Knowledge Spillovers from Enterpreneurship

One of the really great benefits of academic life is the opportunity to travel and to meet new people that come at similar questions to the ones that you are asking but from a different perspective and providing different answers.  In short, a vibrant academic career is one that provides the constant opportunity to learn not only from your isolated studies with books and articles, but from the interaction with students, with colleagues, with everyday experience in markets, in politics, in civil society, etc., at both home and abroad.  It is a very wonderful lifestyle.

I have been studying the economic theory of entrepreneurship since the early 1980s when I first read Kirzner and Schumpeter.  I have been teaching a PhD level course on the entrepreneurial theory of the market process since 1990.  So when I was asked to give a plenary lecture on entrepreneurship at a Ratio Institute conference for young scholars it was an easy "yes" and I expected to fly in, share my ideas with young people interested in economics and fly back in time to teach my first PhD class on Monday.  My expectations for learning were not as high as is often the case.  In fact, my expectations were that most of my learning would come from reading during the layovers and flights between the US and Europe.  I chose as my reading Baumol's new book, Good Capitalism, Bad Capitalism, and the Econoimcs of Growth and Prosperity.  Baumol's book is good, but there isn't anything in the book that I haven't read before either by him or others.  So it was a good survey, and as is usually the case with Baumol's work I left it wondering two things (a) does Baumol recognize that what he is saying about productive and unproductive entrepreneurship was said by writers such as Mises and Hayek in the 1940s, and Buchanan and Tullock in the 1960s, and (b) will he ever be intellectually comfortable with purusing the logic of his own argument to its conclusion, or will he continue to "stop the story short" because it fits better with the prevailing public ideology of centerist politics.  Still, we are better off as a profession that Baumol produced this book and hopeful more members of the interested public will read the book with benefit and come to understand the benefits of entrepreneurial capitalism.

But while I had overestimated the value of learning from Baumol's book I would experience, I underestimated the value of learning I would receive from the RATIO Conference.  In fact, the conference introduced me to a variety of approaches and research questions in entrepreneurship studies that I was only dimly aware of prior to the conference.  Papers presented by young scholars from Europe, US, Australia, and Hong Kong.  And, we had historical papers, ethnographic papers, narrative constructions, statisical analysis, and conceptual theory.  I had expected given the title of the seminar to read papers dealing with Entrepreneurship and Public Policy, and to me that usually means examinations of the relationship between entrepreneurship and economic growth.  But that was not the case.  There was policy analysis of the labor market, there was an examination of academic entrepreneurship, there was an ethnography of IT entrepreneurs from Hong Kong and Singapore, etc.  I found all the papers presented by the young scholars to have insights that taught me something.  However, only one could of them could win the best paper and that was by Marco Caliendo, who studied the policies in Germany that attempt to steer unemployed workers into opportunities for self-employment  through entrepreneurial ventures.  Congratulations to Marco, it was a very thorough and careful empirical study that will almost certainly get published in a solid mainstream economic journal.

Robin Douhan's paper, "The Political Economy of Enterpreneurship" I also found very interesting -- despite its critical take on my own work.  I look forward to reading many more papers from him on this and other subjects.

Without doubt the most fascinating talk given at the colloquium was the plenary lecture by David Audretsch.  David is arguably the leading scholar in enterpreneurial studies today and besides his position at Indiana University, he is also a director of the entrepreneurship program at the Max Planck Institute in Jena, Germany.  His talk addressed "Knowledge Spillovers" from Entrepreneurship.  It was a very straightforward and brilliant discussion of the issues.  He emphasized the "knowledge filter", in other words the mechanism through which new knowledge gets translated into commercially viable knowledge.  A fascinating part of his discussion was why enterpreneurship was absent from the traditional model of economic growth as developed by Robert Solow.  There seemed to be during this time (1930-1980) an alignment between scientific tractability and an impression of the empirical reality that emphasized "Big Firm" managerial capitalism and discounted the importance of dynamic "enterpreneurial" capitalism.  It was, in short, about allocating capital and labor in the most efficiency manner possible given the state of technological knowledge at that point in time.  Obviously, enhancing the technological knowledge was understood as important, but it was understood as the domain of "Big Firms" and their R&D budgets, and/or government investment.

The consequence of this intellectual perspective was to crowd out the entrepreneur from the analysis of the wealth and poverty of nations.  Investment in R&D, and the management of the labor force were the issues of concern, not the discovery and learning of new ideas about resources and their use.  As a result, the filter mechanisms by which new knowledge is translated into commercially viable knowledge was not studied and thus the actions which distort the knowledge filter, and/or slow it down, were not correctly identified.  But that has all changed as we have intellectual come to grips with the move from the managed economy to the entrepreneurial economy.

Audretsch summarized the two types of economies as follows.  With the managed economy we get policies which focus on constraining entrepreneurship, are centralized at the national level, rely on public ownership and regulation to curb monopolistic abuse.  With the entrepreneurial economy, on the other hand, we get policies that enable the entrepreneurial spirit, are decentralized at the local level, and rely on competition in the creation and commercialization of knowledge to steer private actors to act in ways that are socially beneficial.

I hope I have done Audretsch justice with this talk.  His insight into how entrepreneurship provides the missing link in the mechanisms of economic growth, and how it is entrepreneurial action that penetrates what he terms the "knowledge filter" is extremely important in my opinion to making progress on establishing policies that will unleash the entrepreneurial spirit and attack the global problem of poverty in the most effective way possible -- through raising real incomes of the poorest people in the world.

