In which a group of graying eternal amateurs discuss their passions, interests and obsessions, among them: movies, art, politics, evolutionary biology, taxes, writing, computers, these kids these days, and lousy educations.

E-Mail Donald
Demographer, recovering sociologist, and arts buff

E-Mail Fenster
College administrator and arts buff

E-Mail Francis
Architectural historian and arts buff

E-Mail Friedrich
Entrepreneur and arts buff
E-Mail Michael
Media flunky and arts buff

We assume it's OK to quote emailers by name.

Try Advanced Search

  1. Seattle Squeeze: New Urban Living
  2. Checking In
  3. Ben Aronson's Representational Abstractions
  4. Rock is ... Forever?
  5. We Need the Arts: A Sob Story
  6. Form Following (Commercial) Function
  7. Two Humorous Items from the Financial Crisis
  8. Ken Auster of the Kute Kaptions
  9. What Might Representational Painters Paint?
  10. In The Times ...

Sasha Castel
AC Douglas
Out of Lascaux
The Ambler
Modern Art Notes
Cranky Professor
Mike Snider on Poetry
Silliman on Poetry
Felix Salmon
Polly Frost
Polly and Ray's Forum
Stumbling Tongue
Brian's Culture Blog
Banana Oil
Scourge of Modernism
Visible Darkness
Thomas Hobbs
Blog Lodge
Leibman Theory
Goliard Dream
Third Level Digression
Here Inside
My Stupid Dog
W.J. Duquette

Politics, Education, and Economics Blogs
Andrew Sullivan
The Corner at National Review
Steve Sailer
Joanne Jacobs
Natalie Solent
A Libertarian Parent in the Countryside
Rational Parenting
Colby Cosh
View from the Right
Pejman Pundit
God of the Machine
One Good Turn
Liberty Log
Daily Pundit
Catallaxy Files
Greatest Jeneration
Glenn Frazier
Jane Galt
Jim Miller
Limbic Nutrition
Innocents Abroad
Chicago Boyz
James Lileks
Cybrarian at Large
Hello Bloggy!
Setting the World to Rights
Travelling Shoes

Redwood Dragon
The Invisible Hand
Daze Reader
Lynn Sislo
The Fat Guy
Jon Walz


Our Last 50 Referrers

« Elsewhere | Main | High School Yearbook »

January 04, 2004

Do We Really Have a Market Dominant Majority?


Thanks for the link in your post Elsewhere (which you can find here) to Amy Chua's article in the Wilson Quarterly on her notion of a 'market dominant minority.' (You can read Ms. Chua's article here.) In it she points out that when you combine globalism and democracy with the fact (extensively written about by Thomas Sowell) that certain ethnic groups are far more predisposed to participate actively in capitalism than others, you can get a flammable mixture of racism and envy.

You also provided links to posts by Steve Sailer (here) and Vinod (here) that congratulate the U.S. on the fact that it has a ‘market dominant majority.’ What they seem to mean by this is that the upper echelons of our economy are dominated by individuals from ethnic groups that constitute a majority of our population. Frankly, this is only sort of true; the most casual observer will notice that there are ethnic or religious minorities that are greatly over-represented among the American business elite relative to their percentage in the general U.S. population.

And, if we for a moment take off the ethnic, racial and religious blinders, what is blindingly obvious is that the U.S. does not have anything remotely approximating a market dominant majority. The great majority of individuals will never be self-employed nor start their own business nor employ anyone else. Their speculative investments will never go beyond owning a house and maybe some stock.

In other words, although all Americans live in a world dominated by capitalism, the vast majority of us simply don’t play the game. Most of us are, in economic terms, awfully similar to 18th century 'civilians' in the middle of a war between rival princes and their mercenary armies—that is, keeping our heads down and waiting to see who wins (and how much they'll raise taxes).

I don’t know about you, but this strikes me as weird, or even uncanny; in fact, it is one of the most uncanny things that I have observed about life as an adult. It even seems oddly ahistorical, as the evolution of society over the past five or six hundred years has clearly been in the direction of greater freedom and control over one’s fate. So why are so many people—no longer hobbled by legal or religious ‘disabilities’ and with so much access to capital—still loathe to grasp the reins of their own economic horses, so to speak?

What causes this general sense of disempowerment? Is it, in some way, human nature? It would almost appear to be the case, except for the fact (as Mr. Sowell points out so eloquently) this sense of general economic disempowerment varies significantly from one culture to another. Clearly, among certain ethnic/religious groups, the notion of starting a business, lending money or making speculative investments is seen to be a far more natural activity than it is among others. (And I speak, personally, as someone who was brought up in a culture where to be anything other than a hard-working employee was pretty hard to imagine.)

Maybe we need to develop a mentoring system, or an educational program, to ‘demystify’ capitalism—to make it clear that it hardly requires genius or some terribly rare genetic trait to play the game. What I suspect people would find is that they can make business decisions on their own at least as well as their current idiot employers do!

If we’re going to live under capitalism, we should all (or, at least, a lot more of us) should take a stab at playing capitalist. If not, we’re just sort of asking for some ‘market dominant minority’--whether of our own ethnic background or not--to run our lives for us.



posted by Friedrich at January 4, 2004


"What causes this general sense of disempowerment?"

My vote is for modern schooling. It is a very good system for producing big, easily lead, children.

Posted by: Thrasymachus on January 4, 2004 8:12 PM

Apart from their metallic content, they are easily led as well.

Posted by: Thrasymachus on January 4, 2004 8:15 PM

I always thought that employees are participating in capitalism as much as anyone else.

Deciding what to study at school, whether to go us who are not independently wealthy, a speculative investment as much as starting a tea to uni or polytech, or what to study once you're there, or what job offer to accept, for those of room or a software company.

