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The Entrepreneur, Craigslist, and the Sustainable Economy

A plane ride to the great northwest state of Washington can be a good thing….

The O’Hare bookstore was filled with goodies, and one in particular caught my eye—The World is Curved, by David M. Smick. Picking it up, then putting it down, thinking it was a flip retort to Hot, Flat, and Crowded, by Tom Friedman, I began to walk away. But then I thought, just check it out….I turned to the Prologue and that’s all it took….“Frankly speaking, from the perspective of the financial markets, the world is not flat”. On my way to one of the great entrepreneurial places of the world, what could be a better choice? A few minutes later, settled into my seat with a cup of coffee and nothing else to do on a four hour ride to Seattle, I became completely engrossed in the world of international finance.

Smick is an international finance expert. He’s advised presidents and congressmen and is Founder and Editor of The International Economy. As a tangent, in the latest edition, twenty folks have graded President Obama on his performance in four areas; inflation, GDP growth, employment, and trade. Seems to me as a group they tend to say he’s doing okay at inflation, but questions remain about trade.

The Economy: Obama’s first 100 days

There are about a dozen areas in the book that are relevant to the creation of bioregional economies. His work deserves the direct quotations provided below:

His opening thoughts on how the the world’s global economic free fall has happened:

In the weeks after the outbreak of the the crisis, I began to ponder what had happened. How could financial markets reflect a robust economy one moment (the best the U.S. Treasury Secretary has experienced in his lifetime) before turning to panic the next? The best metaphor that can summon is that global financial markets are a bit like a rich, generous, but occasionally deeply paranoid great-uncle. What precipitates the sudden paranoia? Nothing more and nothing less than the lack of clear, unambiguous, and reliable information about what is happening. The great-uncle thinks his relatives are not telling him everything he needs to know; they are holding back on him….In some cases, lack of transparency can lead to euphoria that fuels financial bubbles because of lack of factual information. In this case, however, lack of reliable information caused global lending to screech dangerously to a halt.

Actually, the global economy is more like a highly dynamic, living organism heavily dependent on risk-taking and failure as the ironic ingredients for success. Newsweek’s Robert Samuelson notes a remarkable statistic: “Every three months, seven to eight million U.S. jobs disappear and roughly an equal or greater number are created.”

His view is that globalized financial markets are responsible for the significant reduction in worldwide poverty:

The last quarter-century had represented a golden age of poverty reduction, all occurring during the shift toward globalized financial markets….about a billion people had been moved out of poverty since 1980. Put another way, during the period 1950-1980, when the World Bank and other international agencies, flush with money, were in their heyday, there was actually a significant increase in global poverty…These well-intentioned efforts suffered because without efficient and honest institutions in recipient countries, the results of government-to-government transfers will always disappoint.

More than ever before, large corporations are forever threatened with obsolescence by a risk-taking, extraordinarily venture-some entrepreneurial class of individuals, who themselves constantly face the possibility of failure.

The new global economy is vastly different from the old system in which corporations and their elite handlers worked a global system of controls to maintain relative stability. Now, just the opposite is the case.

Then he gets into some very interesting commentary:

The situation may be further complicated by the reality that we are entering a new interactive age where a mass collaboration via the Internet is transforming the way businesses create and add value. This is a populist-style process of  international business reform in which a bottom-up dynamic may gradually be taking over the global economy. Since 1995, for example, $6.5 trillion in net foreign capital has flowed into the United States, which is $1.7 trillion more than the trade deficit for this period. The international system became out of balance, which is why Federal Reserve Chairman Ben Bernanke has argued for a long-term policy of global rebalancing.

The United States, he argues, needs to undergo “a shifting of resources out of sectors producing non-traded goods and services to those producing tradables”. Translation: America needs to reduce its budget deficits and dependence on foreign oil while expanding its exports of goods and services. Other countries need to stimulate domestic demand so they can purchase more imports and rely less on exports. This shift, however, will take time and, in the meantime, the U.S. economy will depend on foreign investment. Indeed, this dependence is accelerating as American budget deficits explode….Furthermore, some in the U.S. political community have taken the posture that foreign investment, like some mad monster, threatens the core of America’s existence. The situation is not that simple. In reality, the threat to that existence, in the short run, is the widespread perception that America no longer welcomes foreign capital.

