Investors vs. Entrepreneurs

Jesse Walker | March 1, 2007

Riffing on an intriguing post by Jed Harris (arguing that "in peer production, the interests of capitalists and entrepreneurs are no longer aligned") Tim Lee makes a broader statement about a split in the libertarian movement:

Libertarianism tends to be a pro-entrepreneur, pro-capitalist political philosophy. Before peer production came along, being "pro-entrepreneur" was usually equivalent to being "pro-capitalist." But with peer production, libertarians are, in a sense, asked to choose sides. Those who view economic progress primarily in financial terms--that is, who perceive the investor as the key player in the creation of new wealth, and the entrepreneur as merely his agent--will tend to regard peer production with suspicion, because peer production tends not to produce very much wealth that's in a form that can easily be transferred to investors. And they also tend to be the copyright hawks, because they view the creative process primarily in financial terms: if record labels aren't able to turn a profit, there will be a lot less music (or a lot less high-quality music) produced.

On the other hand, those who have a more entrepreneur-centric view of innovation--who view investment as merely one input in the process of entrepreneurship--will find peer production highly congenial, because peer production is simply a form of entrepreneurship that requires little or no capital as an input. These people tend to think that people have diverse motivations for engaging in creativity, and so the lack of a direct financial return does not necessarily mean that no creative works will be produced.

Lee, who puts himself in the second camp, concludes that "Both capital-intensive and peer-produced innovation are important to the economy, and as libertarians we should celebrate them both." Readers can choose sides or form their own teams in the comments.

Comments

|3.1.07 @ 12:56PM|#

I don't believe one must be pro either one or the other. Certainly, an investor is a key player in generating wealth, but so is an entrepreneur - we need both to have a thriving society full of choices. Without creators, there isn't much place to invest, and without investment (OK, for peer-production it's less money and their own time - to greatly over-simplify), there is far less creation. The two are essentially symbiotic in the creation of a dynamic world. Just my two cents, of course . . .

|3.1.07 @ 12:57PM|#

Skins over there.

tros|3.1.07 @ 12:57PM|#

Yeah I know all about the "peer production". The journalism that I am doing is so urgent that I don't even have time to convince you people to print it in your paper magazine because by the time taht happens it will be old news.

So I am stuck here making zero money. Oh well. At least I can be smug and superior since I think that the love of money is the root of all evil. No, you can keep all your compliments. My ego is nice and healthy the way it is I just want your money ha ha ha ha.

|3.1.07 @ 12:57PM|#

Shirts over here.

|3.1.07 @ 12:59PM|#

if record labels aren't able to turn a profit, there will be a lot less music (or a lot less high-quality music) produced.

Record labels are currently making profits and also currently producing a lot less music (and a lot less high-quality music).

Fluffy|3.1.07 @ 12:59PM|#

I don't see a conflict. Want to be a peer producer? Knock yourself out. Want to enter the capital markets? Knock yourself out.

|3.1.07 @ 1:00PM|#

NoStar,

Are the skins going to be whichever team Kerry H. is on?

|3.1.07 @ 1:13PM|#

I don't think that peer production and investment based production necessarily conflict. When investment is necessary, in the case of something like biomedical stuff, then the investor isn't really just rent seeking. When no investment is necessary, then peer production works, their is no rent to seek.

I see how some creative works could be largely peer produced, e.g. music or writing, and as such the entrepeneurs/creators could give it away or receive direct compensation at their choice.

Mike Linksvayer|3.1.07 @ 1:17PM|#

Peer production should be doubly celebrated by libertarians as it is not amenable to taxation or regulation.

mike a.|3.1.07 @ 1:24PM|#

Fluffy -the conflict comes because oth groups want different baseline rules. People take sides when there needs to be a law or application of a law on patent rights, copyright laws, etc. How long should we allow property rights for pharmiceuticals, and which types of innovations are worthy of this protection. On the one side are property rights, enforced by the law, and on the other side is the freedom to start a business that the government won't shut down. Both lead to prosperity, but there is definitely a conflict.

Personally I think that we currently have too strong of property rights. We absolutely need property rights, but I think in art, and in patent law and copyright, we are hurting innovation more than we are encouraging it when the government stops people. Plus, intellectual property is a non-exclusive good by nature. This is more important now that intellectual property is even less exclusive by nature, with the advent of certain technologies.

|3.1.07 @ 1:25PM|#

Crimethink,

We can only hope that Kerry H. and Katherine M-W. are both on the skins side.

(Although Katherine's eyes are so beautiful I might not notice what team she played for.....for at least a half a second.)

|3.1.07 @ 1:37PM|#

I agree with others who see this as a non-issue. It's like the supposed "dispute" between descriptive and prescriptive grammarians that gets trotted out periodically as faux news. Down the road, I can imagine some interesting property-law issues arising, but the beauty of the common-law system is that such problems can be addressed incrementally if, when, and to the extent that they arise.

