WEBVTT NOTE The Place of Austrian Economics in Management Research, Education, and Consulting 1 00:00:00.000 --> 00:00:05.880 About four years ago, I was working at Baylor and I was across the hall from this guy, a 2 00:00:05.880 --> 00:00:09.640 great guy, we talked a lot, we had a lot in common in a lot of ways, but he was teaching 3 00:00:09.640 --> 00:00:15.400 this class in Org Theory, and all the time it was victimism, organizations of systems 4 00:00:15.400 --> 00:00:20.560 of domination, it drove me insane, I just felt like he was indoctrinating students with 5 00:00:20.560 --> 00:00:25.300 this idea that you're a victim of the system, and I vowed to myself, if I ever get to teach 6 00:00:25.300 --> 00:00:28.840 that class, if that's ever turned over to me, I am throwing all that crap out of the 7 00:00:58.840 --> 00:01:28.840 and Social Entrepreneurship. 8 00:01:28.840 --> 00:01:32.840 In the last few years, the journals have just proliferated with social entrepreneurship papers. 9 00:01:32.840 --> 00:01:33.840 You see them everywhere. 10 00:01:33.840 --> 00:01:38.840 The media was so excited about it, it gets so much attention, and I started thinking to myself, 11 00:01:38.840 --> 00:01:39.840 what is the enthusiasm? 12 00:01:39.840 --> 00:01:41.840 Why is there so much enthusiasm for this subject? 13 00:01:41.840 --> 00:01:43.840 What is it exactly? 14 00:01:43.840 --> 00:01:47.840 And I went to a conference and I learned very quickly what it was. 15 00:01:47.840 --> 00:01:49.840 It was socialist entrepreneurship. 16 00:01:49.840 --> 00:01:50.840 It was practically Marxist. 17 00:01:50.840 --> 00:01:54.840 What it had become is an exodus of a lot of people that didn't feel like they had a voice now 18 00:01:54.840 --> 00:01:56.840 because capitalism had won the day. 19 00:01:56.840 --> 00:02:02.880 Classical Liberalism seemed like it was the, up until six months ago, seemed like it was 20 00:02:02.880 --> 00:02:10.680 now the default position and a lot of leftist leaning academics had accepted that and said, 21 00:02:10.680 --> 00:02:14.700 okay, now that there's not an alternative system, how can I bring my communal values 22 00:02:14.700 --> 00:02:16.400 into the system? 23 00:02:16.400 --> 00:02:20.720 And a lot of times they were attracted to social entrepreneurship. 24 00:02:20.720 --> 00:02:24.900 And that horrified me in the room because I thought I had a very different philosophy 25 00:02:24.900 --> 00:02:27.900 and Social Entrepreneurship 26 00:02:27.900 --> 00:02:38.900 And as I listened there, at the end of the speech, I said something to the fact that if you have libertarian leanings, there's still room under this tent for you. 27 00:02:38.900 --> 00:02:44.900 And I thought I was going to be chased out like Frankenstein's monster with the village people with their torches. 28 00:02:44.900 --> 00:02:51.900 And so that's when I started developing the class, started thinking really deeply about the subject and thought, how do you reconcile these two? 29 00:02:51.900 --> 00:03:21.900 and does Austrian economics have something to say about the subject and this is very small so I'm going to walk you through this kind of swimming upstream to find the source of extreme poverty so I decided let's make the class about eradicating extreme poverty but let's not do it from a top-down position let's take a different approach to the subject and why did I pick extreme poverty because it was structural so we could throw out the notion of motivational issues right out the window and let's focus on structural poverty and 30 00:03:21.900 --> 00:03:25.900 and what I found is we had to really start drilling down into assumptions because every 31 00:03:25.900 --> 00:03:30.900 student came in with assumptions on why the market was failing, that they were signed 32 00:03:30.900 --> 00:03:33.820 up for the class a lot of times because they thought it was non-profit, they didn't want 33 00:03:33.820 --> 00:03:36.820 to teach it as a non-profit, we're going to talk about non-loss which is a very different 34 00:03:36.820 --> 00:03:41.980 concept and we started walking up the chain and moved to the next thing was economic growth 35 00:03:41.980 --> 00:03:46.820 versus redistribution, this was assumption one, we had to really kind of bring to the 36 00:03:46.820 --> 00:03:51.660 table and start talking about what's the best way to really bring prosperity to people. 37 00:03:51.660 --> 00:03:56.380 Redistribution, despite the fact I was in a business school, had a very strong following. 38 00:03:56.380 --> 00:04:00.140 Intuitively, people still thought, even when they said they were a free market, when you 39 00:04:00.140 --> 00:04:04.320 actually started probing and asking questions and you got into the debate, redistribution 40 00:04:04.320 --> 00:04:11.580 just kept coming up, kept coming up, even amongst people that would argue they're fairly free 41 00:04:11.580 --> 00:04:13.380 market advocates. 42 00:04:13.380 --> 00:04:15.380 Then we'd move up to the next one, and this one was interesting. 