We live in a Zero-Sum Universe in which matter is neither created nor destroyed. Is wealth really created, or is it just redistributed?

The Austrian economist Josepth Schumpeter (1883-1950) discusses the concept of “creative destruction.” Creative destruction occurs when innovation makes old ideas and technologies obsolete. Now wealth is not simply redistributed; it is being captured (choose your own verb) by a new group/and old group of individuals who are on some kind of leading edge. This leading edge – entrepreneurship - may be simply a twist on old idea (71% of a select 100 founders on Inc. Magazine's 500 Fastest Growing Businesses list "replicated or modified an Idea encountered through previous employment."). Or the leading edge may be part of the technology revolution (5% of the above 100 in the Inc. group). (Data from Bhide, Amar, "How Entrepreneurs Craft Stategies That Work," Harvard Business Review on Entrepreneurship Harvard Business School Staff, Zenas Block, Ian C. MacMillan, William A. Sahlman, Gregory L. Summe, 1999.)

Based on this “creative destruction” principle, in the United States in 2000, 1.8 million jobs were created, and 60% of these were by small business. Also in 2000, more than 1 million jobs were destroyed. By understanding the creative/destructive nature of entrepreneurship instead seeing it only as the "redistribution of wealth" we can perform our work with a greater likelihood of success. We can ask the right kind of questions. And we can find the right kind of people that make a community "happen."

Wealth creation is about governments printing money, backed by the production of their economy, faith, and monetary valuation markets. Not really a zero sum game at all, with those factors in the mix. I always connect it mentally to non-valued natural resources and "knowledge" - over time, as assembled into usable things or ideas, production converts inputs (sometimes non-valued stuff) into wealth. We have many periods in US where "productivity" rises, but jobs do not increase, which leads to more wealth for same people...this is the "New Economy", where ideas are the exportable item, essentially. It is why some centers of ideas can thrive without manufacturing anything (New Economy, or "creative" economies).

Wealth is created through the production of new goods and services. We don't "pass" dollars around the community -- for the most part we give them to people in exchange for goods or services they have created which we value and want. Exporting goods or services is only one way to create wealth and raise per capita incomes.

The only way to create wealth is through productivity increases, i.e. making more out of existing inputs or making the same out of fewer inputs. Yes, someone does lose their job or contract but society is better off and depending on how fast they can transition (and how much we are willing to help them) they may be better off.

Wealth depends on trade. Exporting what you do best brings new purchasing power into the community and the community becomes wealthier. Moving dollars around the community passes around the purchasing power, but does not increase wealth.

Even if you discovered a gold mine, while you have increased your wealth, the value of the remaining world’s gold supply goes down as the amount of the commodity goes up (assuming buying pressure remains constant). So you gain, while everyone who currently owns gold loses, although probably not appreciably. (This theory, however, does not seem to be true in the stock market. Stocks are worth what buyers think they are worth. So, value seems to be created out of thin air. The thing that seems to keep stock values constant is trust. With trust, values stay high; without it, they fall. The main reason the US enjoys such high rates of foreign direct investment is the level of trust in our ability to maintain our society.)

Entrepreneurship is important in creating wealth, but so are increased labor skills, better infrastructure, new technologies, etc. For a local community, better infrastructure and schools are two things they can control that increase productivity.

Identifying entrepreneurs enables communities to do a more effective job in developing, growing and saving themselves. Ask these questions:

• Who are the new entrepreneurs?
• What are the traits of an entrepreneur?
• Can we train entrepreneurs?
• How do we train them?
• What are the amenities in my community that attract entrepreneurs?
• What amenities does my community need?
• What businesses in my community will be shut down if not sold?
• How does community development really happen? Box stores, Littleton, Colorado, the movement of small business owners to a new area? (The Rise of the Creative Class: And How It's Transforming Work, Leisure, Community, and Everyday Life, Richard Florida )

We don't get social justice and growth at the same time. When we have growth, little effort is given to social justice. When we don't get growth, social justice issues overtake the initiative for growth.

Higher wage-per-job is better for a community than more employment. Higher wage jobs mean that workers hold only one job, rather than two or three lower paying jobs. This allows more people to hold jobs. The focus to supporting higher-wage jobs means significant change in the types of assistance and incentives that are offered to companies.

When I make something (in a simple society, say a pot), new “wealth” is added to the system. We have a physical something we didn’t have yesterday. The physical thing flows down the distribution channel (bought by a wholesaler, stored in a warehouse, shipped on a truck, sold in a retail store, taken to the consumer’s home, later sold at a second-hand store, and eventually thrown in the trash).

But wealth is not just making something new. It is also contains another element: “the value of the new thing” – meaning what I am willing to trade you for what you made.

If I make two pots and trade them for a tent, then the value of the tent at that moment is two pots. But I don’t have need for a second tent, so the “value” to me of a second tent drops to zero pots. What is the value of a tent? Well, it depends. It has no universal, unchanging value; only a relative value….relative to the number of pots and tents in the system at any given moment. For a little bit the value of a tent was two pots; then it dropped to nothing.

New wealth has two aspects:

1. creating the physical thing itself
2. the value other people put on it

Watching a free enterprise economy at a distance, we see it expand with creation (new products, new companies, new jobs) and contract with efficiencies (fewer companies, fewer jobs). It goes through this expansion and contraction as regularly as we breathe, all the while pumping out new products and reducing costs of existing products. The parts of the country that are expanding are doing well; the parts of the country that are contracting are not doing well. But both parts are built into free enterprise.

This is why we put so much emphasis on innovation (the creation of new goods and services) in economic gardening. A town caught in a commodity contraction basically has only one choice: to produce something new that people want that no one else is providing.

Thoughts on the Dilemma of Free Enterprise

The dilemma of free enterprise has faced this country for 200 years. Free enterprise is excellent at two things: a. innovation (creating new wealth) and b. efficiency (getting prices down on existing things). Innovation becomes a commodity, which forces down the costs of producing it. Innovation produces wealth and commoditization puts the squeeze on the costs of production.

The dilemma: Free enterprise doesn’t much care about individuals who get caught up in all the grinding and chaos that the system produces. For example, the textile plants leave Georgia and lifelong blue-collar employees are thrown out of work, or the Great Depression created so much hardship for good and decent people all across this country. Products and jobs that are on the commoditization side don’t really care if you go to church or help your neighbors or raise your kids well. The jobs and the pay will always be squeezed….and whoever owns that job is going to be worse off regardless of his/her personal characteristics. It’s the core theme of a lot of literature.

The question remains: how does a community get the benefits that the system produces (new wealth, lower priced goods for everyone) and yet ameliorate the nasty impacts on real people? We vote with our feet for the discount chain store’s low prices but we hate their labor practices. The real work before us as economic developers, as community builders, as politicians, as academics, as people living in a free society….is to find a way that both can exist side by side. As a principle, free enterprise has done wonders for us. As human beings, we still feel for those who get hurt by a system that works so mechanically.

Suggested Resources:

The Rise of the Creative Class: And How It's Transforming Work, Leisure, Community, and Everyday Life, Richard Florida

Crowded with Genius: The Scottish Enlightenment: Edinburgh’s Moment of the Mind, James Buchan.

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