Friday, April 14, 2017

Let's call entrepreneurs heroes

I submitted this to The San Antonio Express-News two weeks ago and it looks like it will not get printed.

Let's call entrepreneurs heroes. That may seem strange, given that entrepreneurs start businesses with the aim of making a profit. Who wants to say that profit making is heroic?

But recently, Jeffery S. McMullen, a professor of management at Indiana University published an insightful article in the academic journal Business Horizons titled "Are we confounding heroism and individualism? Entrepreneurs may not be lone rangers, but they are heroic nonetheless." (Full disclosure-he cites my own published research).

McMullen says "any innovative act exhibits an element of uncertainty and thus requires a corresponding degree of courage" and that to not consider entrepreneurs heroes would "merely neglect the courage and sacrifice required from individuals like Elon Musk, who may not act alone, but nonetheless must act if entrepreneurship is to occur."

Yes, an entrepreneur gets help from many sources. But a single person must take that first step in the face of uncertainty to try something new.

McMullen also wants scholars and policy makers to see entrepreneurs as heroes because otherwise "they are likely to underestimate the costs entrepreneurs must incur not just to succeed, but also to try at all."

You might think that the profit motive alone would bring us enough entrepreneurship. But as an economist, I recognize that although incentives matter, not all incentives are monetary.

In 1996, award winning educator Candace Allen and Dwight Lee, economics professor at the University  of Georgia, wrote a paper on this subject. They said “Just as the society that doesn't venerate winners of races will produce fewer champion runners than the society that does, the society that does not honor entrepreneurial accomplishment will find fewer people of ability engaged in wealth creation than the society that does.”

People want to know that their actions are valued by their fellow citizens. Prospective entrepreneurs are no exception.

This is important because we may be seeing a decline in entrepreneurship in the U. S.

Last year in The Wall Street Journal, Marie-JoseƩ Kravis of Hudson Institute reported that the net increase in business establishments was lower after the 2009 recession than the 2001 recession (which, in turn, was lower than for the one in 1990).

Also, she said that "young firms... now account for a smaller share of new hires, down from about 38% in the late 1990s to roughly 33% today" and that "the per employee cost of federal regulatory compliance was $10,585 for businesses with 19 or fewer employees, compared with $7,755 for companies of 500 employees or more."

In 2015, the World Bank reported that US was ranked only 46th in terms of how easy it is to start a company. Again, as Jeffery S. McMullen says, we should not underestimate the costs entrepreneurs face.

In the long-run, our economy needs entrepreneurship. Relying only on very large companies makes us inflexible. For example, Michael DeWilde, professor of philosophy at Grand Valley State University, wrote a study comparing two Michigan cities, Flint and Grand Rapids.

In 1950, Flint was doing much better than Grand Rapids, with the largest employer being General Motors. But since 1970, Grand Rapids grew while Flint shrank. De Wilde indicates that Grand Rapids fostered a more diverse economy that led to innovation.

He even goes as far as to say "the importance of entrepreneurship cannot be overstated for regional advantage." That is not the whole story, as he also cites social capital and shared values.

But as America looks to the future, we will need more entrepreneurs than ever to solve problems. Seeing them as heroes will surely help.

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