Entrepreneurs are universally celebrated, but what if modern day entrepreneurship is creating ventures that do more harm than good? A piece this week in Harvard Business Review reminds us of this point by citing the work of William Baumol, who passed away last month.
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Is America Encouraging the Wrong Kind of Entrepreneurship?
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Of Baumol’s many contributions to economics, the most famous is cost disease, which explains why high-productivity industries raise costs and therefore prices in low-productivity industries. The insight is particularly relevant now, as economic activity has shifted into low-productivity services like health care and education, where price increases are devouring public and household budgets, and whose continued low productivity has weighed down U.S. productivity growth overall. But there’s a lesser-known idea of Baumol’s that is equally relevant today and that may help explain America’s productivity slump. Baumol’s writing raises the possibility that U.S. productivity is low because would-be entrepreneurs are focused on the wrong kind of work.
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