Foss & Klein: Organizing Entrepreneurial Judgment

Valitettavan harvoin enää löytää taloustieteen kirjaa, jolla olisi merkittävästi uusia ajatuksia annettavanaan. Onnekseni löysin Thomas Taussin vinkistä Nicolai J. Fossin ja Peter G. Kleinin teoksen Organizing Entrepreneurial Judgment - A New Approach to the Firm, koska tämä kirja avasi hyvin uusia näkökulmia sekä yrittäjyyteen että omistajuuteen. Niinpä hankin kirjahyllyyni ja on viime aikoina tullut luettua läpi lähes kokonaan Fossin ja Kleinin kirjallinen tuotanto. Tutkijaparivaljakko on uuden polven akateemikoista ehdottomasti kiinnostavimpia seurattavia, koska he pohjaavat ajatteluansa perustellusti Itävaltalaiseen koulukuntaan kyeten kuitenkin jatkojalostamaan koulukunnan keskeisiä ideoita uusissa tutkimuksissaan.

 

Foss and Klein: Organizing Entrepreneurial Judgment - A New Approach to the Firm

 

Yrittäjämäinen yritysteoria (Entrepreneurial Theory of the Firm)

 

Teos Organizing Entrepreneurial Judgment ei taatusti tarttuisi kirjakaupasta ostoskoriin, ellei sattuisi olemaan hurahtanut yrittäjyyden ja omistajuuden tieteellisiin teorioihin. Teos on tyyliltään akateeminen ja suunnattu osaksi akateemista keskustelua, joten ilman aihepiirin aiempaa syvällistä tuntemusta kirja tuskin kolahtaa. Minulle se kyllä osui ja upposi. Niin kovasti, että teos tulee olemaan monilta osin viitekehykseltään keskeisessä roolissa myös tulevassa väitöskirjassani. Teoksessaan Foss ja Klein pyrkivät ensisijaisesti kehittämään yrittäjämäistä yritysteoriaa (entrepreneurial theory of the firm). Heidän ajattelussaan ja teoriassaan yrittäjyys asettuu taloudellisen toiminnan keskiöön ja yrityksiä, markkinataloutta ja siten taloutta on mahdotonta selittää ilman ymmärrystä yrittäjyydestä.

 

Kirja esittelee kiitettävästi aiemmat yrittäjyyden teoriat. Esille nousevat erityisesti Schumpeter, Kirzner ja itävaltalaisen koulukunnan von Mises sekä Rothbard. Kirjoittajat nostavat myös esiin yrittäjyyden ymmärryksen puutteellisuuden vallitsevissa talousteorioissa. Erityisesti makrotaloustieteen malleissa yrittäjyydelle ei useinkaan jää selittävää sijaa. Kuitenkin kirjoittajat osoittavat, että markkinatalous on mahdotonta ilman yrittäjyyttä.

 

Edellyttääkö yrittäjyys omistajuutta?

 

Yrittäjyyden teorioissa minua omistajuuden tutkijana kiinnostaa erityisesti yrittäjyyden suhde omistajuuteen. Edellyttääkö yrittäjyys omistajuutta? Onko yrittäjyys omistajuuden isä? Synnyttääkö yrittäjyys omistajuuden? Onko omistajuutta olemassa ilman yrittäjyyttä? Tylsä, mutta teoreettinen vastaus näihin kysymyksiin kuuluu, että riippuu yrittäjyyden määritelmästä. Jos määrittelee yrittäjyyden kirzneriläisittäin eli "idealistiksi/näkemyksen ottajaksi", ei yrittäjyys edellytä omistajuutta. Tällöin yrittäjyys on irrallaan resurssien omistamisesta eli kapitalistin roolista. Muut sen sijaan kytkevät yrittäjyyden ja omistajuuden kiinteästi toisiinsa. Näin myös Foss ja Klein, joiden mukaan yrittäjyys on pohjimmiltaan päätöstä resurssien käyttämisestä yrittäjien näkemyksen mukaisella parhaalla yhdistelmällä. Yrittäjyys on siis sekä ideointia että resurssien yhdistämistä ja allokointia (s.21). Luonteeltaan yrittäjyys on opportunismia ja arbitraasia, koska yrittäjän on määritelmän mukaisesti aina otettava eriävä näkemys markkinoiden vallitsevasta näkemyksestä ja kuljettava oma polkunsa (s.34).

