An Ideas Whose Time has Come: Entrepreneurialism has Cool

VICTOR HUGO once remarked: “You can resist an invading army; you cannot resist an idea whose time has come.” Today entrepreneurship is such an idea.The triumph of entrepreneurship is driven by profound technological change. A trio of inventions—the personal computer, the mobile phone and the internet—is democratising entrepreneurship at a cracking pace. Today even cash-strapped innovators can reach markets that were once the prerogative of giant organisations.

The internet provides a cheap platform for entrepreneurs to build interactive businesses. Meg Whitman grew rich by developing an online marketplace, eBay, where people could buy and sell without ever meeting. An army of pyjama-clad bloggers has repeatedly outsmarted long-established newspapers on breaking stories. Automated news-collecting services such as RealClearPolitics and Memeorandum, using tiny amounts of capital, have established themselves as indispensable tools for news junkies. The development of “cloud computing” is giving small outfits yet more opportunity to enjoy the advantages of big organisations with none of the sunk costs. People running small businesses, whether they are in their own offices or in a hotel half-way round the world, can use personal computers or laptops to gain access to sophisticated business services.

The mobile phone has been almost as revolutionary. About 3.3 billion people, or half the world’s population, already have access to one. The technology has allowed entrepreneurs to break into what used to be one of the world’s most regulated markets, telecoms. And many developing countries have been able to leapfrog rich ones by going straight to mobile phones, cutting out landlines.

This has resulted in a cascade of entrepreneurship. Iqbal Quadir, a Bangladeshi who emigrated to America to become an investment banker and then a business academic, had a dream of bringing mobile phones to his homeland. He struck up a relationship with Muhammad Yunus, the founder of Grameen Bank, which provides microfinance, to turn the dream into reality. If the bank was willing to lend women money to buy cows, why not mobile phones? Bangladesh now has 270,000 phone ladies who borrow money to buy specially designed mobile-phone kits equipped with long-lasting batteries, and sell time on their phones to local villagers. Grameen has become Bangladesh’s largest telecoms provider, with annual revenues of around $1 billion; and the entrepreneurial phone ladies have plugged their villages into the wider economy.

Thanks to the combination of touch-screen technology and ever faster wireless networks, the mobile phone is becoming the platform of choice for techno-entrepreneurs. Since July last year Apple has allowed third parties to post some 20,000 programs or applications on its “app store”, allowing phones to do anything from identifying the singer of a song on the radio to imitating the sound of flatulence. So far around 500m “apps” have been downloaded for about a dollar a time.

These developments have been reinforced by broad cultural changes that have brought entrepreneurialism into the mainstream. An activity that was once regarded as peripheral, perhaps even reprehensible, has become cool, celebrated by politicians and embraced by the rising generation. Britain’s Oxford University used to nurture one of the longest traditions of anti-entrepreneurial prejudice in the world. The dons valued “gentlemanly” subjects such as classics or philosophy over anything that smacked of “utility”. (“He gets degrees in making jam/at Liverpool and Birmingham,” went one popular ditty.) The students dreamed of careers in the civil service or the law rather than business, still less entrepreneurship. “How I hate that man,” was the writer C.S. Lewis’s tart comment on Lord Nuffield, his city’s greatest entrepreneur and his university’s most generous benefactor. Today Oxford has a thriving business school, the Saïd School, with a centre for entrepreneurship and innovation and a growing business park that tries to mix the university’s scientists with entrepreneurs. Oxford Entrepreneurs is one of the university’s most popular societies, with 3,600 student members and a record of creating about six start-ups a year.

No longer niche

The story of Oxford’s conversion to entrepreneurship is being repeated the world over as a growing number of respectable economists discover the new creed. For most of the post-war period entrepreneurs were all but banished from economics. Practitioners concentrated on the traditional factors of production—land, labour and capital—and on the price mechanism. Schumpeter was almost alone in arguing that the most vital competitive weapon was not lower prices but new ideas. Today entrepreneurship is very much part of economics. Economists have realised that, in a knowledge-based economy, entrepreneurs play a central role in creating new companies, commercialising new ideas and, just as importantly, engaging in sustained experiments in what works and what does not.

William Baumol has put entrepreneurs at the centre of his theory of growth. Paul Romer, of Stanford University, argues that “economic growth occurs whenever people take resources and rearrange them in ways that are more valuable…[It] springs from better recipes, not just more cooking.” Edmund Phelps, a Nobel prize-winner, argues that attitudes to entrepreneurship have a big impact on economic growth. Another reason for entrepreneurship becoming mainstream is that the social contract between big companies and their employees has been broken. Under managed capitalism, big companies offered long-term security in return for unflinching loyalty. But from the 1980s onwards, first in America and then in other advanced economies, big companies began slimming their workforces. This made a huge difference to people’s experience at the workplace. In the 1960s workers had had an average of four different employers by the time they reached 65. Today they have had eight by the time they are 30. People’s attitudes to security and risk also changed. If a job in a big organisation can so easily disappear, it seems less attractive. Better to create your own. Yet another reason for the mainstreaming of entrepreneurship is that so many institutions have given it their support.

In 1998 HBS made entrepreneurship one of the foundation stones of business education, partly in response to demand from students. The school’s Arthur Rock Centre for Entrepreneurship now employs over 30 professors. Between 1999 and 2003 the number of endowed chairs in entrepreneurship in America grew from 237 to 406 and in the rest of the world from 271 to 536. The media have also played a part. “Dragons’ Den”, a television programme featuring entrepreneurs pitching their ideas to businesspeople in order to attract venture capital, is shown in 12 countries. “The Apprentice”, a programme that had Donald Trump looking for a protégé, has produced numerous spin-offs. Even China’s state-owned Central Television has a show about entrepreneurs pitching ideas to try to win $1.3m in seed money. A welcome mat for businessThe world’s governments are now competing to see who can create the most pro-business environment. In 2003 the World Bank began to publish an annual report called Doing Business, rating countries for their business-friendliness by measuring things like business regulations, property rights and access to credit. It demonstrated with a wealth of data that economic prosperity is closely correlated with a pro-business environment.

This might sound obvious.

But Doing Business did two things that were not quite so obvious: it put precise numbers on things that people had known about only vaguely, and it allowed citizens and investors to compare their country with 180 others. This “naming and shaming” caused countries to compete fiercely to improve their position in the World Bank’s rankings. Since 2004 various countries have brought in more than 1,000 reforms. Three of the top reformers in 2007-08 were African—Senegal, Burkina Faso and Botswana. Saudi Arabia too has made a lot of progress. Doing Business is also encouraging countries to learn from each other.Most rich countries are working all the time to make it easier to start new businesses. In Canada, for example, it is now possible to start a business with just one procedure. But the list of top reformers includes all sorts of unexpected places, and the range of reforms that have been undertaken is impressive. India has concentrated on technology, for example, introducing electronic registration for businesses; China has put a great deal of effort into improving access to credit. Robert Litan, of the Kauffman Foundation, suggests that the World Bank may have done more good by compiling Doing Business than by lending much of the money that it has.