Market-Based Management®

Infrastructure, Markets, and Commerce

There is a lot of talk afoot of the need to rebuild the nation’s infrastructure, and a favourite charge of anti-marketeers is that markets cannot provide complete, integrated networks of roads, bridges canals etc. However, while the market may not provide transportation networks as extensive as those built, subsidized, or sponsored by government, the market would be more likely to provide transportation infrastructure where it would bring the most benefit to the most number of people, while maximizing the efficient use of society’s scarce resources. Of course, those wishing their teeny village a multimillion dollar bridge would be fresh out of luck. Furthermore, the public would be denied admittedly impressive but value-destroying white elephants, such as the Channel Tunnel or the Big Dig. However, this is not to say that the government cannot build worthwhile projects (anyone who has flown into Reagan National Airport can tell you it really needs a much longer runway), but the question remains that even if the market fails to produce a worthwhile public project, then will the politicians and the planners get it right?

I was recently reminded of this quandary while working my way through Tim Blanning’s The Pursuit of Glory: The Five Revolutions that Made Modern Europe: 1648-1815, which includes a chapter discussing the nature of roads and road-building in seventeenth and eighteenth century Europe. Relying on contemporary accounts, Blanning begins a typical historian’s gush about the grand nature of French road-building and the colossal task undertaken by tens of thousands of workers and vast expenditures by the central government. However, unlike most historians, he digs a little deeper and discovers that, for all the highways’ grandeur, few people bothered to use them. Consider the following quote from Arthur Young—an Englishman touring France in the early eighteenth century. Although much (and grudgingly) impressed with the French roads, he observed that they had emptied a mere ten miles out of Paris and while moving south he observed:

“In 36 miles, I have met one cabriolet, half-a-dozen carts, and some old woman with asses. For what all this waste of treasure?”

So why had such massive roadworks failed utterly to encourage commerce? The answer lies with who decided where the roads went. Eager to impress important persons at court, ministers built roads to serve the latter. Accordingly, the Duc de So and So might have a beautifully paved road running to his remote country chateau, while a major commercial hub went un-serviced. In addition to serving the powerful, the royal roads had also been built to convey the king’s post, edicts, and orders to the far corners of the realm. Thus, the French roads tended to shoot out like spokes in a wheel from Paris towards the regional centers of administration. Unfortunately, while this ensured a straight shot from Paris to many locations, getting from anywhere to anywhere else in France by royal road meant going through Paris. The Sun King’s roads may have radiated out from Paris, but they allowed little in the way of lateral movement, which greatly reduced their commercial utility (a fine road is of little value if one cannot get to it). Despite the dearth of traffic, Frenchmen could rightly take pride in their roads, but often reproducing Young’s fair-mindedness, French travelers to England declared her roads just as fine—If not better—than their French counterparts. According to visitors (French and otherwise), the problem with English roads was that they were too crowded with a steady movement of carriages and carts that one Frenchman described as “magical.”

So why were the English roads crowded and the French roads bare? A logical suggestion might be that the English government employed smarter planners or had a better road-building bureaucracy than the French. However, the truth of the matter is that while the French government dedicated huge amounts to road construction, the British government hardly lifted a finger. True, English locals did owe a customary duty to keep the roads in their district in repair, but this custom had long since degenerated into farce with the gatherings of workmen quickly degenerating into a combination of shirking, drinking, and brawls (not necessarily in that order). This all began to change in 1695 when an entrepreneur petitioned the British Parliament to allow him to build a road upon which he might charge a toll, which would be collected at either end and admission granted through the turning of a pike. No doubt encouraged by a share of the promised revenue, Parliament rapidly agreed. Seeking to maximize the volume of his turnpike, the entrepreneur picked a location that would serve the most traffic. Furthermore, in order keep the revenue flowing fast and furious, he made sure that the road remained in top condition and that the maximum amount of traffic moved smoothly. Following the profits of this first trail-blazer, numerous entrepreneurs began petitioning Parliament for the right to serve the public for a nominal fee. While the turnpike acts came slowly at first (only 25 passed in the 1730s), the improved roads apparently made it easier for members of Parliament to get to London to pass more turnpike acts. The number of turnpike acts increased to 37 in the 1740s, before exploding to 170 during the 1750s and an additional 170 the following decade. By 1770 an estimated 15,000 miles of roads had been built in Great Britain, while the traveling time between most places in the British Isles declined by a factor of four.