I sell my services for a standard employment contract at the moment, the person sitting next to me is selling nearly the same services for a contract (to cover someone on maternity leave) and another friend sells her services through a company she owns herself. What is the real difference between what we sell (ignoring any differences created by the tax law, or employment regulations)?

Posted by: Tracy on January 4, 2004 9:36 PM

It's not such a mystery. Most people just don't have the capital to start a business. Furthermore, they prefer the security, convenience and freedom of working for someone else. A small business owns the owner as much as the owner owns the business. What do you do if you want to go on vacation? If you get sick? Can you really trust your employees or partner? A lot can go wrong and unless you are fairly wealthy in the first place there's no safety net.

It might be possible for many more people to start small, part-time home business but most people are mystified as to how to start. There are all kinds off home based business "offers" out there but most of them are scams. The only way to be safe is to start from scratch - educate yourself, do tons of research, then spend all your spare time planning and setting it up with no guarantee of a return on investment.

Then there are all those government regulations. We bought a beehive last year and had considered at some point in the future selling honey but soon the laws will change requiring than anyone selling honey have an FDA approved kitchen. Well, that makes sense I guess. You don't want people selling food that might not be safe, but on the other hand people have been selling honey for centuries without the FDA to tell them how and if the new FDA regulations are typical of government regulations in general they go way beyond what is necessary to insure safety.

Owning a business is just too much of a hassle for most people.

Posted by: Lynn S on January 4, 2004 10:02 PM

If you have no capital, starting your own business and making it grow require at least two things. 1. A tremendous amount of energy to start it and keep it going while you support it, yourself, and your family by other means. 2. After the business grows to a certain point, the ability to manage employees in a way that allows your business to make a profit from their efforts. Managing employees also requires the patience to understand and comply with all the government regulations that come with employerhood. I've started a couple of businesses in my life and found that it is far easier, and more profitable(at least in the short run), to work for some one else and let them worry about all that.

Posted by: Amos on January 4, 2004 11:04 PM

The standard answer you get to the problem posed by blue collar jobs being shipped to Mexico/China and (now) white collar jobs being shipped to India is that we'll all become self-employed . . . doing what exactly is left a little vague.

One thing that keeps people (such as myself) working on the corporate farm is the various distortions caused by tax law. The biggest one is health care. We've stumbled into this system where your employer provides you with health insurance and thus leaving your employer can entail going without, which is rather ill-advised. In my more paranoid moments I wonder if this wasn't deliberate - it creates a captive workforce hesitant to leave the corporate world and perhaps compete against it?

Posted by: dude on January 4, 2004 11:07 PM

Tracy has it right: You don't have to be a member of the business elite to participate in an economy. Anyone who buys or sells gets to "play the game" of savings and investment, risk and reward.

It's important to remember that Adam Smith never used the word "capitalism." For him, market economics was just the way things are. A close look at economic activity under anti-capitalist system reveals that, lo and behold, Smith was pretty much right: Market entrepreneurs are to be found under any economic system. The government may be laissez-faire, interventionist, or some mixture of the two; but people will still make their own decisions pertaining to their wealth and personal well-being.

Posted by: Tim Hulsey on January 4, 2004 11:33 PM

I'm all for your notion of spelling out what the game consists of. I think keeping the basics and fundamentals of the game from youngsters is about as disempowering as can be, as well as a terrible betrayal of trust. I'm shocked when I run across people who seem to have no idea that it's all about trading this for that. So get me on board that program.

There is one point on which I might be a bit of a dissenter, though maybe it's just a question of defining terms. And I'm going to allow myself to pretend to speak for others, just for a second, and purely for convenience, even though there may only be a few of us.

But: how about those of us who don't really care to concern ourselves too much with the economic thing? I'm one myself, and I imagine there are at least a few others out there.

My interest in forging my own fate economically, or at least in playing the economic game, only goes to a certain point. Beyond that, I could care less. So ( to use myself only as an example) I've made a variety of decisions to minimize my hours, maximize my time off, and still generate a middle-class income. I rather like being a time-clock puncher -- from my point of view, it's a rational (even economicaly rational) decision to be one. I want, and choose, to minimize (or at least limit) my involvement in the game while not being a bum.

I suppose you could say that that's the way I'm choosing to play the game, and that's certainly true. But I also think that's letting the game define the life rather than letting the living being define his interaction with the game. In other words, if you were to say, OK, the economic thing is baseball. Someone might say, "OK, sure, and I got no problem with that. But I'm not crazy about baseball, I recognize that playing it some is necessary to paying the bills, and that's OK with me, I'll do what's necessary. But basically I'm not crazy about baseball and I don't want it to take over my life, so I'm going to confine my baseball playing to six hours a day and I'm only going to put out so much energy." I mean, for such a person, the rational thing might not be to throw himself into baseball and play baseball as hard as possible, but instead might be to limit the amount of baseball in his life. Not "life as baseball," but "baseball as a part of life."

For someone with that kind of temperament, maybe it isn't a surprise that he doesn't wind up an entrepreneur or independent contractor. Those are tough, rather all-absorbing things to be, and nothing that someone who wants to limit his involvement in the game would opt for. Between you and me, I suspect that the percentage of people who are willing or able to be independent contractors is fairly small. Being an entrepreneur takes balls, drive and commitment, and I'm not sure too many people will ever qualify, or even want to qualify. For someone who wants to limit his involvement in the game, perhaps being an employee make sense.

It seems to have made sense for me. It's led to me being a middle-level employee who's arrived at a rather pleasant agreement with my employer. I've got a pleasant little office and make a decent middle-class income. Here's hoping my employer's think hey're getting a decent amount of value out of me. But I'm a time-clock puncher, and that suits me fine -- and not because I'm not hip to the game, but because that's how I choose to play it.

