Timid economics

Entrepreneurial activity is one thing. But 'entrepreneurship' should not be placed at the heart of economic policy.

Benjamin Hunt

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Not so long ago in Britain, an entrepreneur tended to be viewed either as a yuppie or as somebody in the ‘import-export’ business.

Now, entrepreneurs are presented as the most creative, innovative and dynamic section of society, and increasingly courted by the New Labour government. If UK chancellor Gordon Brown gets his way, entrepreneurship – the fostering of entrepreneurial activity – will become central to economic policy in the coming years.

The entrepreneur has long been a favourite figure for Demos, a UK think-tank with strong links with the New Labour government. Having tackled the ‘social entrepreneur’ and the ‘civic entrepreneur’, Demos associate Charles Leadbeater, with coauthor Kate Oakley, has now moved swiftly on to analysing the ‘knowledge entrepreneur’ in the new report, ‘Surfing the Long Wave: Knowledge entrepreneurship in Britain’, published in July.

The report presents the conclusion of years of work spent shadowing knowledge entrepreneurs in industries like biotechnology, computer games and animation, in clusters such as Cambridge, the Hoxton new media triangle and Soho. It puts the economic case for entrepreneurship, challenges conventional stereotypes about entrepreneurs, and offers a range of policy suggestions for New Labour to foster entrepreneurship – for example, reform of the Department of Trade and Industry (DTI) to focus on entrepreneurship, and the education of schoolchildren to become more entrepreneurial.

Demos presents an economic rationale for focusing on entrepreneurs. For Leadbeater and Oakley, entrepreneurs enhance the flexibility and adaptability of economies because individuals move faster than bureaucratic large corporations. They speed up the commercialisation process by being able to turn new ideas into new products. According to them, ‘entrepreneurship is critical to the economy because it helps determine the rate at which new ideas are turned into new useable products and services’.

But it is worth questioning why entrepreneurship is so in vogue today. Is there a clear economic rationale, as Demos suggests – or is the interest in entrepreneurship due to something else entirely?

On one level, it is undoubtedly much easier to become an entrepreneur these days. Capital is not such a scarce resource as it has been. New technologies like the internet have removed barriers to entry.

But the incorporation of entrepreneurship into the political language of New Labour has little to do with finance, technology or knowledge. Rather, entrepreneurial initiative is courted because New Labour has retreated from ambitious economic policy. The government now invests a great deal of hope in individual entrepreneurs, and creating the infrastructure for entrepreneurship, because wider economic aims are off the agenda.

For example, it is said that, because of globalisation, governments are powerless to do much about losing jobs to other economic regions around the world. Governments feel unable to influence the economic activities of multinational corporations in any significant way. But as a rearguard action, they can encourage individuals to start new small businesses and create new jobs. The hope is that increasing the churn and turnover of small businesses will lead to economic dynamism.

Entrepreneurship fits neatly into the very narrow ‘supply-side’ agenda dominant today in economic thinking. Supply-side economics rules out the role of the state to intervene in any significant fashion to raise wages, living standards, generate economic growth, or improve working conditions – demand-side objectives. Rather, economic policy is reduced to furnishing the conditions for increased business efficiency and competitiveness. It could be argued that this is not economic policy at all in any meaningful sense, but just a narrow encouragement of the market.

In this context, economies are judged to be successful if lots of new businesses are very efficient at churning out lots of new products and services. As Leadbeater says in his earlier book on the knowledge economy, Living on Thin Air, ‘the modern economy’s most impressive feature is its ability to create streams of new products and services’.

Even in this narrow area, any decent discussion of the economy would make some kind of distinction between the kind of new products and services that we want, and those that we do not. But never mind all that. In Living on Thin Air, Delia Smith with her cooking recipes is a knowledge entrepreneur, and so is Leadbeater’s local travel service man who gives him tips on good holidays. Oh, and so is Bill Gates, founder of Microsoft. After all, they’re all using their brains to ‘create streams of new products’.

The problem with the promotion of entrepreneurship goes beyond its very narrow economic focus. It is quickly becoming a new form of social engineering. Take Demos’ idea that ‘schools should be encouraged to experiment with different approaches to blur the lines between formal education, work experience and entrepreneurship’. Why? Why not leave kids alone to learn about maths and english, and let them enter work when they are adults?

It is time for a critical appraisal of entrepreneurship. Individual initiative can be a force for good. But the hope now invested in the entrepreneur is really an expression of the government’s unwillingness to think big. Bereft of any big ideas about the economy, the baton is being handed to individuals, who, on the whole, have the least power in the economy.

Benjamin Hunt is the author of The Timid Corporation: Why Business is Terrified of Taking Risk, John Wiley and Sons, 2003. Buy this book from Amazon (UK) or Amazon (USA).

Read on:

New Labour’s economy: healthy, sluggish, dull, by Daniel Ben-Ami

A bold critique, by Phil Mullan

spiked-issue: Don’t blow IT

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