Arnold Kling  

A Nation of Entrepreneurs?

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Jeff Cornwall points to a survey on entrepreneurship. Cornwall writes,


The survey sampled 1,000 Americans over the age of 18. Here are some of their findings:

* 56% of Americans dream of starting their own business (E.M. Couple this with 40% of college students who responded in another study that owning their own business is a major goal for attending school and we see an entrepreneurial revolution at hand).

* 10% of Americans already own their own business (E.M. Think of all the special interest groups influencing our public policy with much smaller numbers than this).


Cornwall has further comments here.

In this essay, I suggest that rapid change is forcing more people to think like entrepreneurs.


The lifetime job using a fixed set of skills is disappearing. It may be reasonable to expect to change jobs every few years and to change fields at least once a decade. This means that almost everyone needs to learn to think like an entrepreneur. In particular, spotting trends is important.

...Accelerated learning is important because the only constant in our economy is change. The only way to cope with rapid change is to learn. Learning has to be an ongoing process. It has to take place outside the traditional classroom. It has to be efficient and up to date.

The other key trend is toward personal services. The SAT tutor works one on one. This is not an accident. Mass production, distribution, and marketing are not going away -- but they will be a declining share of employment. When you think "mass," think automation. Ultimately, goods and services that are delivered in mass-market form will be produced and distributed by machines.

For Discussion. What percent of people currently aged 20 do you think will be self-employed at some point in their careers?


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CATEGORIES: Growth: Consequences



COMMENTS (33 to date)
Eric Krieg writes:

What about the people that go into government "service"? Employment by the government is growing at a disturbing clip.

We are segregating into two camps:

1) private sector employment, which is risky and volatile (and, perhaps, not all that lucrative).

2) public sector employment, which is no-risk, job for life, unionized, and highly paid.

No. 2 ensures that No. 1 is even more risky and non-lucrative.

Steve writes:

If by "self-employed" you include "panhandler" and "beggar", I'd say about 90% if current trends continue, with the remaining 10% becoming fabulously wealthy.

Eric Krieg writes:


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Dear Unemployed Techie

By Arnold Kling Published 12/09/2003


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TCS


"Where I live in the Bay Area 300,000 tech jobs have disappeared in the last 3 years. During a period of unemployment last winter I took a computer science class and it was full of middle-aged long-term unemployed, lots of really bright people... I am actually getting out of the field (after 17 years) because frankly it sucks: wages have dropped, benefits also, security is non-existent and people are worked to the point of frantic exhaustion. You can't compete with people making 15% of what you make over there in Bangalore. And of course this society just dumps these people on the scrap heap, and the new jobs coming down the pike are pure crap...The truth is, if I could immigrate I would. I f**king hate my own country."

I would say that the person who wrote this comment on one of my weblogs is a tad bitter. This essay is directed at the many people who share her sentiments.

I know a woman in our area who tutors high school children to help them improve their SAT scores. She needs no license. She works in her home -- the children drive or are driven by their parents, sometimes from over 30 minutes away. For each 45-minute session, she charges $100.

My message to all the unemployed techies out there is this. In a world where an SAT tutor can get $100 for 45 minutes of work, what is your excuse?

The lifetime job using a fixed set of skills is disappearing. It may be reasonable to expect to change jobs every few years and to change fields at least once a decade. This means that almost everyone needs to learn to think like an entrepreneur. In particular, spotting trends is important.

An obscure book on entrepreneurship called Under the Radar says, "I like to use the analogy of hitting a baseball where there is a wind blowing at thirty miles an hour. If the wind is blowing toward right field and you try to hit to left, you have to connect perfectly just to have a chance at a single. On the other hand, if you go with the wind and hit toward right, just getting your bat on the ball may be sufficient to drive one over the outfielder's head."

If a thirty mile-per-hour wind is taking software jobs offshore to India or Russia, then maybe you should not try to fight against the wind. Maybe you should look around for a wind you can ride instead.