What was true in the eighteenth century is true today. Markets can and will provide infrastructure provided they are allowed to. Meanwhile, government sponsored infrastructure is more likely to serve the interests of politicians than the people. History is littered with “bridges to nowhere,” and that trend is unlikely to change anytime soon.

Making Money the Old Fashioned Way

This would be hilarious were it not also tragic (HT: Coyoteblog). PickupPal is an internet site that allows would be carpoolers to meet online and coordinate travel plans. Drivers post when and where they are going, while passengers post where they want to go and how much they are willing to pay. Sounds like an ideal win-win situation—the folks save money, gas, and reduce congestion. However, not everyone was thrilled with PickupPal, and an Ontario bus company sued alleging that PickupPal operated as an unregulated transport company. The bus company won. The Ontario Highway Transportation Board fined PickupPal $11,000 Canadian dollars and ruled that ridesharing is only legal if it is between home an work, does not cross municipal boundaries, and is with the same driver each day (who can only be paid no more frequently than weekly).

While prosperity springs from multiple sources, at its core lies the amount of freedom that people have to exchange with one another. When this freedom is circumscribed by legal boundaries, then society is almost always worse off. Of course, while we as a society may wish to limit some exchanges (arms dealer and terrorist for example), restrictions like those placed up PickupPal are both silly and destructive. The bus company is better off, but the good people of Ontario now have a slightly lower standard of living. We may laugh at this example, but all over the world consumers have their choices by similar legal boundaries. Paradoxically, most of these laws are championed by “consumer advocates,” who advocate for consumers by limiting their choices. Needless to say, companies are more than happy embrace laws that protect them from additional competition. While the title of the article is “I’ll Never Let Canada Live This Down: Evil Carpool Startup Fined,” I cannot help but think that we will see PickupPal sued south of the border soon. Cities and states won’t stand for the loss of revenue or the lucrative practice of selling taxi cab monopolies. The excuse will be lame—probably something having to do with quality or the service will be blamed for the inevitable traffic fatalities or some sort of carpooling serial killer—but it will come; and we will all end up a little poorer.

Entrepreneurs and Disaster

Last week ago, I was struck by this Wall Street Journal article recommended by Jamie Peterson at INVISTA. The article concerns the sprouting of entrepreneurship in the aftermath of the recent devastating Sichuan Earthquake in China (unfortunately, reading the full article requires a Wall Street Journal subscription).

Interestingly, entrepreneurs are often the first to swing into action following a natural disaster (the first trainloads of lumber for rebuilding arrived the very day after the Great Chicago Fire of 1871). However, sometimes the imposition of price controls and “anti-gouging” statutes quash these efforts by removing the incentives needed to induce the effort. Although price spikes following natural disasters are common, price controls only force the squandering of scarce resources within the affected area, while choking off flows of supplies from outside. If allowed to operate, the price mechanism usually forces prices back down fairly quickly and sometimes even gluts the market.

I wrote about this phenomenon a couple years back in the ABA's Journal of Natural Resources & Environment, and economist Russ Roberts has dedicated his latest work of economics-influenced drama to the topic. However, the overwhelming need for flexible markets following natural disasters is not the purpose of this post: it is that, despite decades of being told to despise entrepreneurship and other “bourgeois” values, in the wake of disaster, many Chinese discovered their inner entrepreneur. A lot of folks make silly comments like “markets are not compatible with _____ culture” (personally, I blame this false mental model on Max Weber’s attributation of capitalism to some vague notion of “Protestant work ethic”).

The Sichuan Earthquake reminds us that people are naturally entrepreneurial. Entrepreneurship is in our blood and no amount of cultural conditioning or even brute force can completely stamp it out (considerer the phenomenon of black markets). Of course, some countries exhibit greater levels of entrepreneurship than others, but this is because some countries do a better job of facilitating the human desire to benefit one’s self through the service of others. True, one’s inner entrepreneur maybe repressed by governmental, cultural, or overly bureaucratic corporate environments, but it is always there; and a little shove from within makes a much better catalyst than an earthquake.

Did Adam Smith Hate Businesspeople?

In his excellent book Basic Economics, Thomas Sowell makes a startling observation on page 508 regarding the great economist Adam Smith—nowhere in Smith’s The Wealth of Nations does Smith say anything nice about businesspeople. Here are a few gems from The Wealth of Nations:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary. (Book I, Chapter X, at 144)

The last part must have been lost on the framers of the Sherman Act.