 

Pääoma on heterogeenistä

Kirjan vahva perusnäkemys on pääoman heterogeenisyys. Eri resursseilla on eri arvo ja hinta ja yrittäjyysprosessin tehtävänä on saattaa resurssit parhaaseen mahdolliseen käyttöön, jotta niiden arvo saadaan maksimoitua (s.104). Kirjassa käsitellään hyvin vallitsevia teorioita ja niiden puutteellisuuksia nimenomaan pääoman heterogeenisyyden sekä informaation epäsymmetrisyyden näkökulmasta. Täten tulee osoitetuksi, kuinka vähän moni yleinenkin teoria ymmärtää loppujen lopuksi markkinatalouden ydinoletuksista. Esimerkiksi jos sopimukset olisivat täydellisiä, ei olisi tarvetta omistajuudelle eikä myöskään yrityksille, koska kaikki omaisuuserien ominaisuudet (attribuutit) olisi hankittavissa sopimusteitse. Näin ei kuitenkaan todellisuudessa ole, eikä voi teoriassa eikä käytännössä ollakaan. Siksi omistajuutta resurssin viimeisenä vastuunkantajana tulee aina esiintymään markkinataloudessa.

 

Syvällinen akateeminen klassikko

 

Kuten sanoin, en suosittele Fossin ja Kleinin teosta kylmiltään kenelle tahansa vaan ainoastaan aihepiiriin paneutuneille akateemista kirjallisuutta harrastaville henkilöille. Vaikka kirja on kiitettävän ymmärrettävästi kirjoitettu, ei siitä keskiverto bisneskirjan lukija saa kovinkaan kummoista käsitystä, ellei satu entuudestaan tuntemaan esimerkiksi Kirznerin, Schumpeterin, Misesin ja Rothbardin keskeisiä kirjoituksia. Sen sijaan jos edellä mainitut ovat jo hallussa, on Foss ja Klein siihen sopivaa jatkoa. Modernissa yrittäjyyden tutkimuksessa tätä kaksikkoa lienee mahdoton ohittaa viittaamatta heidän ajatuksiinsa. Siksi olenkin erityisen yllättynyt, miksi en ole heihin aiemmin yliopistomaailmassa törmännyt. Peter G. Klein on erittäin aktiivinen kirjoittamaan blogitekstejä ja häntä kannattaa seurata myös Twitterissä (@petergklein). Nicolai J Foss opettaa nykyisin Kööpenhaminan kauppakorkeakoulussa.