Globalization started under President Jimmy Carter…he notes that in 1979, the U.S. Department of Labor modified its rule on how pension funds could invest their assets:

Conventional wisdom holds that in the last quarter-century, the capital of the rich alone rejuvenated the U.S. economy—the so-called trickle-down theory of prosperity. Actually, the entire nation, unwittingly or not, contributed to the rejuvenation as private and public pensions and other formerly staid financial vehicles were unleashed into the markets.

The future of the globalized world economy rests on liquidity:

When it is paired down to its essence, it may be that liquidity, when all is said and done, is not much more than confidence.

Globalized free trade and unimpeded finanical flows has been good for the U.S.:

In the United States, more than five million people today work for companies that are headquartered overseas. According to the U.S. Treasury, although these jobs account for only 4% of the American workforce, they account for 10$ of capital investment, 15% of yearly research  and development…and 20% of American exports. Moreover, more than 30% of these foreign direct-investment-related American jobs are in manufacturing….

We need to be very, very careful how we proceed regarding economic policy in the near future:

Make no mistake, the United States consumes too much, saves too little, and relies too much on foreign oil….But it must also be understood that simply restricting imports entails dealing only with the consequence, not the cause, of the current accounts problem. To reduce its imbalances, the United States must increase domestic saving….It is important to note that it is investment, not saving, that improves living standards. Saving without investment is impotent. The old Soviet Union had tons of saving because there was nothing to buy.

The economic policy going forward must be clear:

What American politicians fail to realize is that they have only one option in this strange new world with its dangerous ocean of capital. It is, to repeat: to make the American economy on a long-term basis the most attractive destination for global investment. That means reforming the capitalist model of the past quarter-century, making the financial system more transparent and its distribution of wealth more even.

The bottom line; the entrepreneur and human capital:

…it is essential to understand what makes an economy grow and prosper. That means appreciating the role of the champions of today’s new economy—the entrepreneurs—and how they are financed…policies to promote a climate of economic risk-taking must be complemented by policies that promote the broad-based nurturing of human capital. Ultimately, in the twenty-first century global economy, it is human capital that matters the most.

The mythical American is the entrepreneur (not the Western European (and as Seinfeld says-not that there is anything wrong with that!)):

Today the question is whether the current financial regulatory reforms will eventually slow overall lending to the entrepreneureal sector…Most large firms, including the large banks, fixate preserving what is. The tiny hedge funds and other capital allocators concentrate on replacing what is with something better. That is why they are so detested by the establishment. They are the original promoters of the notion that economic success stems from continual reinvention. In their eyes, the entrepreneur is almost a mythic hero.

…This white-hot entrepreneurial meritocracy rocketed the U.S. economy upward.

...The secret to maintaining a robust economy centers on more than efforts to modernize existing plant and equipment. The secret is creativity, allowing new firms with new ideas to rise up, while existing firms work every day to reinvent themselves to compete on a global scale.

…Many U.S. policymakers, and even more so those in Europe and Japan, find entrepreneurial capitalism disconcerting. One reason may be that it is hard to represent politically the interests of an entity that does not yet exist, or a young, struggling enterprise virtually invisible in the economic landscape. But it may also result from the great frustration of the unpredictability, and lack of controllability, of the entrepreneurial process. It is difficult to provide a blanket of total economic security in an entrepreneurial society…it continues to depend on the creative implementation of new ideas from individuals who, in the eyes of society, often appear unpolished and relatively inexperienced.

…Entrepreneurs tend to appear to be a little crazy. They are the illogical dreamers, even though many enjoy an inner genius for success. They are nonetheless our society’s main creators of jobs and wealth…Most underestimate the risks. They have to. Otherwise, they wouldn’t try…At the heart of today’s glorified new economy rests the notion that every individual is a potential entrepreneur, in the sense that entrepreneurship is not limited by social status or wealth. Notice that this is not simply capital formation, but capital mobilization.

…Capital is more than money. Capital is productive ability and thus exists in the minds, hands, and hearts of people. The challenge for policymakers is how to encourage these potential wealth and job creators to undertake the risks in the first place.

…All that policymakers can do to establish a climate of dynamic entrepreneurship (besides providing the best possible education and training for their citizens and fair access to credit) is to provide a climate of economic buoyancy—avoiding legal, tax, and regulatory impediments that might stifle an individual from following his or her dreams…

Why do highly industrialized countries like the U.S. succeed economically?

the difference is that the United States and other industrialized economies enjoy an enormous amount of “intangible wealth”….Wealth involves intangible assets such as property rights, an honest and efficient judicial system backed by the rule of law, a workable government, an appreciation for and nurturing of human capital, and I would add, a tolerance of and even appreciation for entrepreneurial creativity and risk, combined with a rejection of class warfare. In other words, intangible assets include something as simple as a society’s tolerance for successful risk-takers becoming rich.