The proposal of any new law or regulation which comes from [businessmen], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it. (Book I, Chapter XI, at 278)

So many examples, but ethanol comes to mind.

The enhancement of price occasioned by both [high tariffs and government granted monopolies] is every-where paid by the landlord, farmers, and labourers of the country, who have seldom opposed the establishment of such monopolies. They have commonly neither inclination nor fitness to enter into combinations; and the clamour and sophistry of merchants and manufacturers easily persuade them that the private interest of a part, and of a subordinate part of the society, is the general interest of the whole. (Book I, Chapter X, at 142-143)

This is the reason Americans pay double the world price for sugar and do not notice.

The capricious ambitions of kings and ministers has not, during the present and preceding century, been more fatal to the repose of Europe, than the impertinent jealously of merchants and manufacturers. … But the mean rapacity, the monopolizing spirit of merchants and manufacturers, who neither are, nor ought to be, the rulers of mankind, though it cannot perhaps be corrected, may very easily be prevented from disturbing the tranquility of any body but themselves. (Book IV, Chapter III, at 519)

Ouch! Granted this is before Kaiser Bill, Hitler, Stalin, Mao, and Paul Pot.

Even his famous butcher (of the butcher, brewer, and baker) is not immune:

The trade of butcher is a brutal and odious business. (Book I, Chapter X, at 112)

So why did Adam Smith, the father of modern economics and perceived patron saint of all markets and business, say such nasty things about businesspeople? The answer lies in how most businesspeople used to make their money. In free markets, sellers can only make money by serving their fellow men. In Smith’s time, many businesses and interest groups enjoyed government protections and subsequently charged higher prices. Although the abuses in Great Britain had not been as bad as under the Tudors and Stuarts one hundred years earlier, many government monopolies (including a Revolutionary War igniting monopoly on tea) still operated at considerable expense to the public. In short, thanks to the backing of the state, the average businessperson was more crook than servant. In fact, our modern perception of the entrepreneur as one who strives to deliver a superior product at a lower cost only started to emerge two hundred years ago. For most of history, the “rich” have been so because of their pseudo-kleptocratic relationship with the state. Incidentally, this is probably the source of the famous Bible verse regarding camels going through the eyes of needles and rich men not going to Heaven. Market-Based Management uses a mental model known as profiting by the political means to define such relationships—where a business profits via government sanctioned force or fraud.

MBM considers any form of political profit completely unacceptable. In a MBM culture, the only acceptable profit is via a mutually beneficial and voluntary exchange between customer and company, which we call profiting by the economic means. Despite his disdain for businesspeople, Smith noticed that once deprived of their government-granted privileges, the still-contemptible merchants and manufacturers could only profit by serving their fellow humans. This is Smith’s lasting legacy. He did not appear to have a high opinion of his fellow man but observed that free markets forced even the worst people to provide for others—even those who might hate one another. The real Adam Smith was no ideologue, but a careful observer of human beings. Incidentally, he also gave away most of his money to the needy, which remains a little known fact—probably because he didn’t tell anyone. I like to think that Smith might have a different opinion of today’s businesspeople, but he would probably tell us not to kid ourselves. The many cheap and high quality products we enjoy today are not there because human beings are any better than they were in Smith’s day, but because the invisible hand forces them into what is best described as public service.

Dutch Invent Robotic Gas Attendant: Will probably be banned in New Jersey

As silly as it sounds, ordinary folks are not allowed to pump their own gas in some parts of this country. I tried to do so once on the New Jersey Turnpike and received quite a talking to. Having others pump my gas has always made me feel uncomfortable, but thanks to some clever Dutchmen, I can remain in the comfort of my vehicle and enjoy full service without the guilt.

The new robotic gas attendants cost about $111,000 (HT: Drudgereport), so it will be interesting to see if they end up being economically viable. However, profit margins in retailing gasoline are only a few pennies a gallon (gas station owners make most of their money selling all of the other things people buy while they fill up), but perhaps the lure of robotic attention will allow gas retailers to add a few extra pennies in margin. Considering the winter we are having, I would have been more than willing to drive out of my way and pay more for robotic service. Once again, the combination of entrepreneurship and technology has conspired to make human life much better.