Two Key Trends

The SAT tutor benefits from two of the strongest winds out there. These are the trend toward accelerated learning and the trend toward personal services.

Accelerated learning is important because the only constant in our economy is change. The only way to cope with rapid change is to learn. Learning has to be an ongoing process. It has to take place outside the traditional classroom. It has to be efficient and up to date.

The other key trend is toward personal services. The SAT tutor works one on one. This is not an accident. Mass production, distribution, and marketing are not going away -- but they will be a declining share of employment. When you think "mass," think automation. Ultimately, goods and services that are delivered in mass-market form will be produced and distributed by machines.

The Future of Work

Apart from SAT tutoring, what types of work can we expect to be generated by the trends of accelerated learning and personal services? Here are a few possibilities to consider:

Business Communications. Business continues to require communication in order to work. There are language barriers that exist across cultures, across industries, across disciplines (e.g., marketing vs. engineering, or finance vs. computer systems), and across corporate boundaries (between product designers and customers or between operations managers and suppliers). In business communications, new technologies create opportunities and new types of relationships create challenges. People who are good at translating across the various language barriers in business are going to have plenty of work.

Experimental Design and Analysis. How many credit card offers do you receive in a month? How many different airline fares have you found on your most-traveled route? How many different cell phone plans have you looked at?

Many of the options that you encounter are experiments. As consumers, we are guinea pigs in an endless corporate process of trial and error. From direct mail solicitations to web site redesigns, smart corporations are using formal statistical methods to measure and evaluate the results of different approaches. If you know how to design experiments scientifically and to interpret the results statistically, you have a secure future.

Home Health Care. Our population is aging. People are living longer and trying to cope with debilitating illnesses. Middle-aged women talk about being in the "sandwich" generation, having to care for both children and aging parents. Supplying daycare services for the elderly is a business that is certain to continue to grow in the coming decades.

Personal Chef. Everybody likes to eat. The tendency since at least the Second World War has been for the middle class to enjoy more and better food while doing less cooking. It seems to me that the logical extension of this trend is toward more personal catering and more personal chefs. In ten years, if 5 percent of the population has a personal chef, that probably would mean a tenfold increase over today.

>>Sex Therapist. Another basic human desire. Everyone expects better sex, and they are willing to pay for assistance. Personal sex therapy has the potential to be a mass-market service, and, yes, the boundary between this and that of the world's oldest profession may turn out to be fuzzy.

GOD BLESS ARNOLD KLING! I HAVE FOUND MY NEW CALLING!!!

My wife may not be so hot on my new career.

Mcwop writes:

For discussion: What percent of people currently aged 20 do you think will be self-employed at some point in their careers?

Arnold any data on past trends? What % of people owned their own business 20 or 30 years ago?

Steve writes:

Translation from babblefish:

"stab your cubemate in the back and help your company offshore his job, you will be made a hero for a few months, then your new cubemate will do the same to you, find another career at 1/2 the pay, suck it up. I mean, I'm an Econ professor who never has to worry about job security. I can sit here and tell you that you can live on $20k/year, because I'll never have to".

Steve writes:

Arnold--

You forgot to tell us one important fact about the SAT woman:
1) How many hours a week does she get paid for?
2) Is her husband wealthy enough that she doesn't need to worry about the well-paying job she lost?

Some of us have people who depend on us maintaining a stable income.

The only problem with your dream scenario is that in order to change careers, one must pass through the "$0" income bracket before finding gainful employment. Plus, if you want this to happen, you're going to have to convince companies to hire people who haven't done "task X" in the past. Companies today only want people who have already done a job very similar to the one being offered only at a different company.

Eric Krieg writes:

Tutoring is a growth industry. It's one way to get your kids over their poor public school (mis) education. And with all that global competition that Steve whines about, your kids NEED as much help overcoming their mis-education as possible.

Steve writes:

Eric--

What you call "global competition", I call "currency manipulaton".

