Changing the Rules of the Game Affects Small Business Entrepreneurs


Small business entrepreneurs exist in a hostile environment in today’s global economy because large multinational companies exert political influence to prevent competition by forming monopolies and oligopolies. These companies want to preserve the wealth they have created. Entrepreneurs want to create new wealth by introducing new goods and services, innovating new means of production, creating new markets, or developing new sources of supply (Baumol, 1990).

Joseph Schumpeter argued the role of the entrepreneur is to create and when the rules change inhibiting that role “creative destruction” causes socialism (Schumpeter, 1975). Socialism happens when bureaucratic managers overtake imaginative entrepreneurs to benefit corrupt society. Ingenious entrepreneurs, however, will resurface to restore capitalism (Long, 1983). Baumol (1990) explained the conditions during these periods as productive, unproductive, and destructive. In other words, as the rules of the game change, conditions conducive to entrepreneurship change.

Baumol offered a historical analysis showing how conditions for entrepreneurship change and result in either productive, unproductive, or destructive climates for entrepreneurship. During unproductive and destructive periods, slave conditions exist for workers because companies do not value them as much as during more productive periods. Corruption causes meager conditions for workers because of a lack of incentive to create. Governments engage in warfare as an alternative way to find economic gain. Arbitrary taxation takes away individual freedoms and incentives conducive to new creations. Baumol showed history confirms these conditions exist in unproductive and destructive periods (Baumol, 1990).

Monopolies and oligopolies are one of the main causes of “creative destruction” and leave a void in addressing social issues normally carried out by small business entrepreneurs (Baumol, 1990). Entrepreneurs channel actions to other areas during periods of “creative destruction” because of a lack of incentives to create. The rules of the game have to change to restore productive entrepreneurship.

Baumol, Litan, and Schramm (2007) offered several ideas for how the rules of the game need to change to promote entrepreneurship and restore capitalistic conditions. Some of the ideas Baumol et al. noted include enforcing antitrust laws, welcoming new trade and investments, improving education, favoring democratic conditions, and fostering laws conducive to growth and prosperity.

In my practice, I work differently because I stress how important entrepreneurship is to the economy. Most consultants focus on profit building, but I focus on how critical entrepreneurship is to the economy and to enjoy the entrepreneurial experience. The one area I would change about how most consultants handle their role is to encourage entrepreneurs to learn from small failures. Entrepreneurs should not worry about failing. The biggest problem I see is fear of failure and not working through the harsh conditions.

I encourage entrepreneurs to try new initiatives to overcome hard times and not worry about what anyone else thinks. Entrepreneurs do better when they are persistent and try alternative approaches.

Please leave a comment on how you respond to failure and handle difficult times. How do you deal with the rules of the game during hard times? Would you like to learn more?

References

Baumol, W. J. (1990). Entrepreneurship: Productive, unproductive, and destructive. Journal of Political Economy, 98(5), 893-921. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=9103252727&site=bsi-live

 Baumol, W. J., Litan, R. E., & Schramm, C. J. (2007). Good capitalism, bad capitalism and economics of growth and prosperity. New Haven, Conn. and London: Yale University Press.

Long, W. (1983). The meaning of entrepreneurship. American Journal of Small Business, 8(2), 47-56. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=5749899&site=ehost-live

Schumpeter, J. A. (Ed.). (1975). Creative destruction from capitalism, socialism and democracy. New York: Harper.

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  1. #1 by Tom Eakin on April 17, 2012 - 9:49 pm

    Phil-
    I co-wrote a paper in late-2010 titled, “The American Worker- An Unrealistic Dream,” which I’ll email to you as I’m guessing I can’t attach it to this comment. I believe it illustrates the concepts you discuss in this article. It was written for an Advanced Organizational Behavior course in my MBA program so if focuses on how non-entrepreneurial American’s have come to view benefits such as health care and pension plans as entitlements which they can not procure on their own. This happened as the balance of trade shifted toward imports into the country signifying global competition which many U.S. companies were not equipped to deal with resulting in destructive patterns and rendering the American Dream of living a life in which prosperity and secure retirement by simply showing up to work for 40 years no longer realistic.

    Regarding your question, if one is going to ever be successful then one must take on the attitude that unintended results (which many would preceive to be failures) require decisions, plans and actions which will provide the intended results in the future. The concept of control is a farce and periods of productivity are the times when we are most susceptible to becoming unproductive and/or destructive. The fundamental equation boils down to action–>reaction (repeat). The minute one believes they have created security is the minute their reaction to what is happening around them is too slow, or inaccurate. When I get unintended results, I recognize the need to identify the root cause, become the subject matter expert and make new plans enriched by the lesson.

    -Tom

  2. #2 by as3blog on April 18, 2012 - 2:13 am

    I think that both socialism and capitalism have useful features. I can give an example when young and smart entrepreneurs dont have enough capital to start business because most of the capital is concentrated in hands of people who dont give a shit about anybody except their family. From the other hand socialism also doesnt give motivation to entrepreneurs.
    In next 200 years humanity will evolve a new social-cultural-economic system. You will find more about this system in my upcoming book. And I am looking for contributors

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