How Do You Create a Culture of Entrepreneurialism?
City Journal's 20th anniversary issue is out. There's a terrific article by Edward L. Glaeser about the history and future of entrepreneurialism in New York. Although the piece ostensibly concerns the relationship between public policy and entrepreneurialism--what nourishes it, what kills it--I wonder, in the end, whether the most important thing isn't simply that New York has always had a popular culture of entrepreneurialism. Perhaps the culture has followed, historically, from business-friendly policies. But could it be the other way around?
The question is on my mind because last week, moving apartments, I saw at least a dozen ways for an entrepreneurially-minded Turk to become wealthy with little specialized skill or capital. Take, for example, this unfilled market niche: There's no low-cost, reliable service to match prospective landlords with prospective tenants in Istanbul. Right now, this happens through what's called the emlak system. Neighborhood brokers called emlaks seek out unrented properties and show them to apartment-hunters; if the seeker rents, the emlak takes a massive commission from him.
The problem with this system is that it's terrible. Many emlaks compete for the same territory within the same neighborhood. The process is painfully time-consuming because you have to visit each emlak one-by-one. They seem to know little about the properties they're showing, or they're determined to show you properties that don't match the criteria you've said you're looking for. And they're notoriously dishonest. They're interested in the quick deal; they don't seem to care about establishing a good long-term reputation. It's ridiculously expensive for the tenant. It doesn't work to the landlord's advantage, either, because the information about the property they're renting isn't widely disseminated to all the people who might want to rent it. There are tons of apartments for rent in Istanbul and tons of prospective tenants, but no easy way for them to find each other.
It would take very little skill to set up a central Internet database with accurate, detailed, vetted information about rental properties throughout the city. Charge landlords and renters a one-time usage fee of 100 lira. Everyone, I'm sure, would prefer to use such a system. There's something sort-of like it in existence, but it's used now mostly by emlaks seeking to advertise the apartments they're flogging--it's not really used to bypass that system altogether.
I've spoken in the past week to at least a dozen young people who are working for very little money, or who are unemployed. They want to earn more money. I mention this to them. Yes, they say, it's a good idea. But I know none of them will do it. Why not? Because that's not how things are done.
I don't think there are any major policy obstacles in the way. I can't imagine the regulatory and legal obstacles would be greater than those involved in opening a restaurant--or starting an emlak business. Those are too onerous, to be sure, but nonetheless people do it here all the time. And I'm sure someone could make a lot of money by doing this.
The obstacle is cultural. People are wary of new ideas. Parents, I suspect, would discourage their kids from trying something like this. If it isn't a well-known way of making money, it would be viewed as a silly, dreamy fantasy, something responsible parents would discourage in much the way they would discourage their kids from imagining they'll strike it rich by playing the ponies.
Where did that culture come from, in New York? An obvious thought--New Yorkers were, originally, immigrants. The people who took the risk of getting on a boat, leaving behind everything familiar and gambling on the possibility of a better life--based on some abstract idea they had about "America"-- were already temperamentally the very kind of people who make terrific entrepreneurs.
Government policy doesn't create that temperament. You're just born that way. Obviously, bad policy can stifle those instincts, but I'm not sure you can do much to create them.
Or can you?
- Comment (24)
- · Quote
- · UnfollowFollow (2)
- Pages:
- 1
- 2
- Pages:
- 1
- 2
Comments :
Oct '10
Re: How Do You Create a Culture of Entrepreneurialism?
Claire Berlinski, Ed.:
Where did that culture come from, in New York? An obvious thought--New Yorkers were, originally, immigrants. The people who took the risk of getting on a boat, leaving behind everything familiar and gambling on the possibility of a better life--based on some abstract idea they had about "America"-- were already temperamentally the very kind of people who make terrific entrepreneurs.
I think you've hit on the key element right there. Entrepreneurs have to be willing to risk losing their shirt, and being able to risk it all is something you cannot instill into a person.
May '10
Re: How Do You Create a Culture of Entrepreneurialism?
There are many necessary conditions for the existence of entrepreneurship, but I'll name a few key ones:
1. Governmental respect for private property rights
People will not risk becoming entrepreneurs, i.e., economic agents that acquire factors of production (land, labour, capital goods) using financial capital (via selling debt or equity instruments), if they know the government will simply step in and siphon away their money if they yield profits from an undertaking.
2. The absence of intolerable uncertainty
The future is fundamentally uncertain in many ways. However, there are degrees of uncertainty (the chance of the sun rising tomorrow is more certain than a nuclear holocaust). As usual, governments are the greatest manufacturers of uncertainty. They void contractual agreements ex post, they expand the money supply and cause price inflation, levy taxes when they want to, impose regulations when they want to, etc. These decisions all increase uncertainty.
