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Monday, February 4, 2013

Alertness Against Leviathan


[T]he success which capitalist market economies display is the result of a powerful tendency for less efficient, less imaginative courses of action, to be replaced by newly discovered, superior ways of serving consumers—by producing better goods and/or by taking advantage of hitherto unknown, but available, sources of resource supply.
– Israel Kirzner
Israel Kirzner is one of the most woefully neglcted Austrian School economists. Those aware of his work appreciate the deep connection Kirzner made between living-thinking-acting entrepreneurs and the wider market process. 
Yes, the market is a system—a complex, adaptive system—that no mind can design. But the human mind is still, in a manner of speaking, at the center of the market. The entrepreneur, says Kirzner, is “alert.” That is to say, the entrepreneur has the ability to spot undiscovered opportunities to gain—whether through price arbitrage or through building a better mousetrap. And “gain” may or may not be monetary profit.
This entrepreneurial alertness has given rise to revolutions in living standards. When we think of entrepreneurs, we usually think of people who get rich making better/faster/cheaper gadgets or better/cheaper/tastier foods. But we should start to think about cultivating alertness in opportunities to make social change. That means channeling our Kirznerian thinking into finding and exploiting weak joints and leverage points in the Leviathan State.

Weak Joints, Leverage Points

In other words—and I write this not without some hesitation—we liberty-lovers will do well to be more entrepreneurial. I know, I know. It’s easier to write some diatribe like I’m doing right now. It’s easier to post memes on Facebook or tell someone at a party to go read Hayek. But there are plenty of alert change-makers among us. The time is right, therefore, for us to reorient ourselves more consciously to the task of outcompeting the State. 
Think of it like this: The State does a lot of things poorly. Industries do a lot of things poorly where the State interferes most. Price goes up, quality goes down. In that fact there is opportunity.
Consider some recent examples of Kirznerian alertness that are helping to disrupt Leviathan where it lives:
  • Khan Academy and other online education resources reduce the cost of educating children outside of the public school monopoly.
  • Bitcoin allows people to exit from the currency monopoly controlled by the world’s central banks. Major players are making it easier and easier to buy with Bitcoin.
  • Concierge medical doctors and low-cost, drop-in franchises like MinuteClinic are finding chinks in the armor of the insurance-provider industrial complex that is only going to get bigger and more ravenous thanks to Obamacare.
  • Marginal Revolution University (and other similar free online courses) is disrupting higher education in a number of ways. There is still the problem of “signaling” with a degree, which university accreditation protects. But online badging and portfolio systems might help with that.
  • Startup Blueseed may soon be literally making waves by starting a “Googleplex of the Sea” off the coast of California. This seasteading-like venture will allow international entrepreneurs to create startups near Silicon Valley without the hassle of getting H-1B visas.
These are but a few examples. What they have in common is that they’re driven by innovative disruptors rather than political activists. You may also notice that all are ventures designed to change the social landscape, despite the fact that these are industries in which the State tends to meddle most. Creating ventures in these areas takes tremendous courage.

Without Fear: Criticize by Creating

In an age of distributed, technology-enabled social change, we should be more fearless—that is, more aggressive in our efforts to compete with old behemoths. It’s true that Public Choice considerations can make matters seem dire, even hopeless at times. If you know that crony capitalist arrangements are tough to beat, then you might be less alert in some sector. It seems as if the tentacles of government extend into every sphere of life—especially when powerful, entrenched interests are throwing largesse into the maw of the beast. But the accelerated, distributed nature of change should quell our nihilism.
Crony capitalists can be slow on the uptake. Big incumbent firms and protected industries have powerful lobbies, to be sure. But the pace of change is accelerating to the point that it’s increasingly difficult to regulate away the upstarts. The public response to rent-seeking behavior can be like an angry hive, if the response to SOPA and PIPA is any indication. And there is an army of innovators out there waiting to “criticize by creating.” Radical social entrepreneurs can work in the nonprofit and for-profit sectors because the lines between these forms are becoming increasingly blurred. Old dichotomies are fading away. (Hence terms like “conscious capitalism.”) 
The great business guru Clayton Christensen writes:
As companies tend to innovate faster than their customers’ needs evolve, most organizations eventually end up producing products or services that are actually too sophisticated, too expensive, and too complicated for many customers in their market.
Companies pursue these “sustaining innovations” at the higher tiers of their markets because this is what has historically helped them succeed: By charging the highest prices to their most demanding and sophisticated customers at the top of the market, companies will achieve the greatest profitability.
However, by doing so, companies unwittingly open the door to “disruptive innovations” at the bottom of the market. An innovation that is disruptive allows a whole new population of consumers at the bottom of a market access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill.
Remember that, entrepreneurs. Heavily subsidized industries can become dinosaurs. Even if you think your approach has low margins or no margins, disruptive innovations can transform entire market segments and bring whole industries to their knees.
Of course, we should continue doing our best to educate people in the economic way of thinking. But we should also start seeing the world through a more Kirznerian lens. That means we continue to look for weak joints and leverage points in industries dominated by corporatism and Big Government. That means being alert, rolling up our sleeves, and creating value—right in the beast’s lair.  
Find a Portuguese translation of this article here.

  • Max Borders is author of The Social Singularity. He is also the founder and Executive Director of Social Evolution—a non-profit organization dedicated to liberating humanity through innovation. Max is also co-founder of the Voice & Exit event and former editor at the Foundation for Economic Education (FEE). Max is a futurist, a theorist, a published author and an entrepreneur.