Is There a Case for NOT Teaching Our Children Economics?

I’ll preface this post with a caveat: I believe that for the most part that there is not a lot of formal economic education in the United States, and one can often only find it in the higher levels of education. That being said, I do believe that Americans get a hearty education in economics throughout their lives—mainly through their own interaction with the world’s largest and mostly free-market economy. Most Americans may not read Smith, Von Mises, Hayek, Freidman, ect., but their day to day learning allows them to “get” economics anyway. I would argue that most Americans realize that if they produce things that others value, then they will be rewarded, and that those who succeed at this should be allowed to keep most of the value they create and entrusted with more economic resources. Furthermore, Americans tend to get irked when folks steal from one another (illegally and legally), and nothing upsets them more than hearing of someone who has lost their home to the unscrupulous misuse of eminent domain or otherwise failed to earn their windfalls without hard work and/or risk. Thus, I believe that Americans grow up and prosper with a hearty—and largely self constructed—respect for property rights, the profit motive, risk, incentives, and the rule of law.

Despite my own hearty respect for this culture economic self-teaching, I have always been a big fan of teaching economics to middle and high school students—7th grade seems a good place to start. However, comments on this article on the “economics education” received in some countries have been floating around the economics blogosphere, and I am starting to think that perhaps it might be better to forego any attempts at economic education and just maintain the current system of letting folks learn it in the marketplace. The reason being, that while some countries do provide economic education for their youngins, what passes for “economics” is not just wrong but rather disturbing.

P.S. The link from the Economist's article does (at present) not link to the full article in Foreign Affairs, but should hopefully soon be restored.

A Reminder from the Deep

A lot of people think that profit is a dirty word—and sometimes it can be. If Peter spends $500 dollars on a gun and robs Paul of $1,000, then his $500 profit is tainted. The same is true if Peter pays the authorities $500 to put his competitor Paul out of business. However, if Peter spends $500 creating something that Paul buys for $1,000, then Peter’s $500 profit is well deserved even with the very high margin. Paul has something that he values more than $1,000, Peter has an extra 500 bucks, and we have witnessed wealth creation.

The wonder of markets is that those seeking profit can only realize it by providing for others. Make something for $20 and no one will buy for more than $10, then you are not providing value for others and better find something that does—and quick. It is this motivation that takes human nature and channels it in to creating the free and prosperous society.

In many of the college courses taught by the MBM Institute, we like to start with the Introduction from How the West Grew Rich by Nathan Rosenberg and L.E. Birdzell. Although the Introduction offers many insights into the peculiar rise of prosperity is some parts of the world, one of the main themes is that the lessening of many different social, political, and religious conditions allowed European entrepreneurs to go forth and make profit. They responded by building businesses, seizing on innovations, and undertaking risky ventures and opportunities. Free from the risk of confiscation, price controls, or arbitrary government intervention, the entrepreneurs began talking the natural risks (weather, climate, etc.) that had for so long impeded human development.

I was reminded of the risks taken for profit by this article on a perfectly preserved 17th-century shipwreck recently discovered in the Baltic. It looks like a Dutch vessel—probably one of the hundreds or thousands that plied the Scandinavian timber trade. While the wreck is remarkable, I cannot help but think that the people on this ship probably died trying to provide for themselves and their families by supplying goods for other people—many of whom they neither knew and might not have even liked.

Who's in Charge Here?

I hesitate to post on this topic, because the MBM blog is no place for political endorsements.  So rest assured that it is not my intention to endorse any candidate to you, gentle reader.  Nevertheless, I would be remiss if I didn't comment on the fact that the 2008 Republican Primary is offering an amazing comparison of planned order and spontaneous order.  And the best part is that it's all happening at the same time in a single campaign: that of congressman Ron Paul.

The Paul campaign seems to have a real knack for putting together sorry advertisements and videos.  This ad for the New Hampshire primary was so bad that Paul's supporters were almost apoplectic in their criticism (see comments).  And this one managed to make the subject of campaign finances seem about as dull as, well, campaign finances.

