There is (US) data to suggest that young firms are not growing as fast as they used to. There is also data to suggest that young (US) firms increasingly intend to grow. The ‘quality’ of entrepreneurship in other words, is declining: despite young firms wanting to grow, they seem increasingly unable to do so in meaningful ways. If you think that entrepreneurship plays an important role in innovation (which you probably should), that innovation plays a central role in economic growth (which you definitely should) and that economic growth is important (which you also definitely should), that declining entrepreneurial quality should be a cause for concern. It should also be a cause for concern that we fundamentally do not know why quality is falling.
Anders Krabbe, André Spicer and I have been speculating on what might be to blame for it and our working paper on the issue is available here.
Entrepreneurship, we’re claiming, isn’t quite what it used to be. More specifically, we might be seeing the rise of the ‘Veblenian Entrepreneur’, a new form of entrepreneurship that is not primarily intended to be an economically gainful, productive activity. Rather, Veblenian entrepreneurship is much more about aspiring to the socially desirable category of ‘being an entrepreneur’. As such, it is less about doing something that is actually economically impactful, and more about engaging in simulations of productive activity that are fundamentally wasteful, unproductive and unlikely to contribute to economic productivity. It’s much more about following entrepreneurial fashions and emulating the rhetoric of successful founders than actually enacting the entrepreneurial function. The entrepreneurial firm is less of a legal body enabling the entrepreneur to engage in market transactions than it is a necessary accessory to legitimately be part of the (Veblenian) entrepreneurial community. Where the heroic Schumpeterian entrepreneur has absolutely no time for leisure, the Veblenian entrepreneur has no time for anything but the quasi-leisure that is the entrepreneurial (ad)venture.
This new form of conspicuous, but frivolous, entrepreneurship is made possible by a combination of factors. There is a lot of ideological momentum behind the current cultural celebration of entrepreneurship, which makes participation in the category desirable in and of itself. Moreover, the ideology that surrounds entrepreneurship is increasingly getting commoditized and transformed into products that one can consume in order to enact the persona of an aspiring entrepreneur. There’s an entrepreneurship industry that markets those products and clearly benefits from expanding the market for them, and that means getting more people into entrepreneurship (irrespective of their chances of success), keeping them there longer (irrespective of whether they are failing and losing their own or other people’s money) and having them consume more of the products that ostensibly ‘help them’ succeed (irrespective of whether those products actually help). To this you might add that the entry barriers to becoming an entrepreneur are very low (all you need is a company name and a website), that low interests rates could lead investors (both the private and professional variety) to more or less desperately look for investment opportunities, and that a substantial share of young people struggle to find fulfilling jobs to match their educational qualifications. Together, this likely explains a substantial adverse selection into, and undue persistence in, entrepreneurship.
We’re not saying that all entrepreneurship is becoming Veblenian in nature (that would clearly be absurd), but rather that Veblenian Entrepreneurs are most likely becoming more common and that they are very difficult to discern from more productive forms of entrepreneurship precisely because the entrepreneurship industry deals in the symbols that allow them to mimic higher-quality entrepreneurs. And that is clearly a problem at multiple levels – for individuals, the labor market, investors, innovation policy and entrepreneurship research.