3. The availability of productive factors and financial capital
Entrepreneurs produce goods by using productive factors and acquire those factors with financial capital. Government meddling with financial markets often causes reductions or mis-allocations of financial capital. Taxes/regulations on investment gains reduce investment, hence the supply of capital falls.
Edited on Nov 18, 2010 at 12:55amOct '10
Re: How Do You Create a Culture of Entrepreneurialism?
Claire Berlinski, Ed.: Government policy doesn't create that temperament. You're just born that way. Obviously, bad policy can stifle those instincts, but I'm not sure you can do much to create them.
Or can you? ·
Some individuals may be genetically predisposed to the entrepreneurial temperament, but I think such people are as likely to be born into a family of Turks as into a family of New Yorkers. Culture and government policy are definitely the prime suspects in regards to stifling/promoting entrepreneurialism.
May '10
Re: How Do You Create a Culture of Entrepreneurialism?
Notice however that entrepreneurship ultimately rests upon the recognition of private property rights. Now, can respect for private property rights be deduced/induced from Turkish culture?
My first impression of Turkey is that is it burdened by chronic government intervention and corruption. It ranked 67th out of 179 countries in the 2010 Index of Economic Freedom and 58th out of 179 countries in Transparency International’s Corruption Perceptions Index for 2008. Given these facts as well as this report from these fellas at Turkey's central bank and data on the sizes of black markets in different nations, its safe to say that private property rights are at best semi-recognized in Turkey.
The question of Turkey's culture inevitably leads to questions of Islam. Does Islam harmonize with private property rights?
May '10
Re: How Do You Create a Culture of Entrepreneurialism?
Claire Berlinski, Ed.: The obstacle is cultural. People are wary of new ideas. Parents, I suspect, would discourage their kids from trying something like this. If it isn't a well-known way of making money, it would be viewed as a silly, dreamy fantasy, something responsible parents would discourage in much the way they would discourage their kids from imagining they'll strike it rich by playing the ponies.
Where did that culture come from, in New York? An obvious thought--New Yorkers were, originally, immigrants. The people who took the risk of getting on a boat, leaving behind everything familiar and gambling on the possibility of a better life--based on some abstract idea they had about "America"-- were already temperamentally the very kind of people who make terrific entrepreneurs.
Culture it is. Particularly, the dominant epistemological and ethical ideas of a nation will determine its politics. Are the methods of logic and scientific inquiry respected in Turkey? How about an egoistic ethic that recognizes self-interest as a moral objective/incentive? Americans, however ignorant some of us may be, respond positively to the ideas of rationality and egoism. Do Turks? Capitalism rests upon both.
Re: How Do You Create a Culture of Entrepreneurialism?
Grant Casteel
Claire Berlinski, Ed.: Government policy doesn't create that temperament. You're just born that way. Obviously, bad policy can stifle those instincts, but I'm not sure you can do much to create them.
Or can you? ·
Some individuals may be genetically predisposed to the entrepreneurial temperament, but I think such people are as likely to be born into a family of Turks as into a family of New Yorkers. Culture and government policy are definitely the prime suspects in regards to stifling/promoting entrepreneurialism. · Nov 18 at 1:15am
Completely agree. Interestingly, Turks who have spent time in the US come back to Turkey and become the best entrepreneurs in the country. Like these guys.
Re: How Do You Create a Culture of Entrepreneurialism?
The protection of private property rights--huge, huge problem. I talk about it on this week's podcast. I don't think this is a legacy of Islam anywhere near so much as it is of the legal structures of the Ottoman Empire, in which all land was technically owned by the Sultan. The authorities could (and would) appropriate your property at any time. As I've discovered, through much personal loss, there is still almost no legal protection of property in practice, though it's there on paper. This is a hugely important point; I can't agree and emphasize enough. Believe me, I know from bitter experience.
Re: How Do You Create a Culture of Entrepreneurialism?
No! Turkey is a logic-free zone.
Re: How Do You Create a Culture of Entrepreneurialism?
Self-interest, no. The interests of one's family, yes--and indeed, protecting and advancing those interests is generally seen as the moral good above all. So, e.g., taking a bribe is more than okay if the purpose is to take better care of one's family; in fact, here it would be the foolish and unethical man who failed to put his family's interests first when such an opportunity presented itself. Above all, you take care of your kids, your wife and your parents. The rest of the world can fend for itself.
Jul '10
Re: How Do You Create a Culture of Entrepreneurialism?
Emlaks sound exactly like every real estate broker I've ever met.
Re: How Do You Create a Culture of Entrepreneurialism?
Turkish is often inadvertently and hilariously onomatopoeic.
May '10
Re: How Do You Create a Culture of Entrepreneurialism?
I'm going to push back on the government policy piece: certainly private property is an important principal that ought to be better established -- but it doesn't explain China.