So, while I'm with you on the idea that everyone should understand the nature of the game, I wonder a bit about the idea that everyone who does get the nature of the game can or will wind up an entrpreneur or independent contractor. I suspect that such life-arrangements will suit only people with certain temperaments. How about those of us who get the game, but whose interest in participating in the game (in a focused and driven way, at least) only goes so far? Perhaps for some of us, being an employee is a perfectly rational way to get by. There's no particular reason why "getting the game" has to lead to "being enthusiastic about the game," or even "wanting to take much part in the game."

But I may well be misunderstanding you here ....

Posted by: Michael Blowhard on January 5, 2004 2:17 AM

Oh, hey, another good Amy Chua piece is here.

Posted by: Michael Blowhard on January 5, 2004 2:54 AM

"Perhaps for some of us, being an employee is a perfectly rational way to get by." Mostly agree with Tracy and M. Blowhard... but when you look at lottery ticket sales, it's seems clear that Fried may have a point about some people not getting the rules of the game.

Posted by: j.c. on January 5, 2004 10:20 AM

I think FvB is absolutely right about that -- NYC seems full of people who don't "get it," and it's tragic. They walk around seeming bewildered and furious. But they're furious at the game rather than at the people who didn't clue them in. I'm just curious to see what FvB makes of people who get the game but don't want to give themselves to it wholeheartedly ...

Posted by: Michael Blowhard on January 5, 2004 12:09 PM

Fried's point here and before seems to be about empowerment,and since people gravitate to empowerment (theoretically), then why keep slaving away for The Man instead of oneself? The opposite of empowerment.

But in truth I think MBlowhard sounds pretty empowered, too---he's worked it out his way, for his hours, for his desired level of stress and commitment, and that's pretty darn empowered.

Then there are the people who are tailor made --politically, in terms of identity---to rise within a hierarchical political organization (people who become CFO's or CEO's in the Fortune 500, for instance) and THEY probably make way more money doing that than they likely would have starting a restaurant or something, and they get the ego massage, and the power trip, without putting a dime of their own at risk, and for them, the are empowered, too.

Then there are those who feel disempowered by the whole econ game, and maybe they need to reassess their options. Can they start a business? Can they settle for less income but more time like MBlowhard?

But I do agree that access to time and drive and capital is a limiting factor in "starting one's own business", as well as simply coming up with an idea of a business to profitably start. And, if you aren't into it, slaving away to find time and drive and capital can feel as disempowered as anything.

I also agree that laying out these realistic options should be a key factor in a young person's education. So may youngsters (myself included) get dazzled by the percieved "glamour" of something, and have such a poor internal compass at that age, that they can make decisions with wrong expectations which leave them disempowered and dissatisfied. (I was talking to a college freshman recently who thinks she wants to major in Communications because she took a TV production class first semester. You could see the stars in her eyes. I so wanted to guide her to talk to a few I know who tried, or succeeded, in making their way in TV, and to hear the reality, not the stardust). In general in our society, I really think we do a poor job of helping people figure out what really are the ingredients of a life that will be satisfying to them, and then EMPOWERING them to feel free to pursue that life.

Posted by: annette on January 5, 2004 1:33 PM

PS---I don't mean I AM a youngster---I mean, when I WAS one...

Posted by: annette on January 5, 2004 1:35 PM

MvB wrote:

"So, while I'm with you on the idea that everyone should understand the nature of the game, I wonder a bit about the idea that everyone who does get the nature of the game can or will wind up an entrpreneur or independent contractor. I suspect that such life-arrangements will suit only people with certain temperaments. How about those of us who get the game, but whose interest in participating in the game (in a focused and driven way, at least) only goes so far? Perhaps for some of us, being an employee is a perfectly rational way to get by. There's no particular reason why "getting the game" has to lead to "being enthusiastic about the game," or even "wanting to take much part in the game."

I agree with this. In addition, it is important to remember that it is the fact that a relative few people do take the risk and sacrifice of entrepreneurship that allows many others to live very comfortable lives without getting too "involved in the game" (I dislike that term, but I'm not sure why.)

The real problem arises when those who don't want to be entrepreneurs start to blame capitalism for the fact they don't drive a BMW, rather than realizing that without free markets, they wouldn't even be driving their Honda.

Posted by: Paul Mansour on January 5, 2004 2:33 PM

To all: thanks for the comments!


I agree that schooling reflects the same odd 'divorce' from capitalism as does our wider society. I guess there are some programs on entrepreneurship in colleges, but nothing at a mass level where everybody would get exposed to it. (Of course, as I've mentioned in other postings, when looked at closely, it turns out that public schools are not 'neutral' transmitters of information, but are generally reactionary upholders of the current civil order. Keep the peasants in their place, and all that.)


I must disagree. Really participating in capitalism, or the market economy, means formulating a view about the future and taking a risk position accordingly. If all you are doing is selling your labor to the highest bidder, you are not really 'playing the capitalist game'--you could do exactly the same under a socialist regime. (You are also not maximizing your income.)

Lynn S:

I disagree that most people lack access to capital to start a business. I think most people could get their hands on sufficient capital if they exerted themselves. It's not like the average small business has the capital needs of Ford or General Electric. I launched my business on around $50,000.

I agree that running a small business can be very time consuming. It is time consuming, even life consuming. But if this is too daunting for people, perhaps they might consider what it takes to be a successful businessperson the next time they decide to 'soak the rich.'

I also agree that government regulations are very burdensome. (Start a business and you will be astonished at the government agencies that you've never heard of that come forward with their hands out. ) However, if more people had to suffer such restrictions, one can't help but suspect that some of the more onerous ones might be repealed.


As I suggested to Lynn S, I would argue that if more people were entrepreneurs, we would see more rational and less burdensome regulation of employer-employee relations. The current system is a reflection of an ugly tendency in democracy to put the burden on any minority group (in this case, entrepreneurs, who can't fight back at the ballot box.)