Poiminnot

• The theory of entrepreneurship and the theory of the firm should be treated together. (1)
• An easy way to delineating different types of entrepreneurs and economic theories of entrepreneurship is to distinguish between those that define entrepreneurship as an outcome or a phenomenon (e.g. self-employment, start-ups) and those that see entrepreneurship as a way of thinking or acting (e.g. creativity, innovation, alertness, judgment, adaptation). 7
• “Entrepreneurial talent is really a portmanteau variable that includes entrepreneurial, managerial and ownership skills.” – Lucas (1978), 9
• Since Coase (1937) the fundamental issues in the economic theory of the firm have been taken as why firms exist (when non-firm, contractual means of allocating resources are available), what determinates their boundaries (i.e., the allocation of productive activities across firms), and what determines their internal organization (i.e., organization structure, reward systems, etc.) 12
• “The theoretical firm is entrepreneurless – The Prince of Denmark has been expunged from the discussion of Hamlet” – (Baumol, 1968, 68), 12
• Entrepreneurship is not simply another resource, like physical and financial capital, reputation, human capital, technical know-how, and the like, but a higher-level, coordinating factor – the source of what we call “primary or original judgment”. 14
• Entrepreneurs differ in their abilities to exercise original judgment and to delegate “derived judgment” to subordinates. 14
• The ability to organize resources is itself a capability, an ability to create and recognize strategic opportunities. – Denrell et al (2003) 15
• Schumpeter is without any doubt the best-known economics contributor to the entrepreneurship field. 16
• Kirzner’s entrepreneurs do not own capital, they need only be alert to profit opportunities. Because they own no assets, they bear no uncertainty. 18
• Opportunities for entrepreneurial gain do not exist, objectively, waiting to be discovered and exploited; rather, opportunities come into existence only as they are manifested in action. 20
• The concept of entrepreneurship as judgmental decision-making under uncertainty, a concept we trace through Cantillon (1755), Say (1803), Knight (1921) and Mises (1949). Entrepreneurs are modeled as decision-makers who invest resources based on their judgment of future market conditions, investments that may or may not yield positive return. Because markets for judgment are closed, the exercise of judgment requires starting a firm; moreover, judgment implies asset ownership. …There is no market for the judgment that entrepreneurs rely on, and therefore exercising judgment requires the person with judgment to own productive assets. …Judgment thus implies asset ownership, for judgmental decision-making is ultimately decision-making about the employment of resources. (20-21)
• Resource uses are not data, but are created as entrepreneurs envision new ways of using assets to produce goods. The entrepreneur’s decision problem is aggravated by the fact that capital assets are heterogeneous, and it is not immediately obvious how they should be combined. The entrepreneur’s role, then, is to arrange or organize the capital goods he owns. (21)
• We are living in a world of unexpected change; hence capital combinations … will be ever changing, will be dissolved and reformed. In this activity, we find the real function of entrepreneur.” – Ludwig Lachmann, (1956, 16), 21
• One way to operationalize the Austrian  notion of heterogeneity is to incorporate Barzel’s (1997) idea that capital goods are distinguished by their attributes. Attributes are characteristics, functions, or possible use of assets, as perceived by an entrepreneur. Assets are heterogeneous to the extent that they have different, and different levels of, valued attributes. Attributes may also vary over time, even for a particular asset. Given Knightian uncertainty, entrepreneurs are unlikely to know all relevant attributes of assets when production decisions are made. Nor can the future attributes of an asset, as it is used in production, be forecast with certainty. (22)
• Entrepreneurs who seek to create or discover new attributes or capital assets will want ownership titles to the relevant assets, both for speculative reasons and for reasons of economizing on transaction costs. (22)
• If any firm can do what any other firm does (Demsetz, 1991), if all firms are always on their production possibility frontier, and if firms always make their equilibrium choices of input combinations and output levels, then there is no room for entrepreneurship. 26
• Because capital is heterogeneous, the attributes of capital goods are not always known, ex ante.  27
• Entrepreneur’s primary role is to exercise judgment about the use of productive resources under uncertainty. 28
• Schumpeter carefully distinguished the entrepreneur from the capitalist (and strongly criticized the neoclassic economists for confusing the two). His entrepreneur need not own capital, or even work within the confines of a business firm at all. 32
• Schumpeterian entrepreneurship is sui generis, independent of its environment, the nature and structure of the firm does not affect the level of entrepreneurship. 33
