Rethinking Entrepreneurship in the 21st Century

Posted by Ahmad Barirani in Blog      No comments

Jun
2

Industrialized countries are in the middle of an era marked by economic stagnation. Take S&P 500 for instance. This index is supposed to be an important lead macroeconomic indicator. Well, S&P 500 has grown 22% compared to 10 years ago, which is equivalent to an annual growth rate of 1.97%. Canada’s CPI for the same period is equal to 2.08%!

Of course, being the great forecasters that they are, large corporations took part, since the 80′s, in a cost cutting effort that mainly translated into massive off-shoring of labor, especially in the manufacturing sector. This strategy seemed unavoidable since a company must, when it doesn’t see any growth lying ahead, cut costs to stay attractive. While some of the current economic problems in advanced countries can be explained by the demand-side issues that this collective labor off-shoring has caused, one cannot fail to notice that it did not serve the largest corporations either. The stagnation of S&P 500 is in fact a sign that large corporations, despite these cuts, are not more attractive from investors’ perspective.

This painful situation has led some in industrialized countries to dream of the manufacturing sector’s return. However, many know deep down inside that their manufacturing sector is no longer competitive. Manufacturing relies mainly on the learning curve principle, which states that labor becomes efficient as it repeats a task. All things being equal, it is this dexterity (which is not limited to labor but also management skills in regards to manufacturing) that justifies capital investments in one location over another. Since idle workers do not perform manufacturing tasks, they cannot become good at it! Thus advanced countries are in a situation where their labor is both more expensive and less dexterous.

This is why the voice of those who preach entrepreneurship as a solution to these economic woes resonates so strongly among different spheres of society. It resonates strongly because it implies a certain level of social organization that would help the transition from a manufacturing economy towards an entrepreneurial one. Many view it as a more sound policy than austerity which mostly aims at a repricing of labor. While general consensus is in general a good thing from a policy perspective because it avoids the pitfalls of inaction, it will not easily translate into successful economic reorganization. In my view, the big problem ahead is that most of the things that have been collectively learned about entrepreneurship are no longer valid in the new economic context.

Being often present in entrepreneurship seminars, I often hear successful entrepreneurs praise lean startups with “release early, release often” as their motto. Such product development strategies, however, are more likely going to lead to products that have limited added value and that are therefore be easily imitable. Also, the technological complexity that drives today’s economies makes it increasingly difficult for new ventures to succeed in earning market shares by introducing incremental improvements over existing solutions.

Another message often sent concerns team size. I repeatedly hear that large teams (more than 3 persons) must be avoided because they are difficult to manage and slow in their decision makings. This thought is somehow connected with the lean startup philosophy. Again, small teams will have a hard time to come up with radically novel ideas in a complex world because they cannot easily integrate ideas coming from a variety of disciplines.

Another myth often heard concerns rhetoric against higher education. There is such a fixation with successful dropouts that it appears as if higher education dumbed people down. Although higher education can, must and increasingly does emphasize on the development of social skills, it is hard to imagine that a successful new venture in the aerospace sector could take life out of a dropout’s imagination. While thins kind of things happen once in a while, dropouts are more often bound to fail in a knowledge economy as shown by sheer unemployment figures.

In my view, many myths regarding entrepreneurship as an economic phenomenon have been developed in order to satisfy short-term imperatives. While money cannot be asked to be patient, it doesn’t mean that the type of projects that it fosters are going to be socially profitable, especially in the long run. It will thus be up to collective initiatives to fill the void left by the short-term vision that characterizes the financial sector.