Our current system of employer-provided health insurance is, in a word, insane. And yes, current health insurance laws do embody the exact same reactionary thinking (i.e., that the majority of the population aren't smart or mature enough to handle their own affairs, better for everyone if they stay employees) one sees in public education.

Mr. Hulsey:

Sorry to disagree, but I must. Please see my answer to Tracy, above.

Michael Blowhard:

I'm not about to criticize people who don't find themselves enthralled by the biz world for not starting life-consuming long as that decision is based on experience. I suspect, however, that with most people in that position, the situation is a little like the one in Doctor Suesses' "Green Eggs and Ham"--to wit, until you've tried green eggs and ham, how do you know if you really like it or not?

Also, while you seem to have a nice spot in corporatesville, such a berth may not be available to everyone. Working for corporate America certainly involves sacrifices, which are, for many people, no longer compensated by increased economic security. If you were suddenly laid off, or lost your pension, how would you feel about your years on the corporate reservation?

In any event, I know that having made your life choices, you're too hip to go around bitching at the unfairness of the big bucks made by the 'market dominant minority' of business people. Too bad so many others in life don't seem to have your maturity on this issue.


I agree, I think more information about the real world is better than less!

Michael Blowhard:

I hope I answered that above!


Yeah, it's amazing how little information anybody bothers to provide to young people making often irrevocable decisions about their lives. I've often wondered if 18-year-olds should be forced to go through a 4-year program of work in a variety of industries before being allowed to go to college or choose any career!

Mr. Mansour:

I'm sorry if my terminology is irritating, but isn't it interesting how lacking we are even in words to describe participation in a market economy as risk players. I agree with your comment about how, er, hypocritical it is for people to say that being a business person is too much work for them, but who then turn around and demand that politicians raise taxes on business people! Does that strike you, as it does me, as being just a tad self-serving?

Posted by: Friedrich von Blowhard on January 5, 2004 4:37 PM

Wow, so much to disagree with here, so little time! But let's just pick on one of the more egregious bits, shall we?

Really participating in capitalism, or the market economy, means formulating a view about the future and taking a risk position accordingly. If all you are doing is selling your labor to the highest bidder, you are not really 'playing the capitalist game'--you could do exactly the same under a socialist regime. (You are also not maximizing your income.)

The first sentence is just plain wrong. I just came back from an interview with an extremely successful hedge fund manager (return since inception of over 3,000%; $3.5 bn funds under management) whose number one tenet over his entire career has been that he knows nothing about the future and refuses to bet on it. So he carefully and laboriously constructs positions which are completely market-neutral and which make money no matter what happens -- not a lot of money, but averaging about 14% a year, year in, year out.

Secondly, most entrepeneurs fail. That's part of how capitalism works: it turns out that the greatest amount wealth is created when you've got a lot of people burning out and a few making it big. It's great for society as a whole that most entrepeneurs fail. But it's not great at all for the entrepeneurs in question. Unless you can afford to fail, you shouldn't be setting up shop on your own.

Thirdly, you can't sell your labour to the highest bidder under a socialist regime, because under a socialist regime there is only one bidder.

Fourthly, have you ever heard of the winner's curse? Most people who buy something at auction end up paying too much money. Think about it and you'll see why: if 100 people all value something, one of them is likely to be off base on the upside, and that person is likely to win the auction. So if I'm selling my labour to the highest bidder, there's a good chance that person is actually paying me more than I'm worth. There is no reason whatsoever to believe ex ante that I'd be better paid working for myself. As Annette points out, that's certainly not true of most CEOs.

Posted by: Felix on January 5, 2004 6:52 PM

The level of ignorance of economic theory betrayed by the original post is rather stunning for your generally interesting blog, and could be corrected by some rather brief training or even foraging around on google. Actually, it's kind of hard to figure out what the argument is. Are you saying that there's some sort of moral imperative under capitalism to be entreprenurial? Whatever capitalism might be, most people don't think of it as some sort of deontological categorical imperative to start your own business. If you do, that's fine, if a bit weird -- but realize this, "capitalism" or a functioning "market economy" couldn't exists without employees and without firms, so you can't argue that it is normatively desirable to create more entrepreneurs without helping to undermine the very same market economy you laud. A well-functioning market is a well-functioning aggregation of preferences, not a global call to entreprenurial arms.

If the argument is that it's odd that there should be such a thing as a large firm in a free market economy, there are simple, convincing, and well settled reasons for the existence of the business firm. The word you are looking for is "transaction costs" -- business firms, employers, and employees exist because the transaction costs of having four billion independent contractor entrepreneurs are simply too high. Firm size should reflect the extent of those transaction costs, which may be why some people think that changes in the information economy will lead to changes in the structure of the underlying firm. So "playing the game" of capitalism should also involve working for a large firm, and in fact for many people, it does.

Finally, the proposition that working as an entrepreneur will automatically give you a "market dominant" advantage over a salaried employee is simply bizarre. GE senior executives are salaried employees, and are certainly not entrepreneurs, but they certainly do quite well -- in a free market economy that allocates advantages in accordance with wealth, these people do quite well. Most entrepreneurs -- say, small restaurant owners -- do substantially worse. There are very good reasons why many well educated people make a decision to not become entrepreneurs. Again, the amount you receive will be set by the demand for your human and financial capital -- in some cases, you will be able to maximize that as an employee, in other cases, as an entrepreneur.

Finally, if the claim is simply that some people are more likely to be entrepreneurs than others, and that those people have an advantage as entrepreneurs, that seems pretty banal.

Of course there is a "market dominant minority" in the sense that the free market's aggregation of preferences will give greater advantage to those who can speak the loudest through purchasing power -- e.g., the wealthy. But that would be true even if every person on the planet decided to become a brave, risk-taking entrepreneur -- those with the most power in the market would tend to dominate it. The only way to avoid THAT problem is to increase social equality, which I gather is not foremost on the FvB agenda.

