Sunday, August 19, 2012

Euthanizing Entrepreneurship

euthanise:  vb  to kill painlessly to relieve suffering from an incurable illness

entrepreneurshipn  the act of owning or managing any enterprise, usually with considerable initiative or risk attempting to make a profit

The San Francisco International airport seems like the perfect place to call for the euthanizing of entrepreneurship.  I was dangerously close to writing an equally inflammatory missive on abolishing "leadership" but there's something about the fog of the San Francisco bay that seems to justify the unveiling of the mists that have blinded economists and the public for far too long.  In a week where the Romney-Ryan campaign has once again rolled out the diaphanously clad muse chorus calling for the removal of tax burdens from the business owners who employ so many (an economic argument for tax relief for the upper class that has never been empirically linked to job creation any more than federal stimulus creating employment on the liberal side of the aisle) it's even more important for serious minded people to discontinue their laudatory support for a fundamentally flawed principle.  "But," you might ask, "why do you see entrepreneurship as an incurable illness in need to merciful death?"

The answer requires us to take a small journey.  And while, more suitably disrobed if we journeyed into the world of the French mercantilist Richard Cantillon, an early proponent of the ill-fated John Law, and Adam Smith (Wealth of Nations, 1776), we must visit them only to remind ourselves that both applied explicit individualism to suggest that the heroic mercantilist or industrialist is a success in his mastery over resources and labor and his sociopathic impulse to maximize profits by constantly managing scarcity just above the unsustainable breaking point.  Profits, they argue, are to the rentiers and capitalists and never to the general benefit of society.  It's more helpful for us to frame our argument with the modern progenitor with our entrepreneurship addiction, Joseph Schumpeter.  Schumpeter, ironically in harmony with Karl Marx and John Maynard Keynes, all forecast the collapse of capitalism (see, my title isn't far off the mainstream) in a day when the role of the intellectually adept "entrepreneur" and his executive skill will, " be harnessed to the service of the community on reasonable terms of reward."

Whoa!  Hold your proverbial horses!  You mean to tell me that the patriarchs of our economic system actually saw a future when industrial democratic institutions would be so invaded by corporatism that the public would actually "revolt" in a fashion in which workers would foster adaptive, self-regulatory, autopoietic endeavors?  Absolutely!  And that time is upon us.

What's wrong with entrepreneurship (and its sociopathological cousin, leadership)?  The answer is simple but the permutations of its consequence are quite challenging.  Ever since the U.S. Small War Plants Corporation Act of 1942 and its first off-spring, the U.S. Small Business Act of 1953, the United States has attempted to lead the world in the fostering of risk-taking ventures.  While we've focused on the individual, who against all odds, creates enterprises filled with successful stories of vast wealth creation - most celebrated in the 60 mile circumference of my momentary nexus - we forget that none of the monetary successes were formed without:

a) anti-competitive wartime procurement excesses (a tax tariff taking from the public budget and distributing to enterprises and their capital providers);
b) tax relief for the capitalist in the form of capturing enterprise (LP) losses to offset investment income (also a cost to the national general revenue for the benefit of a few); and,
c) tax-deferred pension liquidity which legally pumped fiduciary capital into speculative enterprises (remember that VC didn't really find its footing until it had pension side-car investments).

You see, whenever someone came up with an idea for a new business, the default to calling it an entrepreneurial venture was not exclusively to create jobs.  As evidenced over the past 30 years, most of these ventures fail and if you follow the propaganda, you're told that this is "risk".  But that fails to address the fact that by creating huge churn in small "failures", the tax loss benefits accumulate without ever being detected.  The reason why venture capital has thrived with its ludicrous "invest in 10 deals to win in 1 or 2" is to cover the reality that the investor actually can "win" in all the deals as long as they're jammed into the right corporate equity structure to tax-harvest the losses.

Entrepreneurship, and its formal indoctrinated training regimes, have celebrated the individuated illusion of Cantillon, Law, and Smith.  It has been predicated on the illusion that the alleged creative or inventive act and its steward is the de facto basis for an individuated enterprise.  Two errors.  First, truly disruptive "invention" happens less frequently than we'd like to think.  Most of the time, "invention" is a term applied to an individual's impulse to think that they've stumbled upon something that is "new".  Yet that newness is, most often, an illusion created by selective ignorance.  Readers will note that in their recent trial, both Apple and Samsung introduced (and vigorously tried to conceal) evidence that neither party actually invented the tablet mobile device though both vigorously defend their patents on the same!  Second of all, this impulse fails to discern the difference between a standalone enterprise versus a utility.  Facebook (rapidly becoming emblematic of the worst of IPO delusions) is a great example.  Facebook provided a compelling utility which, like the telegraph, linked people who had previously been disconnected.  However, in an effort to create an enterprise, Facebook followed the already exsanguinated advertising business model into a commodity maelstrom from which it is unlikely to emerge.  Had it seen itself as a transactional disintermediation platform, an HR head-hunter,  or a collaborative engineering enterprise application, it may have had better success (e.g. LinkedIn).

Failing to discern the difference between artifact generator (a standalone enterprise providing productivity units to consumers) and a utility (more suitably linked to users), neither the management nor the capital formation can be suitable (except for the broken tax-loss harvesting models!)

We don't need more businesses.  We don't need more entrepreneurs.  We need more citizen collaborators!  We need, what Keynes envisioned, those who apply their executive skills for the benefit of the community.  This does NOT mean that we kill the notion of profits, wealth creation, or the like.  To the contrary, it means that we reduce the redundant frictional cost created by multiple inefficient disparate units and reward maximizing the complete utility of all of our multi-dimensional assets and CAPEX.  The more wealthy enterprise is the one that can most efficiently maximize its utilization of resources, goods and services for the highest number of redundant purposes.  Profit is derived not from managed scarcity and destructive obsolescence but rather lengthening the productive life of all value bearing units.

And by the way; these endeavors will not be commanded by the most flamboyant salesman or self-promoter.  They may as likely be coalesced by the reflective person who, in contemplation, can come up withmultiple use options that frenetic growth at all costs thinking can never apprehend.  


  1. David -

    This is great David, Terry Mollner has a similar idea he calls Common Good investing. I will introduce you:

  2. Greetings

    Just read your book. I have looking at your blog as well. For some reason I just keep coming back to your link. I finally saw what I was been shown The Intergal Accounting. I have been looking for an operating system for The Source. When next you are in JA. Look us up would love to share. I also make great bread. coda

    1. I hope that I can pass by JA en route somewhere soon! Many thanks and I'd love to connect with several others who are similarly inclined.


Thank you for your comment. I look forward to considering this in the expanding dialogue. Dave