Want to see the logical conclusion that one reaches when one buys into the notion that the government is the answer to every problem we face?  Go to this blog post at Yu-Kai Chou to see the “logical” conclusion one reaches when one assumes that the government knows best when it comes to fixing our economy.  Here is an excerpt:

The government can give entrepreneurs a VERY low amount of survival money,
like $20,000 a year, as a salary to do entrepreneurial work. This is
useful because there are lots and lots of people who would be entrepreneurs but
they couldn’t pursue their dreams due to realistic survival issues.
This plan allows them to pursue the innovation work they want without the fear
of dying on the streets.

That’s right…it is a call for an entrepreneurial welfare program.  I kid you not.  Read the entire post and the comments, but make sure you do it before you have had too much caffeine. Your blood pressure may go off the charts.

I have been warning you that there is a movement to push for socialized entrepreneurship in America.

There are some signs that the recession may be bottoming out.  The NFIB Index of Small Business Optimism rose again in May for the second straight month.  But just what will the recovery will look like? And what is the longer term outlook for the economy?

The recovery will be quite lumpy.  This is not going to be a case of a rising tide lifting all boats.  Certain sectors in the economy and geographic regions are improving, while others seem to be mired with flat or even continued declining sales.  And even within industries we are seeing inconsistent trends.

For example, while much of real estate and construction remains almost dead in the water, those who work within the healthcare segment of this industry report improving performance..

We have to be careful not to assume that this recovery will behave like others.  Economists will try to predict the recovery’s behavior based on historic data from past recessions.  My concern continues to be that this recession and its recovery may last for some time – a so-called “L” shaped recovery that could drag on for years rather than the “V” shaped robust recovery that we have often seen after deep, steep drops in the past.  That is, this time of “bottoming out” may go on for months or even years.

In looking deeper in to the most recent NFIB survey we can also see signs that this recovery may be a long, slow road.  Even though entrepreneurs feel more optimistic, they do not plan to increase hiring anytime soon.  It seems that some of their optimism may be coming from a realization that the cries that the next great depression was on its way were unfounded.

“The biggest concern on the minds of owners is the weakness in spending which has now started to turn up as consumers become less concerned with proclamations of pending disaster for the economy – it’s not going to happen,” said NFIB Chief Economist William Dunkelberg.

However, the improvement in consumer spending shows little sign of a strong bounce anytime soon.

And what can we expect for the long-term economic outlook?  Understand that economies are not just isolated to commercial transactions.  There is a strong long-term tie between our economy and our society and culture.  There are signs that we may be in a period of fundamental economic and cultural change.

The frenzied consumerism-driven economy that dominated our past decades may never return.  Because the changes we are seeing in economic behavior may last for a long time due to a slow recovery, we may emerge from the recession into a very different economic/cultural reality.

For example, entrepreneurs whose business models are tied to luxury goods are holding their breaths hoping that their sectors will be the lagging ones we have seen in the past..  From Reuters:

Sales of luxury goods, which are expected to drop 10 percent this year, will not recover fully until 2012, according to a new report by Bain & Co, as austerity and understatement remain the “must-have” items of the rich and fabulous.

But this understatement of the rich may become culturally reinforced.  A Washington Post story from earlier this week examined the shift in consumer behavior from being obsessed with “keeping up with the Joneses” to consumers seeking to be perceived by those around them as being a frugal spender:

The recession has changed the conversation in America. People are clamoring for caps on executive pay and recoiling at the idea of bosses cavorting at expensive spas. Friends are swapping recipes instead of making restaurant reservations.

Instead of feeling self-conscious about spending less, people are flaunting frugality.

“Something very deep has changed in the American psyche,” said Dan Ariely, a professor of behavioral economics at Duke. “The recession basically woke us up.”

Over the coming decades, this may translate into a fundamental shift to a more tempered society in which people are no longer seeking to find value from their economic behaviors, but instead are looking to non-commercial definitions 0f success and self-worth in their lives.

Opportunities can still be found in such a transformed economy if it actually occurs.  The key will be to understand these changes and offer new business models that respond to changing needs, preferences, attitudes, and consumer behavior.  

If you have spent any time here in the former East Germany, you undoubtedly know about the Trabant.  I took the picture above on the streets of Dresden this morning.  It got me thinking…  Is this a glimpse of the future for GM?

Here is how Time described this ill-fated, government conceived automobile when naming it one of the 50 worst cars of all time:

This is the car that gave Communism a bad name. Powered by a two-stroke
pollution generator that maxed out at an ear-splitting 18 hp, the
Trabant was a hollow lie of a car constructed of recycled worthlessness
(actually, the body was made of a fiberglass-like Duroplast, reinforced
with recycled fibers like cotton and wood). A virtual antique when it
was designed in the 1950s, the Trabant was East Germany’s answer to the
VW Beetle — a “people’s car,” as if the people didn’t have enough to
worry about. Trabants smoked like an Iraqi oil fire, when they ran at
all, and often lacked even the most basic of amenities, like brake
lights or turn signals. But history has been kind to the Trabi.
Thousands of East Germans drove their Trabants over the border when the
Wall fell, which made it a kind of automotive liberator. Once across
the border, the none-too-sentimental Ostdeutschlanders immediately
abandoned their cars. Ich bin Junk!