Steve writes:

Why bother wasting $100,000 on a 4 year education that will get you a job with at most 5 years of income before having to drop another $100k on a new education?

Eric Krieg writes:

>>Why bother wasting $100,000 on a 4 year education that will get you a job with at most 5 years of income before having to drop another $100k on a new education?

Who spent $100,000 grand on an education?

Nobody who went to community college and then a state school, that's for sure.

Why don't you ask your question to the administration of the school that gave you that $100,000 education. I'd be interested in their answer.

Bob Dobalina writes:

I echo Krieg here-- If you're going to plunk down $25,000 per annum for a technical education, you'd better be spending it at MIT.

I went to a fairly reputable public school and I was invariably stunned by the number of students from neighboring and nearby states who paid $14,000 more per year than I did. Especially the really smart ones from Pennsylvania that got into Penn State. Why they went to my school, I'll never understand.

Steve writes:

Eric--

You're already 1/2 way there with your kids before they even go to college ($5k/year average for private k-12)

Steve writes:

--> If you're going to plunk down $25,000 per annum for a technical education, you'd better be spending it at MIT.

Boonton writes:

"Why bother wasting $100,000 on a 4 year education that will get you a job with at most 5 years of income before having to drop another $100k on a new education?"

Dropping $100K on higher education and than *having* to drop another $100K is highly unlikely. I personally divide my time between work and part time self employment. I know some people who are going back to school for higher degrees but their employers are paying for it.

When I look at my additional income I could supposedly capture by getting another degree (or higher one) versus the cost I'd incur in tuition plus lost income while I'd have to put hours into night schooling I'm not sure its a good investment. Especially when I compare the potential of putting that time into networking, learning on the job & other activities.

I've long suspected that the US is over invested in education, especially at the higher level.

Steve writes:

Booton--

So are you saying that the classic economist argument "get over it, get trained, get a better job" is bunk?

If so, I agree with you. why is it so wrong for people to want to do what they were trained to do for a living without continuously having to get trained or switch jobs?

Now, they're admitting that getting that FIRST degree is worthless, too! If the job you get from a BS degree will only last 5 years, why bother? Why not just become a plumber?

Arnold Kling writes:

Steve writes, "why is it so wrong for people to want to do what they were trained to do for a living without continuously having to get trained or switch jobs?"

Hundreds of years ago, India had exactly what you want. It was called the caste system. You worked at the job that you were born into, and you never had to worry about doing another job.

Today, the economy is more dynamic. Farming jobs have disappeared, because we need less than 2 percent of the population to grow all of our food. Manufacturing jobs are disappearing because we can produce stuff with fewer people. China is losing manufacturing jobs too, by the way.

The jobs that are appearing instead are better jobs. Less backbreaking, less repetitive, less health-threatening.

But the price of this is that you have to live with retraining and career change. If you go to college and you don't learn how to continue learning, then it's a waste of money.

David Thomson writes:

I was also taken aback by Steve’s question: “why is it so wrong for people to want to do what they were trained to do for a living without continuously having to get trained or switch jobs?”

Steve is unwittingly desiring the end of all progress. Change and risk are unavoidable in a dynamically growing economy. I strongly urge Steve to learn about the dogma of creative destruction. Those in the horse and buggy trade, for instance, were often forced to find new work after the invention of the automobile. Does Steve wish to go back to riding horses to resolve his standard transportation needs?

David Thomson writes:

Steve reminds me that the Democrats still have a chance of winning the presidential election. Those who advocate capitalism are up front about there being no economic guarantees. And this is held against us! The Democrats, however, have no hesitation to play fast and lose with the truth and tell people like Steve what they prefer to hear. Their fraudulent promises resonate widely with many Democrat voters.

Eric Krieg writes:

>>If you go to college and you don't learn how to continue learning, then it's a waste of money.

Arnold, if that is something you get across to your students, their tuition isn't being wasted.

