Entrepreneurs vs bureaucrats

“The interests of Arron Banks are not those of Lloyd Blankfein” says Simon. This highlights what I suspect is an under-appreciation distinction between two types of character, albeit ones that occasionally co-exist in the same person: bureaucrats and entrepreneurs.

A bureaucrat is one who manages an existing operation; an entrepreneur creates one from scratch. And their characters are very different. The bureaucrat values rules and convention whilst the entrepreneur scorns them: an entrepreneur, by definition, does something different. And the bureaucrat hates uncertainty whilst the entrepreneur is comfortable with it. It’s no accident therefore that the businessmen who are keen on Brexit tend to be entrepreneurs - Banks, Dyson, Martin – whilst those who oppose it, like Blankfein, are bureaucrats.

In making this distinction, I’m echoing Joseph Schumpeter. He argued that business would become more bureaucratic and in doing so would displace the true entrepreneur:

Rationalized and specialized office work will eventually blot out personality, the calculable result, the “vision.” The leading man no longer has the opportunity to fling himself into the fray. He is becoming just another office worker—and one who is not always difficult to replace…The perfectly bureaucratized giant industrial unit not only ousts the small or medium-sized firm and “expropriates” its owners, but in the end it also ousts the entrepreneur (Capitalism, Socialism and Democracy (pdf), p133-4)

This, I think, is an under-rated forecast. I suspect – though cannot prove – that one reason for secular stagnation is that the over-optimism of the entrepreneur has been displaced (to a degree) by the cautious rational calculation of the bureaucrat with the result that innovation and investment has declined*.

One upshot of this is that, despite all the talk of disruption and new technologies, the pace of creative destruction has slowed. John Haltiwanger has documented this in the US (pdf). And whilst data is less clear in the UK, the fact that job-to-job flows are smaller now than in the early 2000s suggests something similar has happened in the UK.

As creative destruction has drained from the economy, however, it has entered politics. Brexiters such as Arron Banks fancy themselves as disruptors of conventional politics. This is perhaps most apparent in Dominic Cummings, one of the very few interesting intellectuals on the right. He’s written:

The reason why Gove’s team [in the Department of Education] got much more done than ANY insider thought was possible – including Cameron and the Perm Sec – was because we bent or broke the rules…I increasingly think there is a chance that a handful of entrepreneurs could start a sort of anti-party to exploit the broken system and create something which confounds the right/centre/left broken mental model that dominates SW1.

This is the mindset of the entrepreneur, not the bureaucrat.

Which brings me to a curiosity. From the late 70s to the 00s, the established wisdom in economic policy-making was that governments must provide a stable framework in which creative destruction could be encouraged and channelled. Thatcher and Brown, in their different ways, both agreed upon this. This consensus has now been broken: and as Cummings shows, the desire to do so isn’t confined to Brexit. We used to think that politics should be a realm of stability and business of innovation. Today, it seems as if the opposite is the case: we have disruption in politics and secular stagnation in business. (The causality between the two, if any, is another matter.)

This is consistent with a point made by the brilliant Corey Robin – that conservatives have never really been the lovers of stability which Oakeshott claimed them to be:

Far from embracing the cause of quiet enjoyments and secure attachments, the conservative politician has consistently opted for an activism of the not-yet and the will-be (The Reactionary Mind, 2^nd ed, p63)

The upshot of this is that policy instability – as measured by Baker, Bloom and Davis – has been extraordinarily high recently. Economists believe this is bad for growth – a fact reflected in both private and official forecasts.

Most of us, I suspect, think this is a temporary aberration. But what if it’s not?

* Returns to innovation have always been low generally, as William Nordhaus has shown, which suggests it was motivated by overconfidence.

Comments

[Metatone]

This is interesting, but broken - Banks, Dyson & Martin are all quintessential bureaucratic company men. They all now make their money in bureaucratic ways. They all now deal in minor innovation, not disruption. All their actual theories about why Brexit is a good thing follow bureaucratic logic. They were all entrepreneurs once, but pretending they still are is part of the delusional looking to the 90s that characterises the whole Brexit saga in the UK.

[David]

There must be some entrepreneurs out there still, but the cake that they can get their teeth into is small.
The big money, reaped monthly from the income of citizens, now disappears in tax. Not to the State.... but to the rentier offspring of the state.
Communications.
Energy.
Transport.

Retail is about all that is left, and where most innovation is to be found.
The cash cows have no incentive to improve efficiency when they can continuously up their margin despite regulation.

[Keith]

I think this confuses entrepreneur with fanatics and con men. The politics of the UK and USA have become infected with con men trying to exploit the tax payer to enrich private interests. Monopoly and the bizarre idea of reversing a century of improving the qualifications of the teaching profession by importing unqualified people to teach in profit making frauds. No wonder the economy is stagnating when the snake oil salesmen are allowed to replace educated people and public servants.

[Richard Gadsden]

The big difference in outlook is that entrepreneurs can afford to fail. Indeed, getting out from under entrepreneurial failure is what limited liability and bankruptcy were invented for.

Bureaucrats can't afford to fail, and that is the same whether in government or in business, so they operate with much more caution.

The problem with entrepreneurs in government is that it's much harder for a government to get out from under a failure.

[Staberinde]

A thought on bureaucrats, caution and secular stagnation.

The amount of data in the world is growing rapidly. We can quantify risks better than ever before. Knowing what we do about returns to R&D, the success of copiers rather than genuine innovators, and given the short-termism of investors - are we surprised that businesses today simply aren't interested in taking the kind of risks they used to?

I was always taught there's no reward without risk. Well, if everyone's using huge piles of data to cut their risks, maybe that tells us why reward is so much harder to come by in the aggregate?

[Cjcjc]

“Bureaucrats can’t afford to fail.”

What??!!