43 00:04:15.380 --> 00:04:20.700 When I was in Kenya and I was doing some work over there, again, a lot of people that would 44 00:04:20.700 --> 00:04:50.700 and I would argue that they were free market advocates, they were pro-globalization, they kept coming back to how do we help people, well we need to create almost like this commune or we need to break this brand, have their own farm so it's self-sustainable, it was again to segregate the people so that you could help them and somehow that that would protect them from the vicious, rapacious capitalist system and that would allow them to catch up and this happened over and over, it was almost like the Amish model of economic development is what I started to call it. 45 00:04:50.700 --> 00:05:03.340 And so I found that we had to really call this out on the table, start talking. This is all just, these were all the steps that we had to take just before I could get to how do you actually help somebody in terms of agency through voluntary action. 46 00:05:03.340 --> 00:05:11.900 So we moved up to the next one and I had to really pick apart what is capitalism. And I took Doug North's approach and just said let's break it into institutions so it's manageable. 47 00:05:11.900 --> 00:05:16.300 And we can talk about each one of these and which ones are absent. 48 00:05:16.300 --> 00:05:20.500 Let's talk about political institutions. Political economic institutions are not 49 00:05:20.500 --> 00:05:23.180 just assumptions. Let's talk about them as variables. 50 00:05:23.180 --> 00:05:27.060 A lot of times the students did not see that, did not understand 51 00:05:27.060 --> 00:05:31.720 that these institutions are up for grabs, that they're manipulated in both positive and 52 00:05:31.720 --> 00:05:35.640 negative ways to serve the people, to impoverish the people. 53 00:05:35.640 --> 00:05:39.920 And we took it up another step, and this was a big one, that markets often fail 54 00:05:39.920 --> 00:05:42.620 because of inappropriate government intervention. 55 00:05:42.620 --> 00:05:44.700 A lot of times 56 00:05:44.700 --> 00:05:53.600 I had to explain that the market was failing not because the market was inherently fallible, 57 00:05:53.600 --> 00:05:56.120 but because it wasn't being allowed to operate. 58 00:05:56.120 --> 00:06:02.200 And this was another major stretch that when we were in Kenya, I was walking with students, 59 00:06:02.200 --> 00:06:05.520 a lot of times they'd have this moral outrage when you see people in the slums, you'd go 60 00:06:05.520 --> 00:06:09.560 into the Kabirah slum and you see this, I even felt it, so I completely understand it. 61 00:06:09.560 --> 00:06:14.280 I mean, I know how markets work, I understand it philosophically, I believe it, but when 62 00:06:14.280 --> 00:06:17.280 When you're there, you feel this moral outrage, how can this be? 63 00:06:17.280 --> 00:06:21.440 And you look to prosperity around you and you can't help but get the causality wrong 64 00:06:21.440 --> 00:06:26.200 and believe those people are holding these people down rather than understand that poverty 65 00:06:26.200 --> 00:06:32.000 is the norm and some have escaped through business and trade has allowed some to escape. 66 00:06:32.000 --> 00:06:35.880 Everyone was in poverty at one point in time and only through a historical analysis do 67 00:06:35.880 --> 00:06:36.880 you really see that. 68 00:06:36.880 --> 00:06:38.800 That's a complete flip. 69 00:06:38.800 --> 00:06:42.960 To do that changes people's perspective and it's hard to kind of make that the dominant 70 00:06:42.960 --> 00:06:48.680 assumption that poverty is the norm, prosperity is the exception. That was a 71 00:06:48.680 --> 00:06:52.040 major kind of shift with people. Then we moved up to the next one, politicians 72 00:06:52.040 --> 00:06:56.880 are self-interested, government is neither benevolent nor omniscient, another, 73 00:06:56.880 --> 00:07:01.280 this is another wildly held intuitive assumption amongst my students, again at 74 00:07:01.280 --> 00:07:06.280 a business school, I'm not teaching a liberal arts wing, I'm not over in the 75 00:07:06.280 --> 00:07:11.440 English department here. And you know, and how do you make this point? So I 76 00:07:11.440 --> 00:07:16.080 I started showing movies like The Aviator in class, where Senator Brewster played by 77 00:07:16.080 --> 00:07:22.520 the little boy Alan Alda, and makes his, in essence, is trying to impoverish and take 78 00:07:22.520 --> 00:07:28.640 down Howard Hughes and use the system against him, and kind of, again, to try to win intuitively 79 00:07:28.640 --> 00:07:34.480 to show a deep understanding that you understand that these are not benevolent, the government 80 00:07:34.480 --> 00:07:40.600 is not some omniscient servant of the people, it's just people, it's individuals, they're 81 00:07:40.600 --> 00:08:01.720 Top-down efforts to encourage reform often require the 82 00:08:01.720 --> 00:08:06.400 complicit behavior of those likely to have their personal situations worsen by implementing 83 00:08:06.400 --> 00:08:12.440 So I wanted them to get finally to this realization that to try the top-down approach means that 84 00:08:12.440 --> 00:08:17.460 you're in essence asking for government leaders in third world countries often to work against 85 00:08:17.460 --> 00:08:20.700 their own interests. 