Paul|3.1.07 @ 1:49PM|#

When I first started reading this blog entry, I assumed it was going to be something about libertarian skepticism about big business, or corporations. But this is really a non-issue. I don't see this as being the cause of any major rift. Sometimes, yes, the entrepeneur is the agent of the investor. It's not as romantic as the entrepeneur doing everything on his own, but sometimes a big idea requires great risk of capital. If the big idea fails, the entrepeneur is out very little, where the investor may be out everything. An oversimplification? Yeah, but as long as everyone is acting in their own self-interest, and not bound through force, what's the problem?

Now, you do a blog post about Big Business vs. Capitalism, or more specifically, people running corporations having absolutely nothing to do with capitalists and you'll have something.

Tim Lee|3.1.07 @ 1:51PM|#

jp,

The problem is that in the policy area most relevant to peer production--namely copyright law--Congress has repeatedly intervened to shift the balance toward capital-intensive forms of creativity. People on the "pro-capital" side of the divide think we need stronger and stronger copyright laws to maximize the profits of capitalists, even if products like Google Book Search and Handbrake have to be squashed in the process. People on the "pro-entrepreneur" side realize that those are precisely the sorts of tools that lower the barrier to entry for entrepreneurship, making it easier for more people to participate in the marketplace.

I should also add that my point was really as much about differing worldviews as it is about differing policy conclusions. Some libertarians sneer at products like Wikipedia and Linux because no one makes a profit from them. Others celebrate them as an example of the wealth-producing power of free societies. At root, these differing attitudes reflect different conceptions of the relationship between capital and entrepreneurship.

Paul|3.1.07 @ 1:57PM|#

Some libertarians sneer at products like Wikipedia and Linux because no one makes a profit from them.

Tim Lee:

I disagree totally with this. I sneer at Wikipedia and Linux for purely technical reasons or usability reasons. It has nothing, but nothing to do with lack of profit. In fact, there's profit all over the place with Linux-- although not anywhere near as much as Linux proponents predicted (irony?). I suppose that some libertarians might root their skepticism purely on grounds of the 'free' nature of these products, but I can't imagine they've got much of an argument. It was in fact, Linux proponents who hyped the Linux product for all the wrong reasons.

Tim Lee|3.1.07 @ 1:57PM|#

And incidentally, NoStar and Crimethink, you're both shallow, patronizing assholes. You should be ashamed of yourselves.

|3.1.07 @ 2:00PM|#

I have to say, when I think about our increasingly abusive and intrusive Total Nanny/Security State, I hardly ever obsess over the abuse of state power involved in potentially over-protecting intangible property rights.

But that's just me.

|3.1.07 @ 2:05PM|#

if record labels aren't able to turn a profit, there will be a lot less music (or a lot less high-quality music) produced.

Tim, that's the funniest statement I've read in a long time!

Actually, the only thing labels are really useful for anymore is promotion. Artists are now fully capable of producing and distributing music without the assistance of a label, but widespread promotion is still controlled by the big labels, and indie labels are still the best way into niche markets.

And I think that more artists are finding ways to promote themselves without the need for a label deal. In a sense, you could say that mySpace and CD Baby are musical varieties of peer production. They are still exploding, while the mainstream music industry is contracting.

|3.1.07 @ 2:05PM|#

Did anyone see the founder of Craigslist on the Daily Show on Monday?

Fits perfectly with this post.

|3.1.07 @ 2:42PM|#

And incidentally, NoStar and Crimethink, you're both shallow, patronizing assholes. You should be ashamed of yourselves.

Tim Lee, that is one of the most insensitive statements I have read on Hit&Run. Crimethink and I have feelings too, ya know.

mike a.|3.1.07 @ 2:54PM|#

Two thoughts.

Paul -Tim Lee didn't say that you would sneer at wikipedia/Linux, he said some do, and he's right. Some libertarians base their policy decisions on increasing profit.

Curiously enough, they often base this on economic theory, even though economic theory usually views profits=zero as being optimal/efficient. It's complicated because the definition of economic profits is different from the definition of corporate profits. Also the big exception to this is when short term profits are an enticement to innovation. Anyways, some libertarians use economics without acknowleding the complexity, or often even understanding basic economic theory that profits are usually an indication of inefficiency. Maybe not you, but many libertarians don't understand this.

Fluffy|3.1.07 @ 2:55PM|#

Mike A -

I read the linked article and the definition of peer production contained therein, and I don't see anything that says that to be a peer producer you have to steal someone else's intellectual property.

The fact that some businesses that currently fit the peer production model run afoul of intellectual property law is not due to anything structural to the model. It's more a function of the fact that one quick way at this market moment to gain millions of customers is to create a forum where those customers can steal other people's intellectual property. But you could just as easily be a "peer producer" in some other field that didn't involve starting the next Youtube. The local farmer's market is full of hippie "peer producers" selling macrome junk every weekend.

|3.1.07 @ 3:15PM|#

Tim Lee,

Patronizing?

|3.1.07 @ 3:16PM|#

Tim Lee @ 1:57 -- What's wrong with you?