But then there are Ron Paul's supporters, who appear to be among the most internet savvy participants in the Primary (at least at this early date).  Supporters' pro-Paul videos are ubiquitous on YouTube, to the point where Paul's total YouTube channel views are second only to Barack Obama, and more than five times the next runner up (Hillary Clinton).  Perhaps as importantly, Paul's supporters have been able to translate their creativity into cash for the campaign.  Weeks back a small cadre of Paul fans hatched the idea of encouraging people to donate $100 on November 5th.*  Through word of mouth, blog posts and email activism, the movement signed up over 18,000 participants, and yesterday the Paul campaign received roughly $4 million in donations.  And thanks to another Paulista's efforts, supporters can look at those (and other) fund-raising numbers in gory detail ad nauseum.

To his credit, Paul acknowledges that whatever strength his campaign can boast has come, thus far, from his supporters, and not from an inner circle of strategists.  "I have my shortcomings," he told Jay Leno.  But he insists that his campaign's message has none, and it is the spontaneous and decentralized actions of his partisans in support of that message that is gaining him a level of attention and notoriety unthinkable just a few months ago.

I have no doubt that the Paul campaign will ultimately fail in it's bid to propel him to the GOP nomination.  Depending on your politics you might consider that a blessing or a tragedy.  But I have to say it's a lot of fun watching grassroots activity gain serious momentum for Paul despite the missteps of his own campaign.  It's like watching the Keystone Cops trip over themselves while a crowd of bystanders nab the villain.

Oh, and a note to Ron Paul, if you happen to be reading: If you could somehow get the people who are raising your money to spend it for you as well, you might just have a shot at this thing.

*November 5th is Guy Fawkes Day, and marks the attempted bombing of the British Parliament.  Paul's supporters, though, were more interested in Guy Fawkes Day's use as a plot device in the graphic novel and movie, V for Vendetta, in which the protagonist successfully reenacts the bombing as a protest against a dictatorial British government.

Big is Beautiful

If you like train wrecks of the intellect, Nick Douglas has got a doozy for you over at Slate.com in which he demonstrates an astounding ability to simultaneously misunderstand the market economy and undercut his own arguments.  His thesis?  YouTube (not online video, just YouTube) is way too popular.  (All emphases in quotations are my own.)

Web video isn't an oligarchy, it's a dictatorship. You're either on YouTube or nobody's watching.

...

YouTube ... gets 60 percent of all online video traffic—that's up from 43 percent a year ago.

First, I wasn't aware that 40 percent of video traffic is equivalent to "nobody's watching."  Second, I was under the impression that most dictators enforce their wills through force and fear.  Contrast that to YouTube, which is a website that people are free to use or not at their own pleasure.  That is to say, online video is a democracy, and YouTube is winning in a landslide.  To me, that suggests that YouTube is doing something that a lot of people like.  And, it turns out, Mr. Douglas' article spells out exactly what that is:

Until recently, file formats and bandwidth costs made sharing video online a gigantic pain. ... In order to watch videos in your browser, you had to download all sorts of plug-ins. Mac-made videos often didn't work on PCs, and vice versa. Then, in 2005, YouTube launched, fixing all of those annoying problems.

YouTube wasn't the first site to host online video, but it was the first to do it well. YouTube instantly trumped sites like Vimeo, Veoh and Grouper by converting all uploaded videos into universally viewable Flash videos—so long, browser plug-ins!

Oh, so YouTube became popular by introducing an innovation that made mass online video sharing possible and started stomping it's competition?  Shocking!  But wait, there's more:

Once YouTube grabs a viewer, it doesn't let go. While the site got 43 percent of all visits to video sites in 2006, it earned 54 percent of page views—that means YouTube users stick around longer and watch more video than people who browse on competing sites.

YouTube will grab me and not let go?  How does it do that?  Spyware?  Viruses?  Hypnotism?  Oh, wait...

Next to every clip, YouTube lists up to 20 related videos, as well as other videos by the same creator and four "director videos," all promoted with an enticing thumbnail. With so many tempting links, it takes a lot of self-control not to veg out and clip-surf for hours.

So it keeps me watching by bringing up a lot of other entertaining material that I might want to see without my even having to ask for it?  I think most people would consider that a feature.  And maybe, just maybe, YouTube is such a big player because it's creating so much value for its viewers through such features.

Nevertheless, Mr. Douglas insists that YouTube's size is a problem because it stifles the artistic creativity of it's users:

...[N]ot everyone is welcome on YouTube. While the site has done a remarkable job building up the infrastructure that allows people to watch videos on the Web, it has also created a number of barriers to entry. The site bans nonpornographic nudity, places a 10-minute limit on most uploads, and has a resistance (so far) to including live streams.  And if you want live streaming video, you'll have to go to Ustream or Stickam.