Standard caveat in a Chinese prospectus is that invariably ownership of real estate is not clearly established as the properties were formerly communal and at any given moment the government can pass a law that can fundamentally affect the economics of the enterprise, and yet...
When I lived in Hong Kong (where private property was far better established) I felt like I could do anything/start anything/pitch anyone/partner with anyone. The town is all about finding mutual benefit. And all around me people were starting things and failing at them and moving on. It takes knowing that failing is not the end of the world, it takes a taste for self-promotion, it takes seeing change everywhere and not being put off by it.
Cultures where change is denigrated, feared, or even despised are less entrepreneurial. There are costs of course. The notion of zoning and architectural clarity are lost and Beijing has become an ugly melee. But pollution notwithstanding, its citizens are better off for it.
May '10
Re: How Do You Create a Culture of Entrepreneurialism?
One more thing. I think it takes an underlying belief that the society's time is yet to come rather than behind it. That describes New York at the turn of the century and California once-upon-a-time. and it certainly describes China today. It does not describe President Obama fighting to protect unions and give government handouts to mom & pop retailers while punishing and taxing private capital.
Oct '10
Re: How Do You Create a Culture of Entrepreneurialism?
India has some success in short-circuiting the power of local "emlaks." These are the local buyers of produce, who have always had the power to determine the prices they would pay farmers for their grain. (No, this is not free-market capitalism because the farmers had no access to markets other than the local one controlled by their "emlak.")
This has changed in many areas of India areas because of two technologies: the internet and the cell phone. Using pre-paid cell phones, farmers who don't like the prices being offered by the local "emlak" can call people in neighboring villages and find out what other "emlaks" are paying. The farmers have learned how to use the internet to check regional and national prices, and consult the Chicago Board of Trade to ensure that the regional prices are competitive.
Needless to say the "emlaks" are not completely happy with the new state of affairs, but they are still making money. Where this phenomenon has occurred, the grain market is now truly free, and so everyone is free to make a buck.
Oct '10
Re: How Do You Create a Culture of Entrepreneurialism?
@Claire: I was listening to the most recent Ricochet podcast last night, and you were talking about your lawsuit and the attitudes of the people toward their system of justice. Look no futher for your answer to the question on entrepreneurialism. The primary tenet of liberty of property is that you get to keep what is yours. Why should anyone do the work of entrepreneurship when they do not have a system of justice that will insure that they will be able to keep what they earn?
Aug '10
Re: How Do You Create a Culture of Entrepreneurialism?
Dr. Berlinski asks: How do you create a culture of Entrepreneurialism?.
If it doesn't create itself, it isn't really entrepreneurial.
So it's more like gardening: you can't make a rose, but you can stop doing the things that hinder its growth.
Edited on Nov 18, 2010 at 12:35pmSep '10
Re: How Do You Create a Culture of Entrepreneurialism?
This podcast and the earlier one it references about the bus system in Santiago Chile is highly relevant to this discussion.
http://www.econtalk.org/archives/_featuring/mike_munger/
Free markets are the answer of course but the way they are kept free has to contain an element of regulation, listening to the stories about how they messed that up in Chile is pretty funny and enlightening.
Sep '10
Re: How Do You Create a Culture of Entrepreneurialism?
New York culture seems to have much to do with that of the original Dutch colony; the English did little to repress the entrepreneurialism. The Dutch also influenced the religious pluralism and toleration.
May '10
Re: How Do You Create a Culture of Entrepreneurialism?
De Tocqueville: Division of property by equal inheritance.
And now, after a lapse of a little more than sixty years, the aspect of society is totally altered; the families of the great landed proprietors are almost all commingled with the general mass. In the state of New York, which formerly contained many of these, there are but two who still keep their heads above the stream; and they must shortly disappear. The sons of these opulent citizens have become merchants, lawyers, or physicians. Most of them have lapsed into obscurity. The last trace of hereditary ranks and distinctions is destroyed; the law of partition has reduced all to one level.
I do not mean that there is any lack of wealthy individuals in the United States; I know of no country, indeed, where the love of money has taken stronger hold on the affections of men and where a profounder contempt is expressed for the theory of the permanent equality of property. But wealth circulates with inconceivable rapidity, and experience shows that it is rare to find two succeeding generations in the full enjoyment of it.
May '10
Re: How Do You Create a Culture of Entrepreneurialism?
Hernando de Soto has made a career off this issue. Claire, you should do a podcast interview with him. He would tell you: in a system that does not have proper land title registration and private property protections, businessmen will simply gravitate to quick and easy cash, because if they waste their time and resources setting a business up for the future, someone is likely to just come in and take it away. (On that issue, just ask the suckers who invested in Russia in the early '90s.