College is not career training. If you want that, you can go to DeVry.

Of course, with so many of the social sciences being nothing more than indoctrination...

Not economics, of course. The OTHER social sciences.

Steve writes:

Arnold--

Training cannot be sold in an interview. Get that through to everyone out there. Just the fact that you have the ability to learn will NOT get you to an interview, and if you manage to get an interview at all, the only thing that will get you the job is PRIOR experience. All these things that you and your libertarian co-horts espouse sound great on paper, but that's because YOU never have to look for a new job! How many times have you had to switch industries, Arnold? How many times does the average MIT economist have to switch industries?

It's not about being a "lifetime learner", and I understand your points of view here. But I have experienced something that an economics professor will never understand: the possibility of homelessness, even with a IQ above 120 and a degree in Computer Science. Yes, I'm not some brainiac 180 IQ mensa member, but I'm also not a "give me a handout" liberal that you guys take me as.

I don't want an end to progress, that is plain stupid. I want some sort of dignity for people who have seen their jobs shipped off shore or taken out with productivity gains. Perhaps companies could negotiate with mortgage holders to give their castaways 3-4 months to get back on their feet again before foreclousure, of course extending the term of the mortgage by the same length?

Steve writes:

-->The jobs that are appearing instead are better jobs. Less backbreaking, less repetitive, less health-threatening.

Lawrance George Lux writes:

Arnold's question first: At least half of the current Twenty-year-Olds will try self-Employment at some time, and almost all will fail; the lack of Capitaliztion destroys long-range viability. The previous should be explained: A long-term Business mortgage, in itself, forestalls upgrading; Start-up Mortgage payments impede successive funds to technologically grow. The average life of a Business, even when successful, will only succeed if it is bought out by capitalized Enterprise. Most of the Business will not show sufficient potential.

Agiculture will be entering a new phase within a short period (twenty years), due to the rising Costs; the major Agribusinesses are going to start to franchise, as they turn labor-intensive, which is the only way to involve Labor without excess Labor Costs. Planned Communities will come next, where most Occupations in the Community will also be franchised; the End-result turning into a planned Production and Consumption Plant without Unemployment. Heavy industry and Manufacturing will follow. This will be all Private Sector. Franchise will become the watchword of the Future; Planning without Government imput, simply to pay for Labor complements. lgl

Free Markets are Inhumane writes:

Expertly planned, non-capitalist economies could work if we just focused on the true necessities of life such as food, housing, clothing, etc. and kept technological development to a minimum (with the exception of clean energy, do we really need new technology?) During the 70's, Eastern Europe and North Korea had stronger economies than their capitalist rivals. It wasn't so long ago that South Korea overtook the North economically, and that was only because North Korea made the mistake of putting too much emphasis on their industrial/military sector rather than agriculture. Also, it doesn't help that the economies in these countries (Cuba for example) are constantly hamstrung by foreign intervention through the use of embargoes, etc. In short, we either start moving toward a sustainable, manageable economy or the ecological destruction of the biosphere and massive, technologically induced unemployment will be the end of us. Resources are not infinite and we do need to ensure the ecological soundness of our planet. "Free" markets just cannot be trust to do this.

Eric Krieg writes:

>>Expertly planned, non-capitalist economies could work if we just focused on the true necessities of life such as food, housing, clothing, etc. and kept technological development to a minimum (with the exception of clean energy, do we really need new technology?)

Wasn't that an Ayn Rand book? Help me here, I can't remember the name, but the protagonist lived in a medieval Maoist society where technological change was prohibited. He re-invented the lightbulb, and was punished for threatening the livelihood of candlemakers.

Come on, libertarians. I know you have read this book. What's the name?

Eric Krieg writes:

The only country that has an embargo against Cuba is the US. Every other country in the world can and does TRY to do business with the Cubans.

The problem is that Castro doesn't pay his bills. No one has ever made any money in Cuba. This is reason enough to keep the embargo in place, to protect stupid, Democrat businessmen from themselves.