Posted by: williamsburger on January 5, 2004 11:03 PM

A bit of the problem is that there's simply not much of an emphasis on teaching people the basics of economics, even though this is a very basic skill- many people don't know what cars depreciate in value- let alone how to get financing for their very own small store. Certain groups may not be as able to get loans (of course the reason is obvious to members of those groups)

Also, many more careful people may want to get degrees in buisness before setting up their own. (At my school, you can't even start the undergrad buisness program without calculus 2- thus freezing out most people) Also, that takes money that most folks don't have.

Posted by: Shannon on January 5, 2004 11:52 PM

Felix---which hedge fund is that???

In general---I'm not sure that FvB's point is that everyone should be an entreprenuer. As Felix points out, if everyone tried it, everyone would make less money doing it! Not that that is necessarily the reason not to do it. A lot more manufacturing jobs would exist still in this country if manufacturing firms had been permitted to be more entrepreneurial, even if it meant everybody accepting less. I think his point is that so few even attempt it. Those GE execs mostly didn't try it, change their minds, or flame out, and then work for GE. Most people don't go in that direction, and it is often because they have no idea how even to begin in their youth. And that is often the result of training and education.

Posted by: annette on January 6, 2004 2:07 AM

I read the article by Ms. Chua. I have studied the pacific region in a college class and of her investigation I have this to say.

It is not the last 20 years that should be focused on for the solution of the atrocities described over the last twenty years. I would focus instead on the lessons lived and learned in the pacific region post World War II.

In order for Democracy to work, there must be a large middle class. Without the balancing affect in power that the Middle class exerts it is impossible to have a democracy. A key to the development of a middle class is organized labor. Without organized labor you will never have an effective (and perferably peacful) ability to battle the ecomonic powers of the nation inquestion. Without organized labor, you will not be able to exert influence over the Democratic government. And without influence you have no ability to bring about positive change. Without this positive change the atrocities mentioned in the article are the inevital out come of a frustrated and mistreated people.

To force this help on a people can work, but it takes a long time, and they will have to be a conquered people. The only other chioice is to offer hand outs with strings attached much like what went on in Korea and the later stages of the Japanese recovery. Otherwise the contries will take the money and do what ever they want with it. Also, how do you know that the program actually is being followed.

Ms. Chua was against the continual encouragement of free-markets. She was instead in favor of the development and encouragement of the democracy. Fostering and creating a democracy takes a lot of energy and a considerable investment of resources. However, encouraging free-markets is profitable. Eventually, if the nation in question gets tired of the violence and the discontent they will do what is necessary to move toward stability or they will simply loose control of the government (and maybe allowing a puppet to get into place). A puppet that will eventually lead to a true democracy.

The possible unconscious message of this article is that deep down Ms. Chua wants china to become Democratic and she is frustrated at the lack of progress China is making. I get this conclusion because the majority of business people who are of chinese decent and find themselves in the Philipines are people who were the entreprenuers in china or their decendants, and were forced out or faced death in the early days of Chinese communism. These successful business people are the very people who could most profit by going back to china as well as get to return home and do business in the contry of origin. Although I would agree that more help for developing democracies is needed. The litmus test used to see if the nation is worth the time is the value of the free-market. If there is no valuable free-market, there is little insentive to help make the contry a democracy. I have done no investigative research on this point, but if you look at the top ten poorest nations in the world I bet I am right.

Now, the whole entreprenuer thing. I want very badly to be a business owner. The reason why it is unatractive to so many people is that it is a gamble. I could loose all of my money. However, If I work for someone my pay is a sure thing (until I get laid off). So my point is that we are all entreprenuers to a degree. We have to market and sell our labor. Anyone who works for someone else and believes it will never happen to them is kidding themselves and setting themselves up for a disapointment. As the economy gets worse and employers dependability decreases you will see a dramatic increase in the number of people working multible jobs. And you will start to see people becoming their own employer.

I agree, entreprenueralism can be taught at school. But classes do exist at the college level for those who are motivated. (another key point is that people can buy books and educate themselves on their own.)

Kind regards


Posted by: shipshape on January 6, 2004 4:39 AM

Before I get into responding to some of the comments above, I like to restate what seemed to me to be the essence of my post. That is, that as we live in a society based on entrepreneurial visions of the future and the taking of risk positions thereon, it is very odd that only a small minority of the population actively takes part in the creation of such visions and in making speculative investments based on them. Almost the only analogy to this I can think of--in which an absolutely vital, central aspect of society is restricted to a small portion of the population--is the way in which social insects reproduce. As humans have not, to my knowledge, followed the evolutionary path of social insects with their genetically based social hierarchies, but rather have pursued an approach in which most of the skills necessary to survival have been distributed among the entire population, I remarked that I find this pattern in our current economic life uncanny. I'm sorry it apparently gives pain to some of our commentators that I would make such an observation, but there you have it...


As usual, we seemed fated to disagree. I am intrigued to know more about your hedge fund manager; I am personally not aware of truly market neutral investment strategies that yield anything like the returns you mention your hedge fund manager earning year after year. Excuse me for asking, but do you have any objective proof that he is telling you the truth about those returns? (It is fairly easy to see why he might want to shade this). But even assuming he can pull this off, I would only point out that he has still concocted a theory about the future and sticks to it in crafting his investments; his agnosticism about future developments hasn't gone so far as to lead him to avoid having set up a hedge fund and marketing it to investors, etc. Also, nothing personal, but his percentage returns are, in comparison to my own, quite modest. My original $50,000 stake has returned itself hundreds of times over. Perhaps formulating a less agnostic, more positive theory of the future pays, no? (I certainly think Bill Gates would agree with me.) And before I leave the topic of your hedge fund manager, do you think he could make money in this fashion (or any passive investor could make money) without the presence of active entrepreneur-managers? I mean, you are using what amounts to a tiny exception to impeach a very large and sturdy rule--perhaps not the most honest argument.

