Tuesday, February 21, 2017

Give Thanks to Entrepreneurs

The holidays are traditionally a time for counting your blessings: friends, family, good health and so on. But not much thought is given to entrepreneurs, who should be counted among our blessings first and foremost.
Murray Rothbard saw the entrepreneur as one who “buys factors or factor services in the present; his product must be sold in the future. He is always on the alert, then, for discrepancies, for areas where he can earn more than the going rate of interest.”
This is the entrepreneur academics love to ponder, to the extent the various schools of economic thought consider entrepreneurship at all. "The function of entrepreneurs is to reform or revolutionize the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, opening a new source of supply of materials or a new outlet for products, by reorganizing a new industry," wrote Joseph Schumpeter in 1952. 

As Rothbard and Schumpeter describe entrepreneurship it would seem the business man or woman would be celebrated for their brilliance and prescience. However, they are most often derided, mocked, and even hated.
The Serial Entrepreneur
I have the pleasure of working for a serial entrepreneur who develops real estate among other things. He was once a customer back in my lending days. The company is a small family operation, but he may be the only real estate developer in his small town – a town full of people that seem perfectly happy to have no new businesses to satisfy their needs, half empty schools, and only crumbling old homes to buy at high prices.
Here is a look at what he has gone through, all in the interest of giving people a better life.
He purchased a mobile home park out of bankruptcy, located on the city’s main street, which had been an eyesore and police call magnet for decades. He immediately went to work cleaning up the park, as the original plan was to maintain the project and remain in the rental business. However, we quickly learned the realities of managing a trailer park and were not interested in the products and services that some tenants wished to trade for rent as they had with the previous owner.
The city fathers never liked the project and believed the site to be perfect for commercial development. However, the market said otherwise. I talked to various commercial brokers who all but laughed in my face about the parcel’s commercial prospects.
A plan was made to build small, affordable, for-sale housing on the site, and we worked with city planners to develop a subdivision that would satisfy their requirements, along those of the fire chief, and a half dozen other local government departments.
To make the project work, and with the support of city staff, what’s known as “variances” were required. “A variance is a request to deviate from current zoning requirements. If granted, it permits the owner to use his land in a way that is ordinarily not permitted by the zoning ordinance. It is not a change in the zoning law, but a waiver from the requirements of the zoning ordinance,” explains Free Advice Legal.com.
In the case of this project, the variance requested was a shortening of various setbacks or distances between buildings as well as buildings to the property line. The request had to be heard by the city’s planning commission: six well-meaning individuals who may or may not know anything about development. However, city staff was four-square behind approval and made the presentation to the commissioners.
This request was the sole matter to be considered on a recent night’s agenda, yet 23 people were in the audience to hear discussion of this innocuous bit of city business. One couple even attacked my boss by name.
They Love to Hate
Incredibly, one after the other, these town folk walked to the podium to protest this variance request. To them, it's their town and they should decide what and how something should be constructed on private property, even regarding the approval of something as small as a few feet here and a few feet there. Each speaker, no matter how inarticulate, was showered with applause.
A couple agitators quoted the five criteria of variance approval from a Maine township and insisted this project didn’t meet two of the criteria, as if a town’s laws located hundreds of miles away were relevant at all. One protester told the commission that approving a variance is allowing the applicant to break the law, implying the commission members would be accessories to a crime.
When it was mentioned that affordable housing would be built on the site and fancy drawings were displayed, a gentleman snarled that the town didn’t need affordable housing and it wasn’t the city’s business anyway.
The group’s coup de grĂ¢ce was that the developer was shamefully maximizing his profit. Of course, they didn’t know that zoning for up to 127 apartment or condo units had been obtained a couple months earlier and our proposed project was for just 66 units. These busybodies didn’t know the costs of the project or how fast the units would sell, or whether the units would sell at all. By the looks of most of them, none had taken any risk beyond shoving a few coins into a slot machine.
After two hours of hearing this nonsense, a vote was finally taken. One young commissioner indicated the project should be put on hold until the code could be re-written. A city planner patiently told him rewriting the code for multi-family projects was not a priority and staff would be focusing their time on other things. He was not swayed by reality and voted no, as did another member, kowtowing to the angry mob. However, the four necessary votes were gained and the variance was approved.
Ludwig von Mises wrote of entrepreneurs in Human Action,
No dullness and clumsiness on the part of the masses can stop the pioneers of improvement. There is no need for them to win the approval of inert people beforehand. They are free to embark upon their projects even if everyone else laughs at them.
Lesser people are cowed by the booboisie and ignorant public opinion. Not so heroic entrepreneurs, who march on, providing goods and services while their envious neighbors attempt to stop them. Give thanks this holiday season to the entrepreneurs who thanklessly provide us the fruits of both their genius and guts.

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