@InnovationontheMall). The organizers:

... propose that a new Center for Entrepreneurship & Innovation on the National Mall occupy the now vacant Arts & Industries Building. The Center would restore the building’s original mission: to showcase to the public and encourage excitement about understanding the concepts underlying innovation and the process of invention.

The original purpose of the Arts & Industries building, to showcase and celebrate American ingenuity, will be adapted fluidly for a new mission. Exhibits, educational programs, and convenings will catalyze and convey transformational new ideas creating value for society.

Check it out and spread the word!

Innovation and Competition

2011-01-21T16:45:00.005-05:00

Here in DC it is restaurant week, which can be a fun time of year. Normally high priced restaurants offer a three course fixed price (pre fixe if you must) menu for the comparably affordable price of $20/35 for lunch/dinner. I've been looking for a few good vegetarian options since my wife has been a lifelong vegetarian. Flipping through OpenTable's listing I was struck by how little innovation there is in the food industry at the moment.

First, I should say that it is nice that so many restaurants do offer at least some semblance of a veggie option, however the clustering was kind of shocking. Virtually every restaurant, almost regardless of the type of cuisine, is offering a mushroom risotto for its main course. Nothing against this, but would you really want to eat at six different fancy restaurants in search of the perfect mushroom risotto?

This isn't limited solely to vegetarian food of course. Virtually every self-respecting haute cuisine restaurateur is offering a beet salad now. It hits all the trendy points: it's seasonal, local, and in most cases organic. Since chefs are a transient lot they tend to incorporate many of their competitors' best dishes into their new restaurants, with a few modest modifications to avoid allegations of outright theft. Think pork belly too, which is now on the wane but was a de facto requirement on restaurant menus just a bit ago.

What's interesting from an entrepreneurial standpoint is that this situation is only a temporary equilibrium. It won't be long before some enterprising restaurateur recognizes the lack of novelty in restaurant menus today and will come up with something new and great. Or new and terrible - the restaurant industry is nothing if not volatile. Even at a small, local scale, entrepreneurial vision drives change and improves and enlarges the options that we as consumers can choose from. Or to borrow a phrase (thecomingprosperity):

... sustained prosperity depends on novelty. It depends on invention in the face of change. It depends on creativity with limited resources.

More fundamentally--most fundamentally--sustained and sustainable prosperity depends on entrepreneurs.

Some Recent Articles on Innovation

2011-01-17T20:30:00.003-05:00

David Warsh's latest article on Economic Principals asks whether a new round of technical innovation can tackle problems of climate change. He answers this by reviewing the contributions of previous innovation theorists like Nelson, Rosenberg, and Arrow. Worth a quick read.

Elsewhere, the Minnesota Fed's quarterly publication The Region has an interesting survey article on the relationship between trade and innovative capabilities:

“For the last decade or so, the idea that international trade might have extra benefits because it stimulates innovation by firms that export has been a strongly held view among economists,” observed Minneapolis Fed consultant Andy Atkeson in a recent interview. “But what we’re finding, in fact, is that these ‘extra benefits’ don’t really exist.”

The Latest from Hans Rosling

2010-12-03T11:51:00.002-05:00

Via Donald Marron

Making a Failure

2010-11-24T11:49:00.002-05:00

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

2010-10-13T01:09:00.003-04:00

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

2010-09-28T15:02:00.004-04:00

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

2010-09-28T10:17:00.004-04:00

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

2010-09-28T09:12:00.002-04:00

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

2010-09-25T15:58:00.002-04:00

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"

2010-09-03T09:43:00.005-04:00

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

2010-08-25T16:21:00.003-04:00

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

2010-08-22T21:31:00.004-04:00

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

2010-08-21T22:40:00.003-04:00

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

2010-08-21T22:22:00.002-04:00

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

2010-08-20T10:04:00.006-04:00

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

2010-08-20T09:32:00.006-04:00

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

2010-08-19T16:22:00.013-04:00

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

2010-08-06T22:15:00.006-04:00

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

2010-07-15T10:39:00.002-04:00

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

2010-07-08T12:19:00.003-04:00

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

2010-07-08T10:58:00.002-04:00

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?

