A defining moment
It may be that we are living a defining moment for the future of capitalism and for humanity. For the last 200 years entrepreneurial prowess enabled by financial capital has powered a long surge of economic growth. Over the major innovation cycles, the capitalist system has been resilient enough to absorb the effects of the crashes caused by pure speculation and turn them to its advantage. Production capital took the lead over financial capital and real value over paper value, as Carolta Perez has so brilliantly demonstrated.
Fast forward to today, and the picture is not so happy. Financial capital is in the driving seat. Eight years on, the world is tentatively emerging from a financial crisis that almost broke the global economy. Even though we are back to a semblance of stability, a range of unresolved issues – sky-high government debt, a still-fragile financial system, stagnant productivity, increasing levels of inequality, latent currency crises, slowing growth in emerging markets, high volatility in stock and commodity markets and geo-political instability and extremism – preclude any easy return to sustained economic growth.
There are certainly many causes for concern. A striking features of today’s fragile world situation is the inability to channel an abundance of cheap financial capital into productive use by companies, economies and states. Some prominent economists predict a new period of secular stagnation as the last great phase of innovation-fuelled growth (as they see it) dries up. With attention fixed on the obsessive search for the next high-tech “unicorn”, vital investment is lacking in “Main Street” companies that could fuel precious growth and employment.
Most large companies seem to have lost the taste for entrepreneurship, their CEOs preferring to focus on using technology to maximize profit from existing businesses. They are too often governed by the interests of shareholders who regard corporations as speculative investment opportunities rather than human communities for which true owners would feel ties of responsibility and commitment. And while capital markets celebrate short-term results over long-term corporate development, governments seem to have only one response to the urgent new challenges of our time: overregulation, resulting in crippling micromanagement and microregulation of domains that are evolving at breakneck speed, frequently aggravating the problems the regulations attempted to resolve. It is questionable, for example, whether many thousands of pages of regulations have enhanced the banks’ ability to carry out their core mission of funding the real economy of goods and services for real human beings.
The entrepreneurial society
Between discredited financial capitalism on one side and ever more burdensome state bureaucracies on the other, can we revive a lost but deeply-rooted human capability – the capability to take ownership of the problems we face, and to accept responsibility for creating our own solutions – that is, create the basis for a properly entrepreneurial society?
Drucker called this a turning point in human history. What we need, he said, was not just an entrepreneurial economy but an “entrepreneurial society in which innovation and entrepreneurship are normal, steady, and continuous”. He saw innovation and entrepreneurship as a life-sustaining activity pervading organizations, the economy and society.
In terms of management, the advent of the entrepreneurial society means above all replacing the rigidities of industrial-age mind-sets, with their command-and-control, top-down orientation. What indications are there that this is happening?
Despite powerful headwinds, green shoots are visible. Agile methods and Scrum are creating space for individuals to self-organize and work in iterative processes; by bringing customer development closer to the marketplace and enabling rapid learning from failure the lean start-up movement has great potential to increase the success rate of new ventures. New business models and value propositions are developed by global teams using web-based tools and communication methods. Design thinking is entering the mainstream as large organizations learn to proceed by prototyping and iteration. Start-up factories, incubation hubs, living laboratories and hotspots for innovation are springing up in cities around the world. Large corporations are devoting serious attention to becoming “ambidextrous”, combining robust exploitation capabilities for existing businesses with new exploration-driven business engines inside and outside their organization. And above all, new generations are legitimizing entrepreneurship and innovation with the enthusiasm and drive of youth.
Managing the transition
Yet start-ups and large corporations can only be part of the story of entrepreneurial reinvention. Making the shift from small to medium-sized business and generating more fast-growing “gazelles” remain major entrepreneurial challenges. Germany has shown the way, its “Mittelstand” encompassing numbers of world leaders or “hidden champions” in highly specialised fields, as demonstrated by Hermann Simon. This entrepreneurial success story has not happened overnight. Many family-owned Mittlestand businesses are exemplars of stewardship in its truest sense, demonstrating long-term commitment to a business and to the employees who are its heart and brain. Are there lessons here for giant corporations and the stock markets they trade on?
While digital technology creates extraordinary opportunities, it also disrupts existing economic, social and physical infrastructures in ways and in time-spans that make the social consequences hard to absorb. Drucker observed long ago that each social problem is a business opportunity in disguise. Social entrepreneurship and social innovation must play their part here. Not all solutions in this field will generate the financial flows to make market-based responses viable. But besides innovative public private partnerships, digital technology could yet enable the emergence of a “sharing economy” for acts of citizenship and mutual support and exchange that is worthy of that name. Together with state agencies combining in a new “Entrepreneurial State”, such institutions may knit together a flexible social web to provide security for the most needy.
The emerging world has embraced the notion that only entrepreneurship can lay the foundations for decent lives and a good society – important, because the challenges are daunting. By 2050 two billion young adults will enter the global workforce. These are the genuine challenges of the world, beside which many of the luxury problems that politicians, trade unions and advocacy groups tussle over in the West pale into insignificance.
For sure, transition into a new settlement that is not yet fully formed is painful and frightening. But it can be shaped by society’s responsible groups, among which management, as Drucker always reminded us, is a leader. Our vision: a new age of innovation and entrepreneurship that brings to bear the energy, the creativity and the “wisdom of the crowds” in a new way – as the practical wisdom of engaged, motivated and ethical individuals; open and critical minds who connect in the real and virtual worlds to understand and solve human problems in novel ways. Entrepreneurship leads us back to the essence of being human – the ability to create something that may not been seen even imagined before. No algorithm can do this. Entrepreneurs, entrepreneurial managers and a new entrepreneurial mind-set may represent our secular opportunity to make the difference between secular stagnation and secular prosperity – as such, a true defining moment for the 21st century.
About the author:
Dr. Richard Straub is founder and president of the Peter Drucker Society Europe and a member of the EFMD Executive Management team.