Economist’s article on rediscovering of an entrepreneur by economics has some interesting insights to look into. The article argues that current price dominant macro economic theories don’t reward innovation.
More interesting are the entrepreneurs who innovate, who introduce something new into the world. Unfortunately, such figures have been all but banished from the theory of the firm and the market. Microeconomics instead gives pride of place to prices. Guided by the wages and interest rates they must pay, businessmen choose among different techniques of production (labour-intensive when workers are cheap, capital-intensive when they are scarce) but they do not reinvent or revolutionise them. Guided by the price their wares will fetch, they decide to make more goods or fewer. But they do not conjure up new products that no one had previously thought of.
However, innovations/disruptive technologies challenge the very foundations of existing business models. So economists are finding analytical techniques to tangiblize the benefits of wildcat entrepreneurship.
The article also gives two lucid reasons for why breakthrough innovations happen outside rather than in established settings.
Genuinely new ideas are often breathtakingly simple. They grow more elaborate as improvements and modifications are laid on top of them. If you are the first to discover a tree, you get to pick the lowest-hanging fruit.
so the greatness lies in simplicity of ideas… a digital walkman…or..an online bookshop…and..lowcost airlines.. all are simple yet powerful innovations.
The second reason is more similar to the arguments put forward in the book innovator’s dilemma.. rational managers working in systems that look for sound ROI and want to satisfy existing customers driveout breakthrough simple ideas.
If money isn’t everything to the independent inventor, he is likely to be cheap. Indeed, he will be the lowest-cost provider of the kind of risky, painstaking endeavour that lies behind the breakthrough inventions. Big firms could pursue the big ideas, but since they would be employing professionals not amateurs for these quixotic ventures, they would have to pay them in money, not love.
The article ends with an interesting question on why economically anyone would want to be an entrepreneur?.. I think the answer is passion… No theory of economics focusing on opportunity cost can explain the logic behind why someone like William Henry Bill Gates III dropped from Harvard to put a PC on every desk!