Smick concludes that government and the private sector must begin to synergize:

Creative financial policy strategists, void of today’s ugly partisanship and focused on the big picture, must step forward to work closely with the private sector. This is a unique moment in history, and they need to seize it…This is the time to think big about the long term. Today, like never before, a courageous body of political leaders needs to step forward with an effective agenda to avoid disaster….A second Great Depression seems unlikely, but the thought is no longer a complete absurdity. The world is dangerously curved.

Phew, that’s a lot to digest. But as good as it is, he doesn’t go beyond an industrial view of the entrepreneur. Seems to me that this entrepreneurial culture that Smcik is describing applies equally well to ecology as to our economy. We don’t do well when we try to do command and control with an entrepreneurial economy, perhaps the same applies to the creation of bioregional marketplaces. So are we talking free market here? laissez faire? let industry do what it wants? No. It means we understand that there are three parts to the macroeconomy, scale, distribution, and allocation, each demanding different policy options. If the U.S. is to continue to be a new and better form of it’s mythical self—the entrepreneur—than we need to be very careful in messing with the allocation sandbox. But, as Jim Baker used to preach so well at Westminster Presbyterian Church in Charlottesville, Virginia years ago, we’re not just a nation of individuals, trying to step over each other on our way to riches. We’re persons in community with limits all around us (and in us). That’s where the other legs of the macroeconomy come into play.

In reflecting about this in the midst of the entrepreneurial spirit of the great City of Seattle, while walking with my wife and daughter around the throwing of fish at Pike’s Place, I stumbled on the September  edition of Wired magazine, featuring The Tragedy of Craigslist…a find for the ride back home. The author, Gary Wolf, offers a critique of Craig Newmark and his internet phenomenon, that is cynical. Yes he appropriately acknowledges the success of the enterprise, but concludes with noting the great contradictions of the enterprise, all of which center on how the supposed democracy of the structure of the enterprise runs counter to the actual management of it:

And just as people who run technical companies are reaching an apex of confidence in their ability to to invent new forms of community based on sharing everything, craigslist still treats social life as dangerously complex, deserving the most jaded caution. Corporate isolation, user anonymity, refusal of excessive profit, glacial adoption of new features: These all signal Newmark and Buckmaster’s wariness about what humans, including themselves, might do if given the chance.

The author clearly believes in the power of technology to bring civilization to a higher plane. I get it. And I’ve used Craigslist and agree that the functionality is at times confounding and the help to be aggravating. But, there are limits in sustainable macroeconomic theory. And if we treat Craigslist like a little economy, there might be more to this story than meets the eye. Newmark’s ambivalence about money, well, that could be a personal recognition, when considering scale, that there are limits. He’s reached his, and gives the rest away. I understand that in an industrial mindset, that seems odd, but, maybe in a post-industrial culture, it’s not so strange. The way the enterprise has slowly, organically grown? Again, nature grows at measured rates, never approaching the rates of return many expect in the marketplace today. And as for the critique on the look and functionality of the site? Nature is very efficient as far as I understand. Again, I’m not saying that they couldn’t improve it. I’m just not sure it’s necessary.

For now, I prefer to think of Craigslist as an evolutionary step toward another piece of a post-industrial world. I’m grateful to Newmark for his stubborn stances, though they may strike some as odd, and to us users be annoying.

Perhaps Smick and Wolf are really describing pieces of a worldwide evolution to a new state of being. In this frightening age of transition, perhaps the best we can do is to be tolerant and open, seeking challenges, but also accepting the limitations of our planet and our community. We can do it. Look at Seattle, a few entrepreneurial dreamers decided they were going to host the World’s Fair in 1961 and against all odds funded, planned, and constructed the Space Needle in about a year.

- Michael Collins

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8 Responses to “The Entrepreneur, Craigslist, and the Sustainable Economy”

  1. Sara Says:

    I think this article made some interesting points, I read a textbook directly related to this topic, its called Comparing Economic Systems in the Twenty-First Century by Gregory , I found my used copy for less than the bookstores at http://www.belabooks.com/books/9780618261819.htm

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