Something a bit different, as it’s the Friday before a bank holiday. No graphs or charts, just what my friend Kevin Ball calls a bit of loose-limbed intuition.
I rarely listen to You and Yours but I caught a bit of it yesterday. At around 12 minutes in, there was an item on farmers’ co-operatives. One farmer from Snaith Salad Growers talked about the advantages of being able to guarantee supply to large organisations like supermarkets. The co-operative’s general manager went on to discuss the channels to market and the ability to share investment costs and to invest with a reasonable degree of security. None of this could be done by small producers on their own.
It brought to mid a piece Ha-Joon Chang wrote a couple of years ago.
Our discussion so far shows that what makes the poor countries poor is not the lack of raw individual entrepreneurial energy, which they in fact have in abundance. It is their inability to channel the individual entrepreneurial energy into collective entrepreneurship.
Or, to put it another way, rich countries are rich because they organise people and resources on a large-scale.
Very much influenced by capitalist folklore, with characters like Thomas Edison and Bill Gates, and by the pioneering theoretical work of Joseph Schumpeter, our view of entrepreneurship is too much tinged by the individualistic perspective—entrepreneurship is what those heroic individuals with exceptional vision and determination do. However, if it ever was true, this view is becoming increasingly obsolete. In the course of capitalist development, entrepreneurship has become an increasingly collective endeavour.
To begin with, even those exceptional individuals like Edison and Gates became what they are only because they were supported by a whole host of collective institutions—the whole scientific infrastructure that enabled them to acquire their knowledge and also experiment with it; company law and other commercial laws that made it possible for them subsequently to build companies with large and complex organizations; educational systems that supplied highly trained scientists, engineers, managers, and workers that manned those companies; financial systems that enabled them to raise huge amounts of capital when they wanted to expand; patent and copyright laws that protected their inventions; easily accessible markets for their products, and so on.
As Wharton’s Ethan Mollick said, in his fascinating study People and Process, Suits and Innovators, it’s “the “suits” – rather than the creative innovators that best explain variation in firm performance.”
Here’s where it gets interesting, though.
Furthermore, in the richer countries, enterprises co-operate with each other a lot more than do their counterparts in poorer countries. For example, the dairy sectors in countries like Denmark, the Netherlands, and Germany have become what they are today only because their farmers organized themselves, with state help, into co-operatives and jointly invested in processing facilities and export marketing. In contrast, the dairy sectors in the Balkan countries have failed to develop, despite quite a large amount of microcredit channelled into them, mainly because their dairy farmers tried to make it on their own. For another example, many small firms in Italy and Germany jointly invest in R&D and export marketing, which are beyond their individual means, through industry associations (helped by government subsidies), whereas typical developing country firms do not invest in these areas because there is not such a collective mechanism.
So small organisations working together can overcome the problems associated with micro-business, including the very low-levels of investment. (See yesterday’s post.)
Even at the firm level, entrepreneurship has become highly collective in the rich countries. Today, few companies are managed by charismatic visionaries like Edison or Gates, but by professional managers. Writing in the mid twentieth century, Schumpeter was already aware of this trend, although he was none too happy about it. He observed that the increasing scale of modern technologies was making it increasingly impossible for a large company to be established and run by a visionary individual entrepreneur. Schumpeter predicted that the displacement of heroic entrepreneurs with what he called ‘executive types’ would sap the dynamism from capitalism and eventually lead to its demise.
Schumpeter has been proven wrong in this regard. Over the last century, the heroic entrepreneur has increasingly become a rarity, but the world economy has grown much faster since the Second World War, compared to the period before it. In the case of Japan, the firms have even developed institutional mechanisms to exploit the creativity of even the lowliest production line workers. Many attribute the success of the Japanese firms, at least partly, to this characteristic.
If effective entrepreneurship ever was a purely individual thing it has stopped being so, at least for the last century. The collective ability to build and manage effective organizations and institutions is now far more important than the drives or even the talents of a nation’s individual members in determining its prosperity. Unless we reject the myth of heroic individual entrepreneurs and help them build institutions and organizations of collective entrepreneurship, we will never see the poor countries grow out of poverty on a sustainable basis.
Economic growth requires organisations with the critical mass to invest. Poor countries, as Ha-Joon Chang says, have plenty of entrepreneurialism but few organisations with the critical mass to channel it.
It is very likely that the shift to self employment marks a change in the nature of the UK’s labour market. On this point, I agree with Adam and Ben at the RSA; relatively high levels of self-employment will probably persist even after the economy has recovered. If that is so, might co-operatives be one way of avoiding some of the economic problems associated with a large number of micro businesses?
I’ve written about this before, using the Olympic Flame as a metaphor. Our flame was unlike those that went before. Instead of being one big flame, it was a big one made up of lots of little ones. If more of us are to be self-employed in the future, will innovation come from lots of people lighting small fires and bringing them together?
Now you might think this is pie-in-the-sky given that lots of self-employed people become self-employed to do their own thing. But if farmers and prostitutes, both traditionally independent types, can organise co-operatives, then surely people in other occupations can do so too. It wouldn’t work for everybody but for those who want to trade with large organisations, it would be an alternative to working through agencies or simply being squeezed by the negotiating power of big firms. Just as self-employment has risen during the recession, so has the number of co-operatives. According to the Guardian, their number has increased by 28 percent and their turnover by 23 percent since 2008.
In a recent post on self-employment, Adam Lent threw out this challenge to the trade unions.
Rather than turn the rise of self-employment into a negative, I would suggest the union movement develops ways to enhance the earning power of this growing portion of the workforce so they can enjoy their autonomous creativity and be well-rewarded simultaneously.
Might the encouragement of co-operatives be one way to do this?
As I’ve said before, the last time the economy went through a long period of stagnation was during the 1870s and 80s. During that period, new forms of organisation appeared to meet the challenges of the day, such as friendly societies and mechanics institutes. This was also when the trade union and co-operative movements were born. Might this current period of recession and low growth throw up new forms of organisation too?