The RATIO Institute's program was fantastic, and the format is exactly what is needed to encourage young scholars in a field to keep working.  I hope it will serve as a model for many more young scholars conferences run by RATIO in the coming years.  Congratulations to Marcus Box and Kristina Nystrom for organizing and running such a first-rate conference, and thank you to both of them for the kind invitation to be a part of this colloquium on entrepreneurship, institutions and policy.

Comments

[Rafe Champion]

Thanks Pete, those of us who are stuck at home in the Deep South of the Antipodes can get a lot of stimulation out of these reports from the front line! I suppose entrepreneurship is another word for creativity and it can be expressed in large ways and small, so everyone can do it. Chomsky was excited to report that even the most basic use of language involves understanding and creating strings of sounds that are unique (in the sense that the speaker or listener has never heard them before) and he regarded this as the germ of creativity that we all have. Charles Murray in one of his books on the good life told a story about a labourer on a production line, apparently executing a set of simple and mindless tasks, who generated a rhythm of work so all day he was improvising different "beats" to enliven the job. So an element of creative style can be brought to the most mundane and repetitive tasks that you can think of...riding a bicycle, chopping wood, making love.

The theory of entrepreneurship would have done better with the help of better theories about the way people learn, including research scientists. The positivism and logical empiricism that dominated western epistemology and methodology acted as filters of the very worst kind to blind people to the processes that really delive the goods in all areas of problem solving from the most mundane to the peaks of creative genius.

What were the knowledge filters in place that prevented the innovations of praxeology (Mises), the action frame of reference (Parsons) and situational analysis (Popper), all available in the late 1930s, from transforming the social sciences and political economy to generate "George Mason" research projects all over the world? For an explanation of the significance of GM research check out this piece on the tormented progress of sociology.

http://catallaxyfiles.com/?p=3070

[Rafe Champion]

On the topic of knowlege filters, one of them Pete noted in his NZ talk that was recently published - the professionalism (and cognate specialisation) of academic studies in the 20th century. By some strange paradox this proceeded in parallel with increased participation in higher education, so instead of widening the pool of educated people talking sensibly about philosophy, political economy, and everything else we have narrowing groups of specialists talking to each other in technical and esoteric terms.

R G Collingwood put his finger on some of this before it really took off after WW2. A chapter in his 1940 book on metaphysics depicts with chilling accuracy the process that occurs in many courses where the critical faculties of students are systematically destroyed. He first asks us to picture a civilisation where respect for truth is a powerful belief and systematic thinking is prized in intellectual and practical pursuits. Each feature of this civilisation would have characteristics derived from that prevailing habit of mind.

'Religion would be predominantly a worship of truth...Philosophy would be predominantly an exposition not merely of the nature of thought, action & etc. but of scientific thought and orderly (principled, thought-out) action, with special attention to method and to the problem of establishing standards by which on reflection truth can be distinguished from falsehood. Politics would be predominantly the attempt to build up a common life by the methods of reason (free discussion, public criticism). Education would be predominantly a method for inducing habits of orderly and systematic thinking'. And so on.

'And suppose that now within this same civilisation a movement grew up hostile to these fundamental principles...an epidemic disease: a kind of epidemic withering of belief in the importance of truth and in the obligation to think and act in a systematic and methodical way. Such an irrationalist epidemic infecting religion would turn it from a worship of truth to a worship of emotion and a cultivation of certain emotional states...Infecting politics it would substitute for the ideal of orderly thinking in that field the ideal of tangled, immediate, emotional thinking; for the idea of a political thinker as a political leader the idea of a leader focussing and personifying the mass emotions of his community'.

This movement of thought would need to proceed by stealth because the healthy tissues of thought would strongly resist any open attack on the springs of rationality and scientific thinking.

'Let a sufficient number of men whose intellectual respectability is vouched for by their academic position pay sufficient lip-service to the ideals of scientific method, and they will be allowed to teach by example whatever kind of anti-science they like, even if this involves a hardly disguised breach with all the accepted canons of scientific method.'

'The ease with which this can be done will be much greater if it is done in an academic society where scientific specialisation is so taken for granted that no one dare criticise the work of a man in another faculty. In that case all that is necessary to ensure immunity for the irrationalist agents is that they should put forward their propaganda under the pretence that it is itself a special science, which therefore other scientists will understand that they must not criticise'.

Collingwood was concerned about the impact of psychology at that time (pre-1940). Lately it sometimes seems that sociology has taken over the function he described.

For extended notes on the book http://oysterium.blogspot.com/2007/08/collingwood-on-metaphysics.html

[Danny L. McDaniel]

The United States is the O.P.E.C. of knowledge!

[innicc]

Buy Guild Wars Gold, WOW Gold, World of Warcraft Gold,http://www.innicc.com http://www.innicc.com/buy4.asp

[Karl]

Danny, in all friendliness:
I don't know how you concieve OPEC but what, really, do you mean by U.S. as The OPEC of knowledge?
As a way to prop up prices and distort market mechanisms? Yeah, in many cases I guess.

As a way to force its own stuff unto other nations? Frequently.

As an unholy cartel of socialism, authoritarianism, and religious extremism? I hope not...