How to contribute to society

Michael Giberson

My title is too general; there are many ways to contribute to society and I’m just addressing one of them. But trust me, it is a good one.

A few weeks ago President Obama made his now memorable “you didn’t build that” remark. Most of the resulting political exchange has been pretty thoughtless, amounting to little more than “boo for your guy” or “hooray for our guy. Extremely rare have been the thoughtful reactions.

Here are two of the best.

Virginia Postrel, writing for Bloomberg: “The Bad History Behind ’You Didn’t Build That’

Postrel finds Deirdre McCloskey’s work on bourgeois virtues to be the appropriate foundation for a reply. The reason the world has progressed from living on an average of $3/day in 1800 to about $30/day world wide today (and much higher in many parts of the world) is the great change in attitude toward innovation in markets and the development of related virtues. The problem with “you didn’t build that,” in Postrel’s view, is in its reactionary anti-entrepreneur tone.

Of course she explains it much better than I’ve just summarized it, so go read the thing.

David Bier, at the Skeptical Libertarian, “Cooperation is what markets are for, not governments

At this point in his presidency, the statist subtext to President Obama’s remarks is clear. But his values–rather than his conclusions–are right on. Although he overstated the case, his essential point is what free market advocates have argued for years—that prosperity depends not just on individual initiative, but cooperation and exchange. Conceding these values to a president who has led the charge against these very ideals pigeonholes conservatives and libertarians into a clichéd version of individualism in which cooperation plays a secondary, rather than primary, role in markets.

Cooperation and working together is not part of the market—it is the market. The market is millions, even billions, of individuals associating, trading, and contracting. In the classic essay “I, Pencil,” Leonard Read argues that “no single person on the face of this earth knows how to make [a pencil].” It is a collaborative effort of millions of people—loggers, miners, truckers, even coffee producers. “There isn’t a single person in all these millions,” Read continues, “including the president of the pencil company, who contributes more than a tiny, infinitesimal bit of know-how.”

There is more to Bier’s piece, too, that this short clip. I particularly like Bier’s focus on, in effect, scolding those free market advocates who let themselves be pushed into defending a caricature of the rugged individualist as capitalist hero.  Cooperation should be seen and defended as part of the core of libertarian social progress.

A secret to Chipotle’s good-food-fast innovations

Michael Giberson

At Slate, Matthew Yglesias tells the story of a business that is booming: Chipotle’s Mexican Grill, “a company that shows there’s clearly room for growth and innovation in even the most basic sectors of the economy.”

The chain has been expanding rapidly, Chipotle’s stock has risen 500 percent over 5 years, and yet:

… the food service industry can’t seem to get any respect. Politicians don’t name-drop burrito innovators as examples of the kind of entrepreneurs they want to encourage, and despite food’s ubiquity in our lives, culinary progress is slighted as a source of human progress.

Chipotle’s growth since its 2006 IPO should be seen as a great American success story. There’s nothing new about fast food, of course. But it’s not as if Steve Jobs invented the cellphone.

Yglesias follows with, “In many ways, the Chipotle burrito is very similar to the iPhone.” Maybe that analogy is a little strained, but it doesn’t matter, we get a peak at some of Chipotle’s key innovations. The article usefully reminds us that not all innovations are high tech or high science.

(The article gives a brief shout out to burger chain Five Guys, also a family favorite.)

MORE: Another story of entrepreneurial insight in action: Risk and stealth paid off in Eagle Ford shale.

Dignity and liberty for ordinary people brings social growth and development

Michael Giberson

At AidWatch, an interview with Dierdre McCloskey, author of Bourgeois Dignity: “Don’t be snobbish towards merchants & entrepreneurs, and you’ll develop.

Short, and to the point, so likely worth a few minutes of your time to read.

Here is a shorter and even more to the point summary of her message: History shows stasis until a society discovers dignity and liberty for ordinary people, and in particular dignity and liberty for entrepreneurs.

Note not just liberty, dignity and liberty. McCloskey said, “My libertarian friends want the politics by itself, Liberty Alone, to suffice.  I don’t think so: we need dignity, too.  We need the sociological admiration for innovation and markets, to protect and inspire the liberated.”

Ed Glaeser on why some cities are more entrepreneurial

Lynne Kiesling

Ed Glaeser has a very interesting post and an accompanying working paper on differences in entrepreneurship across cities. His post covers some history of entrepreneurship in economics (he mentions Smith, Marshall, Schumpeter, Knight, and Chinitz, but not Cantillon), how to measure entrepreneurship, and some preliminary results from their working paper:

The big fact about entrepreneurship and cities is that average firm size strongly predicts urban success.