• For Kirzner, recognition is the primary entrepreneurial act; the rest is management. Kirzner’s formulation emphasizes the nature of competition as what Hayek (1968) called a “discovery process”. The source of entrepreneurial profit is superior foresight – the discovery of something (new products, cost-saving technology) unknown to other market participants. The simplest case is that of the financial-market or commodity arbitrageur, who discovers a discrepancy in present prices that can be exploited for financial gain. In a more typical case, the entrepreneur is alert to a new product of a superior production process and steps in to fill market gap before others. Success, in this view, comes not from following a well-specified maximization problem, but from having some knowledge or insight that no one else has – that is, from something beyond the given means-end framework. 34
• Kirzner’s entrepreneurs do not own capital: they need only to be alert to profit opportunities. Because they own no assets, they bear no uncertainty. The worst that can happen to an entrepreneur is the failure to discover an existing profit opportunity. Kirzner’s entrepreneurs do not need a firm to exercise their function in the economy. 34
• According to Rothbard (1985, 283) “Entrepreneurial ideas without money are mere parlor games until the money is obtained and committed to the projects.” 34
• According to Klein (2008b) “Under uncertainty, opportunities can only be defined ex post. Action, not opportunities, should be the unit of analysis in entrepreneurship studies”. 35
• “Both the Spanish word “empresa” and the French and Latin expression “entrepreneur” derive etymologically from the Latin verb in prehendo-endi-ensum, which means to discover, to see, to perceive, to realize, to attain; and the Latin term in prehensa clearly implies action and means to take, to catch, to seize. In short, empresa is synonymous with action”. 35
• Making decisions without knowing the consequences for sure – is the entrepreneur’s raison d’être. Of course, all human action involves uncertainty, such that there is an element of entrepreneurship in all human behavior. 39
• While alertness tends to be passive, judgment is active. Alertness is the ability to react to existing opportunities while judgment refers to the creation of new opportunities. Entrepreneurs are those who seek to profit by actively promoting adjustment to change. 39
• Judgment implies asset ownership. Judgmental decision-making is ultimately decision-making about the employment of resources. An entrepreneur without capital goods is, in Knight’s sense, no entrepreneur. The firm, in this sense, is the entrepreneur and the assets he owns, and therefore ultimately controls. The theory of the firm is essentially a theory of how the entrepreneurs exercises his judgmental decision-making – what combinations of assets will he seek to acquire, what (proximate) decisions will he delegate to subordinates, how will he provide incentives and employ monitoring to see that his assets are used consistently with his judgment, and so on. 40
• In the marginal productivity theory, laborers earn wages, capitalists earn interest, and owners of specific factors earn rents. Any excess (deficit) of a firm’s realized receipts over these factor payments constitutes profit (loss). Profit and loss, therefore, are returns to entrepreneurship. In a hypothetical equilibrium without uncertainty, capitalists would still earn interest, as a reward of lending, but there would be no profit or loss. 40
• Entrepreneurship, and not labor or management or technological expertise, is the crucial element of the market economy. In the absence of entrepreneurship a complex, dynamic economy cannot allocate resources to their highest valued use. 41
• Firms are bundles of resources, and an entrepreneurial theory of the firm must be a theory about resources. 42
• The entrepreneur is described by Menger (1871, 68) as a coordinating agent who is both capitalist and a manager. Menger also makes the entrepreneur a resource owner, as does Knight (1921) 46
• “Entrepreneurs work for uncertain wages, and all others for certain wages. …Even Beggars and Robbers are Entrepreneurs of this class” –Cantillon (1755)
• Fetter’s (1905, 286-287) description of the entrepreneur identifies uncertainty-bearing as the key entrepreneurial function. The entrepreneur (1) “guarantees to the capitalist-lender a fixed return, (2) gives up the certain income to be got by lending his own capital, and becoming a borrower, offers his capital as insurance to the lender, (3) gives to other workers a definite amount for services applied to distant ends and (4) risks his own services and accepts an indefinite chance instead of a definite amount for them”. He also serves as an “organizer” and “director”, possessing unusual foresight and the ability to judge men and tact in relations with them. In short, the entrepreneur “is the economic buffer; economic forces are transmitted through him”. 49
• Wieser (1914) presents entrepreneur as owner, manager, leader, innovator, organizer and speculator. 50
