Saturday, April 03, 2010

Paper entrepreneurs

The Paper Entrepreneurs Are Winning Over the Product Entrepreneurs:
The paper entrepreneurs are winning out over the product entrepreneurs.

Paper entrepreneurs — trained in law, finance, accountancy — manipulate complex systems of rules and numbers. ... Product entrepreneurs — engineers, inventors, production managers, marketers, owners of small businesses — produce goods and services people want. They innovate by creating better products at less cost. ...

Our economic system has become so complex and interdependent that capital must be allocated according to symbols of productivity rather than according to productivity itself. These symbolic rules and numbers lend themselves to profitable manipulation far more readily than do the underlying processes of production.

It takes time and effort to improve product quality, exploit manufacturing efficiencies, develop distribution and sales networks. But through strategic use of accounting conventions, tax rules, stock and commodity exchanges, exchange rates, government largesse, and litigation, enormous profits are possible with relatively little effort. ...

If we are to increase the economic pie, we will need to redress the balance of entrepreneurial effort. Which strategies will stimulate more paper, and which more product?

Interestingly enough, Reich wrote this piece in 1980.

1 comment:

  1. Well, duh. Having "financial services" become the dominant (or even majority) sector of the economy is always dangerous. Pretty nearly every economic crash in history has followed such an expansion in one way or another, all the way back to the South Sea Bubble* and the Dutch Tulip Mania. And yes, it has been pointed out repeatedly over the last several decades that the Republicans under Reagan deliberately encouraged that growth.

    It's just something for nothing -- sooner or later, someone notices that you can swap the gold-plated mine props for silver ones and nobody will notice, and then a frenzy sets in as silver gets swapped for steel, and then aluminum, and then bundles of twigs and finally piles of old plastic. At each stage of the game, those getting rich by selling off the old parts assure us that they know what they're doing and the roof will stay up with the new materials. And then one day there's a mine disaster and the engineers are all stunned at how anyone could think that plastic picnic forks would hold up a mine. And, of course, we vow solemnly never to let it happen again. And we let the people who stole the original props keep the money they made by selling them off, because fines are only set against those who can't afford them.

    *Interesting book on the subject, titled The Secret History of the South Sea Bubble by Malcolm Balen. It turns out that historians have discovered quite good evidence that Horace Walpole (who came back into power in the wake of the scandal) deliberately exacerbated the problems and covered up evidence in order to consolidate his grasp on the government. It only took a few centuries to discover this. Next time anyone tells you that conspiracy theories are obviously untrue just because they are conspiracies, refer them to this book.


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