* * *

Fluffy -- Good point. Another example of lawful peer production is all the reading material that hobbyists provide for free on blogs. A lot of the entertainment that I used to derive from radio, newspapers, and magazines I now get online from amateurs, with no revenues being generated by subscription or advertising fees. This makes it hard for newspapers and magazines (and for radio, if we ever find a way to surf the web while driving), by crowding them out. But it will eventually open up new profit opportunities that no one has dreamed of yet.

|3.1.07 @ 3:28PM|#

"Those who view economic progress primarily in financial terms ... tend to be the copyright hawks, because they view the creative process primarily in financial terms: if record labels aren't able to turn a profit, there will be a lot less music (or a lot less high-quality music) produced."

As someone who has been in the trenches of the online copyright debates for years, I firmly disagree with this generalization.

In fact, I'd say the anti-IP crowd (the copyright doves?) is where you're more apt to find the issue viewed in terms of arbitrarily defined systems such as "the record industry" and its profits.

As we "copyright hawks" sit here arguing in favor of strong IP because of its value to individuals who create, it's our opponents who counter with arguments concerning "direct financial returns": "The labels make enough money already" ... "Bands can just make their money from touring and selling T-shirts" ... "They need to adapt to a new business model" ... ad nauseam.

Most of "the copyright hawks" with whom I'm familiar, on the other hand, tend to make arguments in moral terms: the right to authorship, the right to control one's creations, and so on. Where the arguments do embrace a "financial" perspective, it tends to be a broad one -- that copyright provides incentives to create, etc.

Now, the anti-IP side certainly likes to think that we are motivated by temporal financial considerations: I can't count the number of times I've been accused of being "a shill for the RIAA" and such. But that's just weak rhetoric, not an argument.

As for me, I couldn't care less if some entity called "Warner Brothers Records" or "Universal Studios" happens to stay in existence. I couldn't care less if all art becomes produced by part-time hobbyists on the Internet. I just care that creators have an exclusive right to their own creations, to do with as they see fit.

tros|3.1.07 @ 3:31PM|#

Yeah that mutualist (.blogspot.com) economics is pretty sweet. But must say the more concentrated capital the less inhibited I am to PWNZ th31r 5h1+

I. Self. Divine.|3.1.07 @ 3:48PM|#

Tros...the word you are looking for is PWN...not PWNZ.

|3.1.07 @ 6:32PM|#

i love this website. this is what its all about.

|3.1.07 @ 9:28PM|#

NoStar:

Skins over there.

It's too cold. Anyway, as was said, "Both capital-intensive and peer-produced innovation are important to the economy, and as libertarians we should celebrate them both."

The question is an interesting consideration, but hardly one about which libertarians should think that they ought choose sides. Both are a function of economic liberty. Also, some times both activities are undertaken by the same individual simultaneously.

|3.1.07 @ 9:33PM|#

gball:

i love this website. this is what its all about.

Agreed! And H&R is the best blog in the whole damn sphere.

|3.1.07 @ 9:54PM|#

So where are the "libertarians" who are anti-open-source? They don't seem to be in evidence.

I think most libertarians view big business as a necessary evil - the unattainable ideal being everyone self-employed. Right?

Nobody Important|3.1.07 @ 10:07PM|#

JSFan | March 1, 2007, 2:05pm
Did anyone see the founder of Craigslist on the Daily Show on Monday?
Fits perfectly with this post.

As much as I hate Comedy Central's "Motherload" video site, here's the link:

http://www.comedycentral.com/motherload/index.jhtml?ml_video=82750

Mon, 2/26/2007
Craig Newmark
Jon tips Craig Newmark, founder of craigslist, on how to flush out al Qaeda.

|3.2.07 @ 2:41AM|#

I think most libertarians view big business as a necessary evil

No way. It's big businesses receiving government favors that is an unnecessary evil. Sans government favors, big businesses are those that are good at selling folks goods and services that they dig.

the unattainable ideal being everyone self-employed. Right?

I don't think so. But the attainable ideal is everyone interacting economically with each other sans coercion.

From each as they choose. To each as they are chosen

It's freedom baby! Yeah!

|3.2.07 @ 7:39AM|#

tros is one wacky cat, but his bringing up mutualism rings a bell. I have often argued with pinkos that it isn't socialism per se that I oppose, but state socialism, in particular. Capitalism, let's remember, was a term of opprobrium coined by the socialists. Unca Miltie liked to be specific about the economic system he preferred: a "free enterprise exchange economy." There's nothing about a free economy that requires firms to be organized by sterotypical "capitalists," just as nothing should prevent that. One form of organization, the co-operative, can exist under both paradigms. Anybody have a problem with Ocean Spray, Land O'Lakes, or credit unions? I sure don't.

Let a thousand forms of business organization bloom, I say. Just keep the friggin' gubmint out of it.

Kevin

|3.2.07 @ 9:12AM|#

Rick Barton and Kevrob -- I 100% agree.

|3.2.07 @ 9:32AM|#

Perhaps investor-types are copyright hawks because they don't understand the creative process. Entrepreneurs get their hands dirty, and while they might not know how copyrightable material is created either, they at least have a respect for musicians, writers and the like go about their business.

Investors, being so far detached, think it is a good idea to raid granny's computer and extort a few grand out of her. Thankfully, I grew up in a time when taping songs off the radio didn't result in a SWAT team at my door.