The chart below shows that a 10 percent increase in the number of firms per worker in 1977 is associated with a 9 percent increase in employment growth between 1977 and 2000. An abundance of small, independent firms is, along with January temperature and share of the population with college degrees, one of the best predictors of urban growth. [chart omitted] …

Is this relationship largely spurious, the result of some omitted variable — or set of variables — that increases both the number of firms and city growth? If the relationship is real and an abundance of smaller firms actually causes urban success, then why are some places more entrepreneurial than others?

The analysis looks across industries within cities and finds what seems like largely a life cycle result — smaller firms are associated with faster growth rates in new firms than in established firms. But by doing it across industries and controlling for industry and for firm age, the faster growth rates for new firms are arising from some other process than the traditional industry life cycle. Very interesting.

An illustration of the problem discussed in an earlier post

Michael Giberson

In a previous post I was complaining that the entrenched regulated utility industry makes the electric power business resistant to entrepreneurial efforts to shake things up, even when those entrepreneurs want to do things that regulators, utilities, and consumers say they want. (Like environmentally-friendly cogeneration projects, as The New Republic story mentioned.)

A story posted Tuesday at the New York TimesGreen Inc. blog provides another example: “Discord Over Regulation of Car Charging.” The story reports that the three major regulated electric utilities in California each advocate different models for the regulation (or not) of electric car charging stations by the California Public Utilities Commission. Entrepreneurial companies like Better Place, trying desperately to provide the electric vehicles that many consumers, environmentalists, and policymakers say the country desperately needs, find themselves caught in a regulatory battle.

Not surprisingly, Better Place, based in Palo Alt, Calif., echoed that view, arguing that a heavy regulatory hand could stifle innovation and scare off investors. “At the early stages of this industry, we encourage the commission to set rules that do not foreclose new business models,” Jason Wolf, a Better Place executive, wrote in a filing with the commission.

It might be worse in areas regulated by municipalities rather than the state. In Sacramento, with a city-owned monopoly utility rather than a state-regulated private monopoly:

[Sacramento Municipal Utility District] has asserted that it has “exclusive jurisdiction over third-party electric vehicle service providers within its service territory” and that there is no “commercial space” for companies like Better Place to sell electricity at retail rates.

(HT to the Public Utility Law Project of New York, which seems to inadvertently help make my point by insisting, “History and experience with unlicensed ESCOs and submeterers teaches that consumers will need to be protected, for example, with proper certification and oversight of safety, non-utility metering of sales, and other consumer protection issues, such as regulation of rates, terms and conditions, and adequate price disclosure.”)

Economic experiments on growth policy

Lynne Kiesling

Tim Kane at the Kauffman Foundation is going to do some experimental economics research (with Dan Houser at George Mason) on some questions of growth and entrepreneurship:

The experiments are for the study of work and entrepreneurial behavior under different policy regimes, including taxation, welfare, and social insurance. I’ll share a link to the preliminary literature review / experimental design working paper in a future post. Questions on my mind are:

1. Will higher federal taxes reduce entrepreneurship and growth, or are those fears overblown?
2. What’s the best way to design an experiment for work under different policy regimes? Once we nail that down, what is the best way to design the choice of riskless versus risky (entrepreneurial) work?
3. Is there research already in existence informing this topic?

Tim’s post summarizes some of that literature and provides some insights into why he thinks an experimental approach will expand our understanding of these questions. I look forward to seeing this research.

Recovery is about entrepreneurship

Michael Giberson

The Kauffman Foundation offers a video of Tyler Cowen talking about blogging economics and other topics. Cowen wraps up with comments on current economic conditions in the United States:

If there is one point I could get through about the mess we’re in, it’s that even if you think that the government needs to do something proactive, that is a holding action. Recovery is about entrepreneurship.

Coincidentally, Kauffman Foundation president Carl Schramm discusses entrepreneurship and the economy in a profile appearing in the WSJ over the weekend, leading with this quote about “companies too big to fail”:

Carl Schramm doesn’t buy the idea that some businesses are “too big to fail.” That notion, says the president of the Kansas City-based Kauffman Foundation, only creates obstacles for entrepreneurs. Instead, he sees the failure of big companies as the “moment when 1,000 flowers can bloom.”

Both items recommended.

(HT to Tyler Cowen at Marginal Revolution and Chris Masse at Midas Oracle.)