The Place of Austrian Economics in Management Research, Education, and Consulting

0:00About four years ago, I was working at Baylor and I was across the hall from this guy, a great guy, we talked a lot, we had a lot in common in a lot of ways, but he was teaching this class in Org Theory, and all the time it was victimism, organizations of systems of domination, it drove me insane, I just felt like he was indoctrinating students with this idea that you're a victim of the system, and I vowed to myself, if I ever get to teach that class, if that's ever turned over to me, I am throwing all that crap out of the

0:58and Social Entrepreneurship. In the last few years, the journals have just proliferated with social entrepreneurship papers. You see them everywhere. The media was so excited about it, it gets so much attention, and I started thinking to myself, what is the enthusiasm? Why is there so much enthusiasm for this subject? What is it exactly?

1:43And I went to a conference and I learned very quickly what it was. It was socialist entrepreneurship. It was practically Marxist. What it had become is an exodus of a lot of people that didn't feel like they had a voice now because capitalism had won the day. Classical Liberalism seemed like it was the, up until six months ago, seemed like it was now the default position and a lot of leftist leaning academics had accepted that and said, okay, now that there's not an alternative system, how can I bring my communal values into the system? And a lot of times they were attracted to social entrepreneurship. And that horrified me in the room because I thought I had a very different philosophy and Social Entrepreneurship 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.

2:38And I thought I was going to be chased out like Frankenstein's monster with the village people with their torches. 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? 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 and what I found is we had to really start drilling down into assumptions because every student came in with assumptions on why the market was failing, that they were signed

3:30up for the class a lot of times because they thought it was non-profit, they didn't want to teach it as a non-profit, we're going to talk about non-loss which is a very different concept and we started walking up the chain and moved to the next thing was economic growth versus redistribution, this was assumption one, we had to really kind of bring to the table and start talking about what's the best way to really bring prosperity to people. Redistribution, despite the fact I was in a business school, had a very strong following. Intuitively, people still thought, even when they said they were a free market, when you actually started probing and asking questions and you got into the debate, redistribution just kept coming up, kept coming up, even amongst people that would argue they're fairly free market advocates. Then we'd move up to the next one, and this one was interesting. When I was in Kenya and I was doing some work over there, again, a lot of people that would

4:20and 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. 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. 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.

5:11And we can talk about each one of these and which ones are absent. Let's talk about political institutions. Political economic institutions are not just assumptions. Let's talk about them as variables. A lot of times the students did not see that, did not understand that these institutions are up for grabs, that they're manipulated in both positive and negative ways to serve the people, to impoverish the people. And we took it up another step, and this was a big one, that markets often fail because of inappropriate government intervention. A lot of times I had to explain that the market was failing not because the market was inherently fallible, but because it wasn't being allowed to operate. And this was another major stretch that when we were in Kenya, I was walking with students, a lot of times they'd have this moral outrage when you see people in the slums, you'd go into the Kabirah slum and you see this, I even felt it, so I completely understand it.

6:09I mean, I know how markets work, I understand it philosophically, I believe it, but when When you're there, you feel this moral outrage, how can this be? And you look to prosperity around you and you can't help but get the causality wrong and believe those people are holding these people down rather than understand that poverty is the norm and some have escaped through business and trade has allowed some to escape. Everyone was in poverty at one point in time and only through a historical analysis do you really see that. That's a complete flip. To do that changes people's perspective and it's hard to kind of make that the dominant assumption that poverty is the norm, prosperity is the exception. That was a major kind of shift with people. Then we moved up to the next one, politicians are self-interested, government is neither benevolent nor omniscient, another, this is another wildly held intuitive assumption amongst my students, again at a business school, I'm not teaching a liberal arts wing, I'm not over in the

7:06English department here. And you know, and how do you make this point? So I I started showing movies like The Aviator in class, where Senator Brewster played by the little boy Alan Alda, and makes his, in essence, is trying to impoverish and take down Howard Hughes and use the system against him, and kind of, again, to try to win intuitively to show a deep understanding that you understand that these are not benevolent, the government is not some omniscient servant of the people, it's just people, it's individuals, they're Top-down efforts to encourage reform often require the complicit behavior of those likely to have their personal situations worsen by implementing So I wanted them to get finally to this realization that to try the top-down approach means that you're in essence asking for government leaders in third world countries often to work against their own interests.

8:20So all of this led to the alternative approach of the bottom-up alternative but then getting into that we found that it has a lot of problems as well and this kind of brings why social entrepreneurship is necessary or at least helpful. Look at this distributed knowledge you had, kind of a requirement or a need for distributed agency. You had these indigenous entrepreneurs that were really culturally savvy, they knew how to work in the institutions, they had institutions absent, it wasn't the optimal system, but they knew how to navigate those, but they didn't have the technical knowledge or the resources necessary sometimes to take full advantage of the market system. Then you had these investors and entrepreneurs who really wanted to help and really wanted Invest sometimes just for purely financial motives but they didn't have any anthropological knowledge, they didn't really understand the culture, they didn't know how to operate in these systems where there was ineffective or inefficient institutions.

9:13And so it was frustrated through moral hazard, information asymmetry and what we really needed to get to is there was this great knowledge arbitrage opportunity where the West had developed a lot of knowledge, a lot of innovation that was being precluded from moving into these and Social Entrepreneurship. that it would continue, and this notion of non-loss organization in which you're contributing but you don't want that money to be charity, you don't want it to just go away, you want it to be sustainable.

10:10This kind of hybrid model started to develop, it was different than non-profit, but I'm going to run out of time. I see if there's anything I just want to wrap up on. I'll just jump to the last point that goes to the opposite. So I've railed a lot against the kind of the leftist, but I've found that my colleagues on, I won't say the right because that's absolutely wrong, but small government kind of libertarian leaning colleagues suffer from a problem that I saw today downstairs and that's that when we see social entrepreneurship, political almost scoffing at it like it's wasteful, it's inefficient, but freedom from oppressive government is just meaningless unless you use the freedom to do something, the freedom to enact some change to make something Social Entrepreneurship is not an anti-moron, it's not anti-capitalist and it doesn't need to be those things.

11:01It can be philanthropical, for-profit entrepreneurship. Most entrepreneurs don't pursue the highest, most profitable option out there. Very few of us have done that. If you were doing that, you probably wouldn't be an Austrian economist. I wouldn't be doing what I'm doing. We match out what are our interests, what are our strengths, what are our moral incentives, Social Incentives, Economic Incentives, what's the best out there and how can I match that and make that pay off the best. That's the opportunity we pursue and I believe that's where social entrepreneurship can really fit well with kind of a libertarian position of charity, of helping philanthropy. So I'll leave it with that. I've got a lot more to talk about. Thank you for talking with us.