With the sad passing of Steve Jobs, everyone is talking about what an awesome entrepreneur he was. But what exactly do entrepreneurs like Jobs do for the economy?
I've studied the stories of dozens of America's pioneering business leaders from Samuel Morse and Thomas Edison to Bill Gates and Fred Smith. What I've found is that while Steve Jobs was great, the rise of his Apple Computer was far from unique in our history.
Historians Nathan Rosenberg and L.E. Birdzell found that "new enterprises, specializing in new technologies, were instrumental in the introduction of electricity, the internal-combustion engine, automobiles, aircraft, electronics, aluminum, petroleum, plastic materials, and many other advances." At the start of nearly every industry, a few gutsy people have taken huge risks to challenge old ways, to undermine dominant firms, and often to battle against government barriers that stood in their way.
Looking at Jobs and other great entrepreneurs, I've found five key roles they play in generating growth:
Entrepreneurs are Radical Innovators. Their inventions are usually unexpected and very disruptive to exiting businesses. Rosenberg and Birdzell note that Apple's pioneering early products were not thought of "by any of the leading American computer manufacturers, nor by the Soviet Union, nor by the French Commissariat du Plan, nor by MITI in Japan." Another radical innovator of the 1970s was Fred Smith of Federal Express. Today, we take overnight delivery for granted, but it was up to Smith to battle regulatory roadblocks and to show that there was a huge demand for the service.
Entrepreneurs Grow Niches into Big Industries. Bill Gates began his career in the 1970s writing code for an obscure hobbyist computer called the MITS Altair. That would not have seemed like the path to the top at the time — it was a niche market (software) within a niche market (microcomputers). But leaders of the giant mini and mainframe computer firms overlooked the microcomputer that outsiders like Gates and Jobs were developing. Just last year, Apple's iPad looked like a niche product, but tablet computing has exploded.
Entrepreneurs Generate Competition. Apple Computer has played a crucial role in providing an alternative to giant Microsoft by always staying one step ahead. American history is full of agile and upstart firms providing a crucial competitive check to dominant firms. One great story is the rise of William McGowan's MCI Corporation in the 1970s and 1980s. MCI helped destroy the AT&T monopoly, thus paving the way for Jobs and other entrepreneurs to marry computers with telecommunications technology.
Entrepreneurs are Guinea Pigs. The modern economy is steeped in uncertainty. No one can accurately predict the future, not even the best entrepreneurs. Instead, what makes entrepreneurs unique is that they act in the face of uncertainty. Steve Jobs was a great high-tech guinea pig, and he had plenty of product failures. But good entrepreneurs learn from their mistakes and try again. Ransom Olds, the father of the U.S. automobile industry, failed numerous times with steam-powered cars and other technologies before he succeeded with the first mass-produced gasoline car in 1901. Even by 1910, Thomas Edison was still insisting that "the nickel-iron battery will put the gasoline buggy … out of existence in no time."
- Entrepreneurs Turn Inventions into Innovations. America's rise to prosperity is often portrayed as a steady process of accumulating new inventions. That "science push" understanding of history is often implicit in calls for government funding of science. But that view is wrong. Economies grow because of innovations, which are inventions that entrepreneurs package and test in the marketplace. The Chinese invented paper, but it was in pluralistic Europe where printing exploded after Gutenberg's advances. Apple Computer has been brilliant at both making technological breakthroughs and guessing the demands of the marketplace.
What are the policy lessons from America's great entrepreneurial history? One lesson is that the politicians who steer subsidies to solar firms, fast trains, and other schemes are ignorant of the real sources of economic growth. Because market uncertainties are pervasive, government agencies and dominant companies cannot be relied upon to secure our economic future.
Instead, we can spur growth by encouraging a culture of entrepreneurship, repealing barriers to entry, reducing taxes on risky investments, and simply getting out of the way of the next generation of Steve Jobses.
This article appeared on The Daily Caller on October 6, 2011.