MONEY
Americans adore entrepreneurs. In every poll that I have seen, entrepreneurs are held in high esteem even as big business is generally viewed with disdain. Why?
Americans’ positive feelings about entrepreneurship are related to their positive feelings about small business, with which entrepreneurship is often conflated.
Small business gets its rosy glow partly from the well-propagated claim that the small business sector creates all the jobs in the economy. That is largely true, actually, but it is also an example of the ubiquitous practice of lying with statistics: Small businesses do create the largest number of jobs every year, but they also destroy the most jobs every year. So the small business sector is simply the biggest job churner in the economy — not the biggest net job creator.
And there are a few other not-so-nice things about small businesses. They have meaningfully lower wages, lower productivity, lower innovation activity and lower exports than large businesses. Thus an entrepreneur running a small startup isn’t necessarily so admirable, especially in comparison to corporate executives who maintain the higher-paying, higher-productivity, higher-innovation jobs.
The most valuable companies for the economy are little ones that become big. These companies do create huge numbers of net jobs — jobs that become high wage, high productivity and high innovation.
What exactly do these special entrepreneurs do? They attack an unpleasant equilibrium and transform it into something substantially and sustainably better. For example, in the late 1960s Fred
Smith observed an unpleasant equilibrium in package delivery. If you wanted something delivered urgently from Boston to Los Angeles, you needed to contract with a package delivery company in Boston that would send a truck to pick up your package. It would then contract with a common carrier to fly the package from Boston to Los Angeles, as well as with a local delivery company in Los Angeles to pick up the package from the common carrier and deliver it to the destination address.
As Smith observed, this system rarely worked efficiently or flawlessly. So in 1971, he started a small business that was designed to completely transform that inefficient equilibrium: FedEx. Now, 45 years later, “FedEx” is a verb, and the company gainfully employs 168,000 high-productivity employees to service $50 billion per year in revenues.
This sort of entrepreneur is an unalloyed good. Such entrepreneurs transform unpleasant equilibriums and create enormous benefits for the economy.
I still don’t think we should care more for a person who starts a successful business than for a corporate executive who runs a stable, profitable business. But we should absolutely revere those individuals who identify an unpleasant equilibrium and innovate to create a way to transform it for those for whom it is a burden, in the process growing a large company and creating sustainable, high-productivity jobs. They exemplify entrepreneurship as a force for good in the world.