Let's leave aside whether any of this constitutes "barriers to entry" as an economist would define the term.  What Mr. Douglas is pointing out is that there is still room for improvement in the online video business.  Which means that if YouTube's competitors address the shortfalls in its service (and apparently some already are), they can knock it from its current perch and reap the spoils. 

So let's recap.  YouTube dominates the online video market because it 1) introduced an extremely valuable innovation and 2) tries to offer its viewers more of what they want without their even having to look for it.  This has made it wildly popular and its competitors less so.  But YouTube's service isn't perfect, and there's plenty of money to be made by competitors who can innovate to offer a better service.  Mr. Douglas seems to find this all very vexing.  But as a consumer of online videos, I couldn't be happier.

Defining the Entrepreneur

The concepts embodied in Market-Based Management are closely related to questions of entrepreneurship (How do you get more entrepreneurial behavior in a business? How do you identify new employees who will thrive in an entrepreneurial environment?). Entrepreneurship is certainly a hot topic not just in the business world, but in universities as well, as evidenced by the growing numbers of students with degrees in entrepreneurship, as well as the plethora of university centers devoted to the study of entrepreneurs.

This creates a language challenge when we talk to students and others about promoting Principled Entrepreneurship, however, because academics (and therefore their students) by and large define the entrepreneur as someone who owns a business. While there are historical reasons for this, it seems today that the practice persists not because it creates a useful and meaningful distinction between economic actors, but because it's easy. And that's not very scholarly.

Think about it -- if you're charged with studying entrepreneurial behavior, you can work to articulate, perhaps along the lines of a Joseph Schumpeter, the qualities of those who engineer creative destruction in a market economy. Or you can follow a Frank Knight, and try to capture how they grapple with risk and uncertainty. Either way, you've got some real roll-up-your-shirtsleeves work in front of you, first trying to define what entrepreneurship is, and how it differs from everyday business practice, and then searching for people who exhibit these qualities, and then figuring out a way to study them in order to draw meaningful conclusions.

Or you could just count everybody who owns his own dry cleaning or plumbing or mowing business as an entrepreneur, and ignore the Art Fry's of the world.

Who is Art Fry, you ask? He's the guy at 3M who saw potential in a colleague's disappointing glue mixture, pursued his vision, and convinced teammates and upper management to go along, all of which eventually led to the Post-It Note. By conventional academic standards, Fry and his colleagues aren't entrepreneurs. The guy with his own hotdog stand, however, who serves you the same dog and bag of chips that he's been serving customers for the past twenty years, well, to most business scholars, he's the entrepreneur.

Do you see the problem? Starting a small business often takes guts and vision, about this there is no question. But some small businesses embody narrow-minded thinking, zero innovation, and poor customer service. Why are we so excited when we find a good plumber, after all? Because so many others are awful. Some large companies, on the other hand, have numerous employees who identify opportunities to create exceptional value, develop the vision that sells their colleagues on the opportunity, work up the strategy to capture the opportunity, and then see that it's implemented, making their company money while improving the lives of their customers. But for some reason, we persist in calling the owner of a mediocre plumbing business an entrepreneur by definition, and ignoring  real entrepreneurship elsewhere because it happens to come from people who don't own their businesses.

Entrepreneurship is a critical behavior for the advancement of health, wealth, and prosperity, and we can find it in large companies, small businesses, and yes, even non-profits -- if we are willing to define it properly. So I'll propose a definition, for those of us interested in the practical understanding of what entrepreneurs do, and where they can be found. It's probably not 100 percent right, but I'll suggest that it's closer to good than the limited definition that dominates universities.

Entrepreneur: Someone who sees an unmet need, often before customers themselves see it. The entrepreneur discovers a way to profitably meet that need, and organizes the resources and people to deliver the resulting value to customers.

Coming back to the idea of Principled Entrepreneurship, then, we mean by that an entrepreneur who maximizes long-term profitability by creating real value in society while faithfully acting lawfully and with integrity. This behavior can happen in a small business or a big business, and the person demonstrating it can be an employee or an owner. Sound reasonable? Now comes the hard part, which is cultivating an organizational environment that fosters that kind of behavior. Which is where MBM comes in.