2010-07-08T10:13:00.004-04:00

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

2010-07-08T09:50:00.003-04:00

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...?

2010-05-21T00:18:00.003-04:00

"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

2010-05-19T13:22:00.003-04:00

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

2010-05-13T00:10:00.001-04:00

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

2010-05-04T10:03:00.004-04:00

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

2010-04-26T16:49:00.003-04:00

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

2010-04-24T12:30:00.002-04:00

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

2010-04-23T17:25:00.004-04:00

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

2010-04-23T14:51:00.004-04:00

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

2010-04-22T11:15:00.004-04:00

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

2010-04-22T11:01:00.003-04:00

“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

2010-04-20T15:16:00.004-04:00

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

2010-04-20T09:12:00.003-04:00

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

2010-04-19T20:42:00.002-04:00

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

2010-04-19T15:35:00.002-04:00

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

2010-04-19T13:30:00.004-04:00

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

2010-04-14T10:41:00.004-04:00

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

2010-04-13T10:15:00.003-04:00

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

2010-04-13T09:24:00.006-04:00

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

2010-04-09T21:47:00.002-04:00

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

2010-04-08T21:55:00.003-04:00

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

2010-04-02T10:05:00.001-04:00

In Praise of Partisanship

2010-04-01T19:35:00.003-04:00

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

2010-04-01T11:29:00.006-04:00

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

2010-04-01T11:12:00.002-04:00

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

2010-03-31T10:21:00.003-04:00

"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

2010-03-31T09:25:00.004-04:00

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

2010-03-29T17:16:00.006-04:00

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

2010-03-29T09:52:00.005-04:00

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

2010-03-03T23:25:00.007-05:00

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:

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.
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.
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.
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

2010-01-25T12:18:00.002-05:00

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

2010-01-07T23:51:00.004-05:00

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

2010-01-07T23:25:00.004-05:00

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.

Reputation and Social Entrepreneurship

2009-11-17T14:07:00.005-05:00

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

2009-11-10T08:41:00.004-05:00

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

2009-11-04T11:15:00.001-05:00

PopTech 2009 Social Innovation Fellows from PopTech on Vimeo.

Reimagining the Smithsonian

2009-10-31T11:30:00.004-04:00

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

2009-10-29T11:01:00.002-04:00

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

2009-10-29T10:45:00.003-04:00

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

2009-10-28T23:19:00.003-04:00

Bill Easterly is skeptical.

Post hoc, ergo propter hoc

2009-10-21T13:42:00.004-04:00

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

A Web Database of Social Entrepreneurs on Twitter

2009-10-16T14:59:00.002-04:00

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

2009-10-16T14:50:00.003-04:00

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

2009-10-16T14:38:00.005-04:00

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

2009-10-15T16:17:00.004-04:00

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

2009-10-15T16:02:00.006-04:00

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?

2009-10-09T16:00:00.006-04:00

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

2009-10-09T09:30:00.002-04:00

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

2009-10-08T11:23:00.004-04:00

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

2009-10-07T22:29:00.004-04:00

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.
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."
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."
Zoltan Acs on the Global Entrepreneurship Index.
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

2009-10-06T16:26:00.003-04:00

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

2009-10-06T16:03:00.002-04:00

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

2009-10-06T15:57:00.002-04:00

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

2009-09-27T20:52:00.004-04:00

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

2009-09-18T10:18:00.003-04:00

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

2009-09-17T16:37:00.003-04:00

Via @mattflannery.

"Business Owners Smile More Often"

2009-09-16T19:39:00.007-04:00

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

2009-09-16T09:34:00.003-04:00

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

2009-09-15T12:53:00.004-04:00

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

2009-09-15T11:19:00.002-04:00

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.