The Real Link Between Technology and Entrepreneurship

In the mind of American culture, and perhaps other cultures as well, technology and entrepreneurship are inextricably linked.

One usual explanation is the idea of particularly creative people. These creative people are into creating new inventions and are also able to successfully launch a business due to the same creativity. Another explanation is that technology enables people. With better technology comes the ability to do things new ways, or do old things with more ease, less risk, or some other factor which now allows businesses to grow which previously couldn’t.

These explanations both work in part but they are not exhaustive. I do not claim to have an exhaustive list either, but I can bring us one step closer to it. The explanation which is seldom discussed is the regulatory reason technology and entrepreneurship are linked.

Innovation is hard to regulate. Old technologies have become understood and can be regulated, but new technology is often not understood well enough to regulate. In some cases a new technology may apply to an existing product. These innovations are somewhat easier to regulate compared to the case of the double-innovation, of which bitcoin has been a great recent example, but still harder to regulate than an old and understood product.

In short, the less understood something is, the harder it is to regulate. Mystery cannot be regulated, innovation is next to mystery, and mystery is always there. This can give us hope that the free market will win the battle against the State.

Accepting that innovation is hard to regulate, the point is that innovation now seems extremely profitable. It is profitable enough to have a temporary monopoly and a first-to-market advantage, along with the entrenched brand recognition and market-share advantages that come along with the others and would serve any business for years. Now consider that there is also a relatively lower cost of business when we bring technology into the picture, because you will suffer less regulatory costs as an innovator.

The State is subsidizing its own death through opportunity cost by regulating non-innovation so heavily!

To make this clearer, keep in mind that an innovator is different from an entrepreneur. The entrepreneur need not innovate at all. He or she could enter into an established market. This may seem unprofitable to an economist, but any student of business knows that copying from a proven business model has advantages including risk-elimination benefits.

So the entrepreneur could innovate or not. Ceteris paribus, if regulatory costs are higher only in the case that the entrepreneur chooses not to innovate, then the entrepreneur has a motivation to innovate.

That is an additional reason that innovation, technology, and entrepreneurship are linked!


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