• “If Kirznerian entrepreneur owns no assets, then how in the world does he earn profits? Profits, after all, are simply the other side of the coin of an increase in the value of one’s capital; losses are the reflection of a loss in capital assets. The speculator who expects a stock to rise uses money to purchase that stock; a rise or fall in the price of stock will raise or lower the value of the stock assets. If the price rises, the profits are one and the same thing as the increase in capital assets. The process is more complex but similar in the purchase or hiring of factors of production, the creating of a product and then its sale on the market. In what sense can an entrepreneur ever make profits if he owns no capital to make profits on?” – Rothbard (1985,282-3) 55
• “Ownership and entrepreneurship are to be viewed as completely separate functions. Once we have adopted the convention of concentrating all elements of entrepreneurship into the hands of pure entrepreneurs, we have automatically excluded the asset owner from an entrepreneurial role. Purely entrepreneurial decisions are by definition reserved to decision-makers who own nothing at all. – Kirzner (1973,47) 58
• Kirzner claims that entrepreneurship is a logical category. 60
• Mises’s entrepreneur is a resource allocator. 65
• Judgment is residual, controlling decision-making about resources deployed to achieve some objectives; it is manifest in the actions of individual entrepreneurs; and it cannot be bought and sold on the market, such that its exercise requires the entrepreneur who own and control a firm. 78
• Entrepreneurship can be neither taught nor learned. – Mises (1949, 585) 80
• Judgment is rooted in skills for handling uncertainty. Judgment is a function. It is based on perceptions, skills and heuristics. 81
• Profit is the reward to bearing uncertainty, specially a return that accrues to those entrepreneurs who are particularly optimistic in the face of ambiguity and who succeed with their entrepreneurial ventures. 96
• Firm is a nested hierarchy of judgment. 98
• In the market economy, there will always be entrepreneurs. As long as there is private ownership, markets, and prices, there is entrepreneurship. 99
• Opportunities for entrepreneurial gain are inherently subjective, in the sense that they do not exist until profits are realized. 102
• Modern economics does not really have a theory of capital per se. It may have various theories of investments and interest, but not a theory of capital in the sense of the classical or the Austrian economists (Lewin, 1999, Garrison, 2001) Similarly, modern management theory is not explicitly founded upon, or even related to, any particular theory of capital. 106
• Austrian Capital Theory consists of Menger (1871), Böhm-Bawerk (1884-1912), Hayek (1941), Mises (1949), Lachmann (1956), Kirzner (1967) and Lewin (1999). 106
• The shmoo capital is close to being a substitute for a zero-transaction-cost assumption. While transaction costs would not disappear entirely in such world, asset ownership would be relatively unimportant. The possibility of specifying all possible uses of an asset significantly reduces the costs of writing complete, contingent contracts between resource owners and entrepreneurs governing the uses of the relevant assets. Contracts would be largely substitute for ownership, leaving the boundary of the firm indeterminate. Similarly, in a world of shmoo capital the entrepreneur is relatively unimportant. 109
• All modern theories of the firm assume (often implicitly) that at least some capital assets are heterogenous, so that all assets are not equally valuable in all uses. 110
• Capital assets are subjective, individual production plans, plans that are formulated and continually revised by profit-seeking entrepreneurs. Capital goods should thus be characterized, not by their physical properties, but by their place in the structure of production as conceived by entrepreneurs. The actual place of any capital good in the time sequence of production is given by the market for capital goods, in which entrepreneurs bid for factors of production in anticipation of future consumer demands. This subjectivist, entrepreneurial approach to capital assets is particularly congenial to theories of the firm that focus on entrepreneurship and the ownership of assets. 115
• Understanding of capital as a complex structure. 115
• The real-world entrepreneurship consists primarily of choosing among combinations of capital assets. The entrepreneur’s function is to specify and make decisions on the concrete form the capital resources shall have. He specifies and modifies the layout of his plant. As long as we disregard the heterogeneity of capital, the true function of the entrepreneur must also remain hidden. (Lachmann, 1956,16) 117
• Property-rights theorist often highlight that most assets have multiple attributes (Coase, 1960; Cheung, 1970; Barzel, 1997; Demsetz, 1988a), including the different functionalities and services or uses (Penrose, 1959) that the resources can offer. 117
• Heterogeneity is an endogenous outcome of entrepreneurial activities. 118