The only thing keeping the Cuban economy afloat at this point are European pedaphiles who go to Cuba to have sex with children. Viva la revolution!

Steve writes:

Ayn Rand died many years ago. So did Adam Smith.

Their ideas applied in their day, some of their ideas apply today, not all.

Did Smith know that an entire country's workforce could find themselves unemployed in less than 1 years' time by workers in other countries? Does his "mercantillism" apply when a company centered in the US sets up shop in China?

Technological innovation is a wonderful thing, but it is happing far too fast to keep everyone working. Smith could not have imagined such a situation, neither could Rand.

Eric Krieg writes:

So Steve, what is your model economy? North Korea? Cuba? East Germany?

This is my favorite:

"It wasn't so long ago that South Korea overtook the North economically, and that was only because North Korea made the mistake of putting too much emphasis on their industrial/military sector rather than agriculture. "

You know, there's medication for this kind of delusion.

Belief in Communism is an indication of delusion, no different that believing that you are the Queen of England.

Steve writes:

There is no model right now, nor has there ever been a perfect model.

You know why this is? GREED. You have to have leaders of the society, and when they have power, they get greedy. Castro is of course a perfect example.

How can we overcome that? I don't know, you guys seem to think that making GREED the only way to survive is the best way (AKA: the American model). I just don't know whether it is or not, but I am open minded enough to realize that it's possible for it to be the best or a miserable failure.

Eric Krieg writes:

>>You know why this is? GREED.

I am not a big Ayn Rand fan. But dude, get her "Capitalism, The Unknown Ideal". She (and Alan Greenspan, who wrote a chapter!) pretty much demolish your misconception that greed is somehow a problem in a capitalistic sysytem.

Steve writes:

Oh, geez! The man whose wife has a $5 million bank account and who makes $150k+/year himself wrote a chapter in a book dispelling the belief that greed runs capitalistic societies? SHOCKING

Now, if an even-keeled non-partisan person had written a chapter, I'd be taken aback by it, but the fact that greenie was involved really has no effect on me.

Boonton writes:

Entrepreneurs question?

Sometimes the best way to answer a question is to ask its opposite. Instead of asking why are there mroe entrepreneurs ask why everyone isn't an entrepreneurs.

In other words, why do corporations exist? John McMillian addressed this in his book _Reinventing the Bazaar: A natural history of markets_. In summarizing Robert Coarse's work, the story is as follows:

When transaction costs are high, it makes sense for a firm to do things in house. This means instead of subcontracting out work it makes sense for them to own their divisions so they do not have to engage in costly market transactions to buy raw materials, semi-finished goods, accounting services etc.

When transaction costs are low, the story is the opposite. Then it makes sense to sub out your work because you can make others compete for it. The example he cited is Cisco Systems. The firm itself actually does little more than market their routers and perform R&D. The actual building and distribution of their routers is outsourced to supplier firms who have to follow Cisco's standards.

Cisco is able to do this because the transaction costs of controlling large amounts of information has fallen enough so that Cisco can 'open up' their production to outsiders. In theory, if transaction costs were zero Cisco could outsource everything...putting every job down to cleaning the toilets up for bid on some website...call it a labor market ebay.

So it should not be surprising that Entrepreneurs increase as transaction costs fall. Is this a good thing? I think so. Using some Marxist sounding terms, I think it results in the worker owning more of his production. Companies and their owners are a lot like middlemen who profit off of virtual transaction between workers and the firms' customers. Eliminate that and you have a more efficient economy.

Anonymous writes:

Steve, sometimes we just have to accept our lot at the bottom of the barrel, no economy can take care of everyone. Some of us must be left behind by society to starve and die in the cold.

Steve writes:

Anonymous--

I don't have to accept it. I can change it in November '04. I don't have to vote for the guy who wants to put us all at the bottom of the barrel.

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