I agree that most entrepreneurs fail, but I think that's not to be wondered at given the remarkably poor training virtually all of them receive (none, in my case.) Clearly, however, where more training is received (e.g., second generation entrepreneurs) the success rate is a lot higher. Also, many entrepreneurs suffer from excessive ambitions. In the early years of my company, because I was playing with borrowed money, I deliberately chose lower-return, lower risk business strategies to ensure I could pay off my loans. I didn't make a fortune, but I didn't fail, either. Of the entrepreneurs I know who have deliberately taken a low risk approach, the success ratio has been quite high; vastly higher than the overall numbers on small business failures would have you believe.


I am well acquainted with the transaction cost model as an explanation for the existence of large firms. I am not, however, entirely persuaded of it. I suspect the true cause of the existence of large firms is that they have established themselves squarely on top of very profitable, long-lasting business opportunities (i.e., having a dominant position in the manufacture of jet engines or automobiles, or close relations with key clients ins service industries, etc.) Obviously, joining (or passively investing in) such an organization possessing such a market position is a very low risk strategy. In a population that is chiefly risk adverse, am I surprised that many people would choose to do so? No. Are their employers, who are already exposed to as much risk as they are ever going to be, willing to take on (and underpay) such employees (and passive investors) in order to swell their own profits? Sure. But most opportunities (indeed, the overwhelmingly vast majority of opportunities in this world) are far more fleeting and fugitive than the type that permit the relatively rare existence of a General Motors or a Microsoft. So transaction costs, which are only a significant issue when considering alternative ways of exploiting a given business opportunity, become significant only in the small percentage of opportunities that represent large and long-lasting opportunities. In short, your transaction cost model ignores the fact that it is only in certain contexts that efficiency becomes a determining factor in business structure. If all opportunities were of this nature, then surely the list of America's largest companies would never change, whereas over a century virtually every name on such a list has changed.

The real benefit of entrepreneurial capitalism is in its ability to recruit creativity and to harness lots of unstructured information that no formal organization could recruit or process. The more people you have actively thinking about the future, sniffing out market opportunities, the more opportunities you sniff out. If a larger percentage of the population was out prospecting for money making opportunities, and committed to capitalizing on them, if more people were, to put it bluntly, acting like entrepreneurs, the economy would be far larger and more prosperous.

(By the way, your apparent ignorance of entrepreneurship could probably be cured by a decade or so of hard work in your own firm.)


I agree that economics is a sadly neglected field in school and that the level of economic education is sorely lacking. Mr. Williamsburger illustrates, economists are rarely entrepreneurs, and can occasionally miss the forest for the trees, so to speak. I think what would be more useful is for people to know some successful entrepreneurs. I mean, I know a guy who makes a darn good living (many times that of the averge wage-slave) by buying houses, rennovating them, and reselling them for a profit. The skills necessary to engage in this business are widely scattered throughout the population and can be learned by just about anyone. (This stuff is not rocket science--just hard work and paying attention.) I think if more people could just watch somebody else do it, they'd realize they could do stuff like this, too.


Best of luck on your entrepreneurial ambitions.

Posted by: Friedrich von Blowhard on January 6, 2004 9:48 AM

To. F. Blowhard- then how can we convince successful buisness owners to become mentors of younger people?

Posted by: Shannon on January 6, 2004 10:25 AM

Because this topic is still kicking, can we talk about why it might be that minority women are the new rising class of entreprenuers? Especially those of you who are or live with minority women... anyone?

Posted by: j.c. on January 6, 2004 10:29 AM

One thing that might be pointed out, universities are doing a better job of focusing on real world experience through semester long internships---test driving jobs---than they used to be. My alma mater has a program called Management Fellows which requires students who are enrolled to complete two semester-long off-campus internships in real live companies (often owned by alums) as part of their coursework. What I don't know is how much training they specifically get on "how to actually start your own business" vs. just---do I like marketing or do I like finance kinds of questions. And I'm not sure that communications majors or science majors or arts majors get any of that kind of information.

I'm thinking of trying to hook a professional seminar giving company up with my school, to try to organize a seminar on...exactly what ARE the sources of capital for someone who wants to start their own business? What ARE all the things you have to consider beyond just "the product", etc.

Posted by: annette on January 6, 2004 10:54 AM

FvB wrote:

"I must disagree. Really participating in capitalism, or the market economy, means formulating a view about the future and taking a risk position accordingly. If all you are doing is selling your labor to the highest bidder, you are not really 'playing the capitalist game'--you could do exactly the same under a socialist regime. (You are also not maximizing your income.)"

Wow, I have to agree with Felix here (first time!). This is just plain wrong on all fronts. Your namesake is rolling over in his grave. ;) Every individual in a market economy is applying his personal knowledge and making countless decisions on how to make and spend money. The fact that someone makes a decision to NOT be an entreprenuer and in fact decides to be an employee (and many go back and forth in their careers)is a Hayekian use of knowledge. The point is that people who work as employees have made a voluntary decision to do so. You seem to think this decision is uninformed... perhaps you are suffering a bit from the Fatal Conceit? ;)

As Felix noted, in socialist economies an employee can certainly NOT sell his servicers to the highest bidder. You really did not address his comments. Also as someone else noted, people who decide not to be entrepreneurs often do maximize their income. In fact, how do you know that statistically speaking (like expected value of income or something) employees do not make more money than entreprenuers? Do you have any studies or stats on this?

Your original point, which you restated in the comments above, is interesting and worthy of study. I'm not sure this analogy holds up, but might you also note that in our democracy, only a few people are politicians? Are people who merely vote not involved in the political game?