• Demsetz argues that the notion of “full private ownership” over assets is “vague”, and must always remain so, because there is an infinity of potential rights of actions that can be owned. It is impossible to describe the complete set of rights that are potentially ownable (Demsetz, 1988b, 19). Thus, most assets have unspecified, not-yet-discovered attributes. An important function of entrepreneurship is to create or discover these attributes. In fact, entrepreneurship creates (contra Demsetz) a distinct role for asset ownership, that is, for holding title to a bundle of existing attributes as well as to future attributes. Specifically, ownership is a low-cost means of allocating the rights to attributes of assets that are created or discovered by the entrepreneur-owner. 119
• Ownership simplifies the process of entrepreneurial arbitrage – and hence helps to close pockets of ignorance in the market – by allowing entrepreneurs to acquire, in one transaction, a bundle of rights to attributes (i.e. a distinct asset). 120
• Austrian idea of heterogeneous capital is a natural complement to the theory of entrepreneurship and it connects naturally to ideas on heterogeneous assets in property-rights economics. Entrepreneurs who seek to create or discover new attributes of capital assets will want ownership titles to the relevant assets, both for speculative reasons and for reasons of economizing on transaction costs. 129
• To explain boundaries, one must presuppose that contracts are incomplete, for otherwise everything can be stipulated contractually and there is no need for ownership, understood as the “residual right” to make decisions that are not specified by contracts. 141
• From an entrepreneurial perspective, the firm emerges as the entrepreneur’s means of maximizing the returns from his judgment. 164
• Entrepreneurs are those individuals who undertake investments with unevaluatable risks. These risks are therefore uninsurable. The entrepreneur believes he is right, while everyone else is wrong. Thus the essence of entrepreneurship is being different because one has a different perception of the situation. Entrepreneurship reveals to the market what the market did not realize was available, or indeed, needed at all. 165
• The best time and place to use an asset depend on the specification of the uses of all other assets that are needed in production (Hayek, 1941) 171
• In a world of heterogeneous assets with attributes that are costly to measure and foresee, complete contracts cannot be drafted. 173
• The primary way to secure prospective entrepreneurial rewards, according to the new property-rights approach, is to acquire ownership rights of complementary resources. 178
• Mises claims that efficient resource allocation in a market economy requires well-functioning asset markets. To have such markets, factors of production must be privately owned. 182
• Entrepreneurial judgment is manifest in ownership. 191
• Even the most passive owners must choose someone to manage the asset. 194
• The ultimate decision concerning the use of their property and the choice of the men to manage it must therefore be made by the owners and by no one else. (Rothbard, 1962, 538) 195
• All entrepreneurial activity is socially beneficial (e.g. Mises, 1949; Kirzner, 1973; Yonekura and Lynskey, 2002; Shane 2003). Baumol (1990) points out that entrepreneurship may be socially harmful. 197
• One should own those assets that are complementary to one’s (non-contractible) human capital investments, since this increases (ex post) bargaining power and therefore the rents that may be expected from investments. (Hart, 1995) 209
• There is a general tendency for ownership of complementary assets to move to the knowledge source (rather than the other way around), because knowledge is harder to trade than most other resources. (Foss, 1993a; Casson, 1997) 210
• Ownership facilitates the use of entrepreneurial judgment in a productive venture by conferring the right to define contractual constraints may also be argued from a property-rights perspective. 210
• The allocation of ownership is not just a matter of “getting the investment incentives right”; it is also a matter of reducing the transaction costs of the experimental process, by allocating authority via allocation of ownership rights. Moreover, ownership has a speculative dimension (i.e. an entrepreneur may acquire ownership over assets because he thinks they are more valuable in combination with other assets, including his own judgment) that is missing in the established theories of economic organization, but comes into the forefront in an entrepreneurial perspective. 236
• Capital is not a factor or production per se, but an intrinsic aspect of the function of entrepreneurial ownership and control. Judgment and finance are inextricably linked. 237
• Judgment is the act of owning and controlling productive resources under conditions of uncertainty and, therefore, not a resource itself. 237
• The main function of capital markets, after all, is not to moderate the total amount of financial capital, but to allocate capital across activities. 243
• It is critically important to avoid public policies that generate malinvestment in the first place. The fastest way to economic recovery is to liquidate the bad investments as quickly as possible. 247