86 00:08:20.700 --> 00:08:26.180 So all of this led to the alternative approach of the bottom-up alternative but then getting 87 00:08:26.180 --> 00:08:30.680 into that we found that it has a lot of problems as well and this kind of brings why social 88 00:08:30.680 --> 00:08:34.180 entrepreneurship is necessary or at least helpful. 89 00:08:34.180 --> 00:08:38.620 Look at this distributed knowledge you had, kind of a requirement or a need for distributed 90 00:08:38.620 --> 00:08:39.620 agency. 91 00:08:39.620 --> 00:08:42.620 You had these indigenous entrepreneurs that were really culturally savvy, they knew how 92 00:08:42.620 --> 00:08:48.220 to work in the institutions, they had institutions absent, it wasn't the optimal system, but 93 00:08:48.220 --> 00:08:51.060 they knew how to navigate those, but they didn't have the technical knowledge or the 94 00:08:51.060 --> 00:08:55.860 resources necessary sometimes to take full advantage of the market system. 95 00:08:55.860 --> 00:09:00.260 Then you had these investors and entrepreneurs who really wanted to help and really wanted 96 00:09:00.260 --> 00:09:05.760 Invest sometimes just for purely financial motives but they didn't have any anthropological 97 00:09:05.760 --> 00:09:08.920 knowledge, they didn't really understand the culture, they didn't know how to operate 98 00:09:08.920 --> 00:09:13.420 in these systems where there was ineffective or inefficient institutions. 99 00:09:13.420 --> 00:09:20.100 And so it was frustrated through moral hazard, information asymmetry and what we really needed 100 00:09:20.100 --> 00:09:23.880 to get to is there was this great knowledge arbitrage opportunity where the West had developed 101 00:09:23.880 --> 00:09:28.060 a lot of knowledge, a lot of innovation that was being precluded from moving into these 102 00:09:28.060 --> 00:09:58.060 and Social Entrepreneurship. 103 00:09:58.060 --> 00:10:04.500 that it would continue, and this notion of non-loss organization in which you're contributing 104 00:10:04.500 --> 00:10:09.780 but you don't want that money to be charity, you don't want it to just go away, you want 105 00:10:09.780 --> 00:10:10.780 it to be sustainable. 106 00:10:10.780 --> 00:10:15.140 This kind of hybrid model started to develop, it was different than non-profit, but I'm 107 00:10:15.140 --> 00:10:16.140 going to run out of time. 108 00:10:16.140 --> 00:10:21.220 I see if there's anything I just want to wrap up on. 109 00:10:21.220 --> 00:10:23.860 I'll just jump to the last point that goes to the opposite. 110 00:10:23.860 --> 00:10:27.980 So I've railed a lot against the kind of the leftist, but I've found that my colleagues 111 00:10:27.980 --> 00:10:31.820 on, I won't say the right because that's absolutely wrong, but small government kind 112 00:10:31.820 --> 00:10:35.820 of libertarian leaning colleagues suffer from a problem that I saw today downstairs and 113 00:10:35.820 --> 00:10:40.540 that's that when we see social entrepreneurship, political almost scoffing at it like it's 114 00:10:40.540 --> 00:10:47.140 wasteful, it's inefficient, but freedom from oppressive government is just meaningless 115 00:10:47.140 --> 00:10:52.020 unless you use the freedom to do something, the freedom to enact some change to make something 116 00:10:52.020 --> 00:11:00.140 Social Entrepreneurship is not an anti-moron, it's not anti-capitalist and it doesn't need 117 00:11:00.140 --> 00:11:01.140 to be those things. 118 00:11:01.140 --> 00:11:04.500 It can be philanthropical, for-profit entrepreneurship. 119 00:11:04.500 --> 00:11:08.940 Most entrepreneurs don't pursue the highest, most profitable option out there. 120 00:11:08.940 --> 00:11:10.300 Very few of us have done that. 121 00:11:10.300 --> 00:11:13.140 If you were doing that, you probably wouldn't be an Austrian economist. 122 00:11:13.140 --> 00:11:15.340 I wouldn't be doing what I'm doing. 123 00:11:15.340 --> 00:11:20.460 We match out what are our interests, what are our strengths, what are our moral incentives, 124 00:11:20.460 --> 00:11:23.980 Social Incentives, Economic Incentives, what's the best out there and how can I match that 125 00:11:23.980 --> 00:11:26.220 and make that pay off the best. 126 00:11:26.220 --> 00:11:30.180 That's the opportunity we pursue and I believe that's where social entrepreneurship can 127 00:11:30.180 --> 00:11:35.860 really fit well with kind of a libertarian position of charity, of helping philanthropy. 128 00:11:35.860 --> 00:11:36.860 So I'll leave it with that. 129 00:11:36.860 --> 00:11:37.860 I've got a lot more to talk about. 130 00:11:37.860 --> 00:11:39.860 Thank you for talking with us.