Posted by: Paul Mansour on January 6, 2004 11:07 AM

Mr. Mansour:

I admit that I am using a narrowed and rather polemical definition of what it means to 'participate' in a capitalist economy. Obviously, someone who is an employee can claim to be "playing the game." (Sorry about the offensive phrase.) I think my distinction is justifiable in light of the larger point I'm trying to make, however. In short, following the lead of Mr. Sowell, I am trying to instigate a discussion of what I view as 'cultural' factors limiting the participation of the U.S. population in the 'higher' forms of capitalist activity. I know of my personal experience that people from certain ethnic groups and who have relatives or family members that are entrepreneurs are far more likely to be entrepreneurs than the general population. I do not see, among the nay-saying comments to this blog, any denial of this fact, nor any serious consideration of what it means. I offer my interpretation, which is that a lack of entrepreneurial role models and education concerning entrepreneurial techniques locks all too many people into employeehood; really, far more than the number who are prevented from launching businesses by lack of capital.

Mea culpa: my reference to socialism was, admittedly, sloppy. I wasn't referring to a 'pure' or 'theoretical' socialism, with all property owned by the community, but rather to the closest 'real world' situations I could think of that approximate that situation. I believe in all of them, including the old Soviet Union, that in fact individuals had some freedom to decide where they would work. But I won't belabor the point; consider it conceded.

Posted by: Friedrich von Blowhard on January 6, 2004 12:20 PM

Here is an relevent quote from Hayek in the Constition of Liberty (page 81):

"The successful use of this entrepreneurial capacity (and, in discovering the best use of our abilities, we are all entreprenuers) is the most highly rewarded activity in a free society, while whoever leaves to others the task of finding some useful means of employing his capacities must be content with a smaller reward"

I think the parenthetical is important. An employee who takes action to find a good job, who looks around for opportunites for advancement within a firm, who quits when other, better, opportunites beckon, is, in the end an entreprenuer too. It may be that the best use of one's abilities is in fact working for someone else. For the vast majority of people, this is probably true.

Posted by: Paul Mansour on January 6, 2004 12:31 PM


I'm on board with your last post. I'm familiar with Sowell's work on this. It was really only your supporting comments that had me going, huh? However, even in groups that have relatively high levels of entrepreneur ship, the number of entreprenuers is still necessarily very small compared to employees. No? The thing that makes a person an entreprenuer with a capital "E" is his ability to direct resources and people, and stomach risk, a whole lot better than the average person. By definition, we cannot all be entrepreneurs with a big E, but as Hayek notes, to the extent we discover that ourselves, and find our own niche, we are all entrepreneurs.

So yes, a lot more people could be Entreprenuers, but still very few overall.

Posted by: Paul Mansour on January 6, 2004 12:42 PM

FvB wrote:

"I believe in all of them, including the old Soviet Union, that in fact individuals had some freedom to decide where they would work. But I won't belabor the point; consider it conceded."

While you have conceded this, I think you still miss the important point. Whether or not you had some freedom in the USSR to decide where to work, the manager at a state factory certainly did not have the freedom to decide what to pay you, or how many employees to hire or ever what the job was. The point is that being an employee in a free-market economy is DRASTICALLY different than being an employee in a socialist economy. It would only be to the extent that people skirt the rules and undermine the state apparatus, that being an employee in a socialist econonmy might be remotely similar to being an employee in a capitalist economy. But in this case the socialist employee is similiar to a capitalist employee, not vice versa.

Posted by: Paul Mansour on January 6, 2004 12:54 PM


Really participating in capitalism, or the market economy, means formulating a view about the future and taking a risk position accordingly.

True. But not everyone will take the same view of the future as you do. Many people choose not to maximize their income, believing that, beyond a certain point of "sufficiency," other values (spending time with family/friends, blogging, going to movies, knowing that you'll make roughly the same amount of money this month that you made last month, etc.) will be more satisfying than a maximized income. Choosing to reduce risk and reward, or to invest time and effort into things besides monetary concerns, is still a choice. A free market allows individuals to make such decisions for themselves.

If all you are doing is selling your labor to the highest bidder, you are not really 'playing the capitalist game'--you could do exactly the same under a socialist regime.

No, you can't.

Let's take an admittedly extreme example of a socialist regime: Castro's Cuba. Now, in this economic system, the government sets rates for labor. If you are a worker, you cannot sell your labor to the highest bidder, since everyone must bid the same amount. If you try to sell your labor for a rate higher than the government allows, you will be arrested, tortured, imprisoned, and/or killed.

Likewise, since you cannot be fired from your job without government approval, you have no fiscal incentive to provide quality labor. You can, in theory, goof off as much as you like -- assuming, again, that you are not arrested, tortured, imprisoned and/or murdered for disrupting official State industries.

It doesn't stop there, either. Under Cuban socialism the government also pays workers directly. Unfortunately for the workers, they only receive nearly-worthless Cuban currency, good only in government-sponsored and -operated businesses. The workers' corporate employers, however, must pay the Cuban government for the laborers it provides them -- and they must pay the government in dollars, which are good anywhere.

So under the directed economy of socialism, the government determines who you work for, how much you receive, what kind of money you receive, and what you can do with it once you get it. That, Friedrich, is why your namesake called this system "serfdom."

Still care to claim that free markets don't serve most workers?

Posted by: Tim Hulsey on January 6, 2004 4:35 PM

Mr. Hulsey:

I accepted correction on this point from Mr. Mansour, and I accept correction from you as well. I withdraw my remark as entirely ill-considered.

I don't recall, however, claiming that free markets don't serve most workers. But free markets can do much more for people than providing them with the status of 'worker,' and I'm trying to get at the odd phenomenon as to why more people don't seem to pursue these additional rewards.

Posted by: Friedrich von Blowhard on January 6, 2004 4:42 PM

Friedrich, you said:
Really participating in capitalism, or the market economy, means formulating a view about the future and taking a risk position accordingly. If all you are doing is selling your labor to the highest bidder, you are not really 'playing the capitalist game'--you could do exactly the same under a socialist regime. (You are also not maximizing your income.)