I think I have to agree with Glenn Beck’s assessment of the future for GM under government control:

What kind of innovation can we expect from
“Government Motors”? With people who’ve never run a business, like
Barney Frank, in charge, we may be setting ourselves up to repeat
another part of history: We could all be driving the same car, kind of
like East Germany’s Trabant or the old Soviet Union’s Lada.

I have been offering some of my thoughts on entrepreneurship in Eastern Europe during our travels here the past three weeks.

One of my students, John Price, made the following observation about the entrepreneurial brain drain that seems to be taking place in many countries in this part of the world:

We’ve been able to travel through five different countries while learning about the history and culture along the way. While studying in Europe, I was able to research the economic and entrepreneurial activity in each country we visited. I focused my attention on Hungary, specifically the city of Budapest.  I found that the younger generation of entrepreneurs was nearly non-existent. Many of the younger people in the city have decided to move away to pursue other means of work around Europe. The majority of the entrepreneurs are in Budapest are in their late 60’s, which happens to be the average life expectancy of Hungarians.  What will happen when this older generation are no longer able to be active in their businesses? My hope is that Hungary will be able to encourage the younger generation to stay in Hungary and pursue entrepreneurship

Blogging from Prague again this morning. 

I have been reflecting on the aftermath of communism while here in eastern Europe.  In listening to people here — entrepreneurs, workers, managers — I am struck by the lingering issues from their socialist past.

Although I am now worried about our move toward socialism in the US, I have become more worried about the aftermath. 

Economic decisions have a major impact on a culture.  Although the communist economic system is officially gone, its effects remain everywhere.  People here have become innately dependent upon the state.  It is become so much a part of the culture that it is difficult if not impossible for most citizens to break free of that dependence.  They are like a 47 year old man who never left home and still lives in his parents basement.  He hates his lot in life, but is stuck in a dysfunctional, dependent relationship from which he cannot escape.

It reminds me of a flood.  Although the flood itself is devastating, the aftermath can be even worse.  The stinking sludge that remains after the waters subside can take months to clean up.  And the rebuilding can take years.  But, nothing is ever the same when all is said and done.

We visited a small crystal factory outside of Prague yesterday that was privatized after the fall of communism.  While they are surviving as a business, their ability to compete and their ability to become truly a productive free enterprise seems to have been washed away.  They are just hanging on, not really understanding how to really break free and prosper.

We are facing the flood of socialism right now.  But the aftermath when it fails — and it will fail — might be even worse than the initial waves of socialization.  Even when that day comes when we are able to begin to try to unravel all that is being put in place right now, the damage will remain for years to come.

My read of the entrepreneurs here in the Nashville area is that they are feeling a bit more optimistic.  Those who have weathered the storm seem to feel that the worst may soon be over.

The latest national survey from the NFIB seems to support my anecdotal observations, as their Index of Small Business Optimism rebounded in April.

This rebound was not due to hard evidence of economic improvement, but is tied to “soft indicators” — the “feel good” portion of the survey.  Expectations for gains in real sales increased.  

While small business owners think future prospects are brighter, the daily realities show deep problems remain.  Actual employment, capital outlays, inventories, sales and earnings languish at historically low levels.

“At least we seem to be headed in the right direction,” said NFIB Chief Economist William Dunkelberg. “Typically, optimism first returns, then spending follows as confidence builds.  But there are a lot of difficult days ahead, even if April’s data represents a turnabout.”

According to the latest annual Kauffman Index of Entrepreneurial Activity, although entrepreneurial activity was slightly up in 2008 when compared to their 2007 report, there were some worrisome signs about the economic engine of the US economy. 

While low and moderate income potential businesses were up, high income potenial businesses decreased from 2007 to 2008.

Specific increases in entrepreneurial activity were identified among the following groups:

• People between the ages 55 to 64
• Immigrants
• Latinos
• Asian Americans

People in the Midwest had a decrease in entrepreneurial activity. 

Specific states with the highest entrepreneurial activity were Georgia, New Mexico, Montana, Arizona, Alaska and California.  While states with the lowest entrepreneurial activity rates were Pennsylvania, Missouri, Wisconsin, West Virginia, Iowa and Ohio.

Among the fifteen largest metropolitan statistical areas, Atlanta had the highest entrepreneurial rate, while Philadelphia had the lowest rate.

Unlike other studies that capture young businesses that are more than a year old, the Kauffman Index captures all adults ages 20 to 64 when they first create their businesses, including both incorporated and unincorporated businesses, and those who are employers and non-employers. The Kauffman Index defines entrepreneurial activity as the percent of the adult population who start a business as their main job each month.