More Failure is Better Entrepreneurship

There is one dominant argument that the critics often lament why there is a lack of entrepreneurs in Singapore. That is atychiphobia, or in simple layman language, fear of failure. Instead of being boring by saying what critics love to do, I am going to use a simple economic principle (with the analogy of AIDS epidemic) to demonstrate why more failure is better entrepreneurship, and offer an interesting solution for those people (namely the government) who are desperate to get something kickstart here to think about.

Economics, AIDS and Pollution

There is a beautiful principle in economics that the best optimal outcomes are those when people have to live with the consequences of their own behaviours. In other words, events will often move in bad direction when the consequences of our actions spill over onto other people. This principle has the propensity to demonstrate that conventional wisdom can be undermined easily.

Let me use the AIDS epidemic as an example. It is the consequence of our tolerance of immoderate and socially irresponsible sexual behaviour. Most of the time, the pundits blame the sin of promiscuity in humans. However, the sin of self-restraint contributes to the other half of the problem. Here is a counter-intuitive argument why this is the case. Imagine two guys Tom and Dick. Tom is a prudent young man with limited sexual history while Dick is the charming jerk and spread the virus by sleeping with other women. If you put a nice girl called Anna in front of both of them, the most likely scenario is that Tom will hold back and Dick will infect Anna as a result. So, as a result, we have another AIDS infected case. Everyone will blame Dick because he is the few who sleeps around and getting other women infected.

Yet no one blames Tom, because by sleeping with Anna, he has saved the world with one less infection. That is of course, Tom does not end up transforming into Dick and adopts safe sexual practices. If you are a policy maker who tries to stop AIDS from spreading, you will fail by clamping down the Dicks but you can succeed if you start encourage the Toms (which there are more of these people around) to have more sex.

On first look, if you have read this, you will totally dismiss this as bogus. Now, I will break it down using economics to argue why we should encourage Tom to have more sex. First of all, the demand and supply argument explains why people like Toms choose to supply little sex. The reason is that their services are underpriced. You never say that a person with abstinence have better value than someone who is constantly chatting up the girls and ended up bedding them. Suppose if the Toms (the sexual conservatives) could advertise their histories, we may solve the problem. The problem is that it does not work. In fact, it is hard to find Toms, because by relaxing their standards with insufficient rewards will end up reducing their standards as clean sexual partners inefficiently.

That comes to my second point using the communal stream principle: you are allowed to pollute the human pool but if your AIDS virus enters into the stream we all share, you are obliged to pay for the damages, and of course, if you volunteer to help the cleaning up, you should get a reward. Otherwise, we end up with a world that has too much pollution and too few volunteers. Precisely, it is this reasoning why the stream of partners has too many polluters and too few volunteers to clean it up. Because the services provided by the volunteers are both underpriced and undersupplied. To turn it the other round, Tom’s chastity is a form of pollution because he reduces the fraction of relatively safe partners in the human pool.

So, other than just punishing people who infect others with AIDS, you need to reward the group of relatively inexperienced people with limited sexual history so that you can minimize the number of infections. To minimize damages, the only way to stop AIDS spreading is to keep encouraging the Toms to have more sex. Well, that’s stretching the analogy too far, but you get the picture. Now let’s get back to the problem which we want to address.

How does that apply to Entrepreneurship in Singapore

Let’s frame the entrepreneurship scene in Singapore like the AIDS problem I have mentioned earlier. The entrepreneurial scene is the pool which we all lived in. Without doubt, the polluters (or the Dicks) are the MLM, the traders and those who perpetuate shams. These people will sell their “services” and get the innocent and dumb to think that they are entrepreneurs but ended up as the big losers. Now, who are the Toms? They are the people who are risk adverse, afraid of failure and prefers to join an MNC rather than to do a new start-up. So, in simple words, we should not blame Singaporeans for being afraid of failure. Instead, we should be asking ourselves why these people are not offered better incentives. The reason is simple because entrepreneurship is extremely underpriced and undersupplied here.

Think about it, unlike the AIDS situation, one missing element is that you cannot be sure whether someone is faking whether he or she has no sexual experience. However, in the entrepreneurship case, you do have that missing information. Most students from the tertiary institutions are relatively inexperienced and they are like the Toms. If you want to make entrepreneurs off them, then you need to find a better way to provide incentives for them. That is precisely why US can produce so many of them, because the entrepreneurs in places like Silicon Valley are priced so much higher than they should be. Granted that the government has provided taxes and infrastructure and offered some media exposure, the problem is not that these services from the policy makers are not enough. It is the human pool that needs constant rehashing of entrepreneurs for the eco-system.

So, here is a crazy suggestion for those policy makers and venture capitalists: let’s just fund tertiary students with a job “entrepreneur” with the same amount of money they can get in the private sector with no demands of return. In fact, if you do this, for every young entrepreneur who goes into the pool to do real entrepreneurship, it will help to reduce one MLM or crackpot from spreading their nonsense around. Of course, the consequence is that there are more failures as a result, but inherently, it is a numbers game. Sooner or later, that one successful case will provide the push for better entrepreneurship because our young entrepreneurs, by the virtue of natural selection (using Darwinian theory of evolution) will bring better entrepreneurship than what we have at present.

Acknowledgments: Steven Landsburg‘s “More Sex is Safer Sex: The Unconventional Wisdom of Economics” has offered spurts of inspiration to this article.