Maybe if all you do is mindlessly sell your labour to the highest bidder, you are not really "playing the capitalist game". But how many employees actually do that?

When I decided, on finishing high school, to study electrical engineering at university, I was formulating a view about the future and taking a risk position accordingly. The view about the future was that there would be jobs available that, thanks to my engineering degree, would pay enough to make up for the time I spent studying, and that I would be able to pass the degree, and I would want one of the jobs available. At 17 my view of the future led me to embark on the risky decision of studying engineering (there was no guarantee that there would be jobs available).

At age 20 I reassessed my position and decided that I didn't want one of the jobs available and that I would in all likelihood go nuts if I spent much more of my life doing engineering. So I finished my degree and did an economics one. Then found a job making use of both degrees.

In terms of formulating a view about the future, and taking a risk position accordingly, how was my thinking inherently different from if I'd decided to start a business?

And BTW, most people on the planet don't want to maximise income. Firms are generally assumed to want to maximise profits - a rather different thing - and the vast majority of people occasionally want to enjoy their incomes, and take leisure time, even if it is only to do things like get married.

Posted by: Tracy on January 6, 2004 6:25 PM


Really participating in capitalism, or the market economy, means formulating a view about the future and taking a risk position accordingly. If all you are doing is selling your labor to the highest bidder, you are not really 'playing the capitalist game'

How many employees just "sell their labour to the highest bidder?" This may have been what I did when I got my first job at high school (in fact, I don't think I even searched for the highest bidder, instead I needed a job that I could get too easily and could fit in around school and other activities, and took the first one I found), but certainly looking for a job is not separate from formulating a view about the future and taking a risk position.

At high school I decided to study electrical engineering. Since I am not independently wealthy, this was a risky decision (although I am always able to fall back on the checkout chick job). I had to formulate a view about the future, which included whether I would be able to pass the degree, whether there would be jobs available that would repay the investment of time, and whether I would want to take one of those jobs. At age 17 my view of the future was that all these three factors pointed to a yes. At age 20 the third one turned into a "no", so I finished that degree and then did one in economics. On going looking for job offers, I got several and then had to decide which one would be best for the future, another risky decision. The relevant issues were not just who was offering the best bid for my labour now, but what skills would I develop in the future, and how interesting the work would be.

How is that inherently different from what I would have thought about if I'd decided to start a shop, and then part way through running a shop changed my mind and turned the shop into a mail-order business?

(You are also not maximizing your income.)
Basic assumption of economics is not that people maximise their income, but instead their utility. Firms are assumed to maximise their profits, an importance difference since any firm that only focuses on maximising its income risks expenses getting greater than its income and thus going bust. Returning to people - all the business owners and self-employed I know take time off work occasionally to enjoy their income, even if it is only an hour a week at a nice restaurant. Some of them even retire.

As for why there are certain families with more entrepreneurs, yes, people do tend to pursue careers and life-paths that they see their family members pursing. This doesn't just apply to starting businesses, my Dad's father had a general expectation that you would go to university and get a good, safe, government job (government jobs in NZ are not necessarily underpaid compared to the private sector), which Dad duly did though he started his own business a while ago. Other families I know expected their kids not to go to university, and not many of them went.

There may possibly be something genetic in this. My mum's side of the family has always been very enthusaistic about education. One of her cousins was adopted out at birth, and we did not know of her existance until she tracked us down in adulthood. She was brought up by a small-town NZ family, for whom the highest a girl could hope to achieve was getting a job as a teller in a bank (a boy could become an All-Black of course, a position slightly higher than God). But she'd always wanted to go to university, and unable to persuade her parents of this, convinced them to let her to go to teacher's college as a second-best option - a big shock to her parents, but very much in line with her biological family.

Posted by: Tracy on January 6, 2004 6:46 PM

But free markets can do much more for people than providing them with the status of 'worker,' and I'm trying to get at the odd phenomenon as to why more people don't seem to pursue these additional rewards.

The answer is simple, really: These additional rewards come with additional risks and opportunity costs, which many people do not wish to incur.

Opportunity costs can be divided into two categories: leisure and security. We'll take security first. Some people prefer to make less money, yet be more secure in their income. Some people are more entrepreneurial, willing to risk more of their income -- and to allow that income to fluctuate wildly -- in order to have a chance at a greater reward. Their success is by no means guaranteed, but they're willing to take the risk.

A similar principle works for leisure. Some people prefer to work long hours and make more money. But others choose to make less money, and take advantage of their extra leisure time. Perhaps these people are parents who wish to spend more time with their children; perhaps they just like to go to the theater or the movies, and don't want to work evenings when they could be out having fun. In any case, they're willing to settle for less of one thing, so that they can have more of another.

These are rational decisions, in the sense that they are motivated by individuals' sense of self-interest. Whether you or I consider these choices the best ones possible is beside the point. These are individual decisions, and a free market leaves them up to the individual.

Posted by: Tim Hulsey on January 7, 2004 4:28 AM

I very much agree that finance should be taught in school. Just giving students a feeling for compound interest and why you want it working on your side rather than against you would be quite a help. Throw in some understanding that lotteries are charities/buying a chance to daydream rather than a significant chance of winning would be a big help.

As stated, there should be more about starting and running a business, too. It's one of the basic ways of living in this society, and it's a shame that it isn't taught.

None of this means that all or most people should be entrepreneurs. I would think that modern tech lowers the cost of running a business (accounting software instead of having to the number-crunching by hand, ebay for some types of marketing, etc.), but I don't know whether a higher proportion of people own businesses now.

Posted by: Nancy Lebovitz on January 9, 2004 6:26 PM

Post a comment

Email Address:



Remember your info?