Three Big Ideas #35
Easier exits, reprogramming policymaking, and Costa del Hove
Welcome to our weekly Three Big Ideas roundup, in which we serve up a curated selection of ideas (and our takes on them) in entrepreneurship, innovation, science and technology, handpicked by the team.
🔄 Eamonn Ives, Research Director
Here at The Entrepreneurs Network, we spend a lot of time thinking about how to reduce barriers to entry for ambitious startups looking to shake up markets and take on established corporates. What we’re probably guilty of, however, is not spending as much time thinking about reducing barriers to exit. But a new working paper shows why it’s crucial, for those interested in boosting productivity, that the latter side of the equation gets sufficient attention.
Nobody actively wants to see individual firms fail, but it’s a fact of life that many will. For whatever reason, when companies do fall by the wayside, there are various motions to go through in terms of formally closing down. Depending on where you are in the world, this process can be relatively more or relatively less burdensome – in terms of things like costs that may need to be paid, or the time involved in actually shutting down.
In their paper, economists Shoumitro Chatterjee, Kala Krishna, Kalyani Padmakumar and Yingyan Zhao explain how Indian firms face particularly high barriers to exit – with the process of voluntary closure taking 4.3 years to complete on average, compared to 15 months in the UK, and 12 months in Singapore. This harms productivity by trapping resources in less productive firms (allocative inefficiency in economist-speak), and lowers incentives for new firms to enter by reducing expected profits.
As well as diagnosing the issue, Chatterjee et al. also test possible remedies. They look at what impact subsidies for both entry and exit may have on different economic outcomes. Altogether, they find that: “spending the same amount on reducing exit barriers raises value added by more, productivity by much more, though it raises employment by less.”
How generalisable the paper’s findings are is up for debate, but it nonetheless should serve as a timely reminder to anyone interested in increasing business dynamism. It’s critically important to think about what can be done to enable as many would-be firms to enter a market – and part of that includes thinking about what can be done to make it easier for existing firms to leave it.
🤖 Philip Salter, Founder
By 2028, Matt Yglesias thinks AI could dominate every other policy debate. Voters should demand that politicians can show real comprehension – not just the ability to reel off slogans – and policy experts must translate tech hype (or doom-mongering) into workable rules.
This probably requires more honesty about the way things look to be panning out:
“The productivity promise of self-driving trucks is very real, but the promise is that it will eliminate truck drivers’ jobs, which is going to be touchy. Lying to people won’t help.”
We’re still in the slow-burn phase of disruption, yet history – from the Luddites to the Plug riots – shows that social change can cause social unrest. Politicians therefore need to plan now for the first-order shocks: unemployment, a shrinking payroll-tax base, congestion from cheap autonomous travel, soaring power demand, and already-tight housing markets.
Yglesias offers concrete tools – congestion and carbon pricing, planning reform, and a shift from payroll to pollution taxes – to maximise AI’s upside and blunt its harms.
This isn’t to take away from optimism. Just as industrial-era governments leveraged new wealth to abolish things like child labour, an AI-rich society could well take this to another level, ending disease and ushering in a future of radical abundance. But the road will be rocky, and for this to go as smoothly as possible, we need an upgrade – not in technology, which is racing ahead, but in our political systems.
⛱️ Jessie May Green, Events and APPG for Entrepreneurship Coordinator
Wind turbines peppered the foothills of the Pyrenees where I used to live in France, and I always found them exceedingly beautiful; especially at sunset. However, this sentiment is not shared by all – wind farms have long been a notable nemesis of NIMBYs. So, it is against the odds that one 116-turbine site off the coast of East Sussex is now emerging as a tourist hotspot.
Brighton-based fishermen are venturing into the business of boat tours, for locals and tourists curious to get up close to the turbines themselves. Not only does this create jobs, it also gives opportunities for people to learn about renewable energy in an experiential way. As one tour operator put it:
“A lot of people don’t really understand what the farm does. They think it takes one turbine to power a kettle, but once you explain it to them, and they realise all that goes into it and what it does, they’re quite impressed.”
This story brings hope that, as well as catalysing progress towards a more secure energy future for Britain at the national level, renewable energy projects can also bring positive impacts at the local level.
This is not to say that the concerns of locals were never valid – there are always environmental impacts from projects like this, and careful and considered cost-benefit analyses are important. However, if concerns are with appearances only, perhaps it’s time to get introspective about what we consider ‘beautiful’ – and be open to the fact that this can change. In the words of one wind farm tourist:
“Rampion got a lot of bad press because some people hate the look of them [wind turbines]. But I think coming to see them up close might make people think, you know what, they're actually really beautiful, graceful and technically amazing.”