Services Science, Engineering and Management Conference, at IBM Palisades, October 6-7

This digest was created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, posted on the Coevolving Innovations web site by David Ing.

Intro by Jim Spohrer

Kauffman Foundation - Entrepreneurship

A lot of service innovations come from small companies

Schramm is working with Baumol, who in the 1960s said that services are stagnant, has now changed his mind

[Carl Schramm]

Transformation comes from the outside

Post-war conception of business:

• Big business
• Big government
• Unions

Assume economics works like engineering

• But economics doesn't work like, move when have failures

John Kenneth Galbraith: big firms will be responsible for ensuring prosperity

• So did Drucker
• What about entrepreneurs?
• Last person to write about entrepreneurs was Schumpeter in 1938

Economist studied monetarism or Keynes, or macro

• No one studies when firms started
• Baumol resurrected interest
• American Economic Association only started studying entrepreneurism 4 months ago

Terrible economic times in 1970s

Almost did error in bureaucratic policy to follow Japan, John Kenneth Galbraith in Washington, doing centralized planning

• Instead, did restructuring
• By accident, intellectual property law
• Portable pensions
• Pension funds investing in startup companies

Demise of bureaucratic entrepreneurism, birth of entrepreneurial capitalism

• Kids see education as starting businesses
• Embedding into culture at the bachelor's level

Couldn't have seen the shift in reading the past decades of Harvard Business Review

Gary Becker wins an essay in the 1980s for the 1972 article saying that human capital is more important than financial capital

• This is how slow economists are in leaving the triangle of big business, government and unions

See mess:

From 70% union to 12% union, now no one to bargain with

• 70% of jobs are created by companies less than 5 years old
• When Schramm graduated, would have 4 employers in life
• For son, will have 4 employers before 30, one of whom will be less than 5 years old or a self-employer

New actor:

• Start-up firms:  totally discounted in the 1980s

Keynes: pay unemployment to people until they can get back on their feet

• In the last recession, more people willing to take the risk to start their own businesses
• Companies like IBM talking about openness

Government is playing a lesser role, but has played a central role in NIH and DARPA

Universities aren't all that central

• Had Ford Foundation pushing him through
• Could make money going to graduate school
• Over-supply of Ph.D.s, who could then start businesses

Compare to Carlotta Perez: continuous innovation

• In Europe and United States, taught Dark Age, then Enlightment, dark era, then Industrial Revolution, then electricity, depression, jet age
• View that we're in the shock of 1999, when we did stupid stuff
• A lot of people lost money, but that's the way that capitalism works

What does a firm look like?

• Used to have plants
• Microsoft employees have never been in an IBM-type environment
• 75% of Fortune 500 isn't in corporate entity form
• It's people, technology and how the financial markets work

New institutional forms:

• Foundations
• Venture capital
• Business schools
• Suggest that research is the new institutional forms

What roles do universities play?

• Great conceit of universities: they live in the future
• Are universities going to move fast enough to absorb this?
• Reports now that more is spent in basic research in China than in the U.S.

Why did economists miss the switch? Why haven't universities responded?  Why does invention happen outside of engineering?

• Article: The Broken M.B.A.
• Don't count out America

Professors of business don't have an understanding of the new economy

• ATT went, but no news in America
• In Europe, it would have been backed by a family

We teach inductive and deductive

• American way: abductive reasoning
• Permits freedom to individuals: gives them money, lets them make mistakes, lets them fail and try again

This event may be iconic in a change in our business culture, intellectual culture, democratic culture

• This is unique to the United States

[Questions]

In a few years, a few trillion dollars in wealth in foundations

• A foundation is lot like a university, an invented creation of capitalism
• Invented by great entrepreneurs who made so much, they decided to give much of it back
• This doesn't happen in Europe, where they create dynasties and pass it back
• In the U.S., children don't get more the $10 million, but the rest of the $4 billion goes
• Will ruin kids by not letting them learn
• They people are encouraging democratic capitalism
• Foundations are freer than other institutions, no revenue, no customers, only think about how to propel society forward
• With economic growth will come growth of economic welfare

Spreading entrepreneurial thinking across universities, and maybe business schools

• Mostly adjunct faculty
• About 86% of people in Inc.'s fastest growing businesses are all university graduates, and engineers in particular
• Engineers are practical, they're fooling around
• They're doing what entrepreneurs do
• Then thought: how about spreading the money across the whole university, entrepreneurism everywhere
• Got 26 replies, asked for responses within 4 months, to give $5M
• One example: Washington U.:  a dormitory as a community of entrepreneurism where entrepreneurs and families live in, with a mall in the center of the campus where they need to fight to get space
• Have legitimized entrepreneurism
• Theory of change: Washington U. is one of the most endowed universities, $6 billion, yet offered them $3.5M with matching from the state
• Have 25 to 30 schools like this

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