Should-Read: Izabella Kaminska: On the rise of unproductive entrepreneurs like Travis Kalanick

Should-Read: Izabella Kaminska: On the rise of unproductive entrepreneurs like Travis Kalanick https://ftalphaville.ft.com/2017/06/15/2190201/on-the-rise-of-unproductive-entrepreneurs-like-travis-kalanick/?ft_site=falcon&desktop=true: “Robert E. Litan and Ian Hathaway… citing the work of William Baumol, who passed away last month…

…Baumol’s overarching theory is fantastically compelling. It suggests the number of entrepreneurs in an economy is essentially fixed and what influences a nation’s entrepreneurial output is how those entrepreneurs are incentivised….

Entrepreneurs are always with us and always play some substantial role. But there are a variety of roles among which the entrepreneur’s efforts can be reallocated, and some of those roles do not follow the constructive and innovative script that is conventionally attributed to that person. Indeed, at times the entrepreneur may even lead a parasitical existence that is actually damaging to the economy. How the entrepreneur acts at a given time and place depends heavily on the rules of the game—the reward structure in the economy—that happen to prevail.

Baumol’s paper references Rome as a historic example of these poor incentives structures in play…. Technologies which were fully available in Roman times languished even though they would spread like wildfire during the high middle ages. What this implies is that innovation and output doesn’t necessarily languish because of a lack of entrepreneurs willing to take risk. It languishes because entrepreneurs are incentivised to direct their efforts to parasitical ventures based on rent-seeking, monopoly formation or unproductive vanities—that potentially includes everything from fintech and the digital app industry to the re-emergence of luxury artisanal or service-oriented craft ventures….

It should be noted that no company exemplifies this unproductive practice more than Uber. Hence it’s worrying that amidst all the focus on Uber’s horrible corporate culture, very little attention is still being paid to the underlying non-viability of the business model, which is mostly based on undercutting the competition via free giveaways, exploiting drivers and/or adjusting the rules of the regulatory framework to suit the company’s own monopolistic agenda…. Thank goodness then for Hubert Horan….

Uber’s strategy was always to skip the hard “create real economic value” parts of this process, and focus strictly on the pursuit of artificial market power that global dominance would provide…. Amazon could fund its growth out of positive cash flow. By contrast, Uber’s carefully crafted “narrative” allowed it to pursue predatory competition for seven years without serious scrutiny of its financial results or whether its anticipated dominance would improve industry efficiency or consumer welfare…