Chapter 3: Entrepreneurship

In this chapter we explore what entrepreneurship is and how new companies start and grow, and how the world (especially the ‘developed economies’) rely on entrepreneurship to develop better ways of working and new industries. Entrepreneurship is contrasted with traditional economics and compared across various industries.

The world is a web of trade: Without entrepreneurs everyone would be looking after themselves and their immediate group or family at a level around subsistence. This may sound idyllic, but if all are at subsistence level, then it is hard to make larger-scale improvements that help everyone, like hospitals, clean water, sewers and roads, let alone the Internet. Clearly by virtue of climate or geography many communities exist where transactions are based on barter and ‘mutual aid’ (those interested may like to look up, e.g. Pyotr Kropotkin), and there is nothing wrong with this once one accepts that such an economy is unlikely to produce, for example, the International Space Station. Thus, in many parts of the world at some point, everyone will need something that they cannot produce themselves. In that case they will have to produce more of what they can produce and swap that excess for what they cannot produce. At some point two things will happen: firstly, part of the population will concentrate on producing what they produce best in order to exchange it, and secondly a class of people will emerge who spend most of their time exchanging goods produced by others. We call this a “positive sum game” according to the Nash equilibria explained in Chapter 4, as opposed to “zero sum games” caused by conflict. Well before Nash, this effect caught the attention of Adam Smith (please refer back to Chapter 1 on economics) who wrote that when an individual pursues their own trading self-interests, under conditions of justice, then the ‘good of society’ is promoted because competition in the free market tends to benefit society as a whole by broadly satisfying demand whilst keeping prices low. This is a not a blanket approval of capitalism, because at this point Adam Smith also warned against big business, pointing out that their self-interest is different; their interest is to form cartels, monopolies or similar in order to artificially raise prices, thus working diametrically against the ‘good of society’.