“The rich,”
observed the American novelist F. Scott Fitzgerald, “are very different from
you and me.”
“Yes,”
chortled Ernest Hemingway, “they have more money.”
When it
comes to entrepreneurs, the difference is in more than just the width of the
wallet. The entrepreneur thinks outside
of the box and takes outsized risks. He
is the oddball who transforms the economy.
Joseph Schumpeter, himself a failed banker before becoming the world’s
most famous economist after World War II, credited the entrepreneur with
“creative destruction,” tearing old markets apart to make room for new
ones. (Who uses a slide rule any
more?)
Economists
were too enamored of price-cutting as a way to compete, Schumpeter said. Economic growth depends instead on new
ideas: “Add successively as many mail
coaches as you please. You will never
get a railroad.” The idea man is the
entrepreneur. “As soon as quality
competition and sales effort are admitted into the sacred precincts of theory,
the price variable is ousted from its dominant position….In capitalist reality
as distinguished from its textbook picture, it is not that kind of competition
which counts but the competition from the new commodity, the new technology,
the new source of supply, the new type of organization (the largest-scale unit
of control, for instance)—competition which commands a decisive cost or quality
advantage and which strikes not at the margins of the profits and the outputs
of the existing firms but at their foundations and their very lives. This kind
of competition is as much more effective than the other as a bombardment is in
comparison with forcing a door….”
The problem
with capitalism, Schumpeter wrote in Capitalism,
socialism and democracy, was that entrepreneurs would become all too
successful. They would enable the
economy to grow so rapidly that everyone would become wealthy. Ordinary people who lacked the entrepreneur’s
taste for adventure would appeal to the government to protect their
wealth. The government then would
regulate the economy so heavily as to rule out the possibility of more
breakthroughs by entrepreneurs.
From that
perspective, economic growth in the United States
and the European Union may soon peter out – and the roaring successes of the
future may be the transition economies like Kazakhstan, if their governments
will get out of the way. In any case,
Schumpeter had underlined the critical question: Who, exactly, is the
entrepreneur?
This year,
an economics graduate student at KIMEP
University tried to
answer that question. Yuriy Shivrin
surveyed 557 Kazakhstanis about why they preferred to work for themselves or
for others. He drew upon a dataset
amassed by the European Bank for Reconstruction and Development, along with the
World Bank, in 2010.
His results
were surprising. Urban middle-aged
respondents with no children especially wanted to become entrepreneurs. Gender and a natural tendency toward optimism
were not significant factors in this desire.
Among existing entrepreneurs, single middle-aged men with no college
degree particularly wished to keep working for themselves. They didn’t perceive the 2008 financial
crisis as an obstacle. And among wage
workers, urban respondents with children expressed a particularly strong wish
to avoid self-employment, partly because they apparently feared a repeat of the
2008 financial crisis.
Perhaps the
most striking finding was that college-educated workers weren’t eager to strike
out on the entrepreneurial path. But
Schumpeter predicted this, too. Under
capitalism, he said, college professors would try to make a name for themselves
as political dissidents. After all,
their specialty was the production of opinion.
Nobody ever accused Schumpeter – who himself was an iconoclastic economics
professor at Harvard – of being dull. --Leon
Taylor, tayloralmaty@gmail.com
Disclosure: I advised Shivrin’s master’s thesis. The other reviewers were Altay Mussurov and Eldar Madumarov, economics
professors at KIMEP
University.
Good reading
Joseph Schumpeter. Capitalism, socialism and democracy. Third edition. Harper. 2008 [1950]
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