Paper entrepreneurs — trained in law, finance, accountancy — manipulate complex systems of rules and numbers. They innovate by using the systems in novel ways: establishing joint ventures, consortiums, holding companies, mutual funds; finding companies to acquire, “white knights” to be acquired by, commodity futures to invest in, tax shelters to hide in; engaging in proxy fights, tender offers, antitrust suits, stock splits, spinoffs, divestitures; buying and selling notes, bonds, convertible debentures, sinking-fund debentures; obtaining government subsidies, loan guarantees, tax breaks, contracts, licenses, quottas, price supports, bailouts; going private, going public, going bankrupt.
Product entrepreneurs — engineers, inventors, production managers, marketers, owners of small businesses — produce goods and services people want. They innovate by creating better products at less cost.
Our economic system needs both. Paper entrepreneurs ensure that capital is allocated efficienctly among product enrepreneurs. But paper entrepreneurs do not directly enlarge the economic pie. They only arrange and divide the slices. They provide nothing of tangible use. For an economy to maintain its health, entrepreneurial rewards should flow primarily to product, not paper.
Yet paper entrepreneurialism is on the rise. It dominates the leadership of our largest corporations. It guides government departments, legislatures, agencies, public utilities. It stimulates platoons of lawyers and financiers.
HT: John Lounsbury.
Contrast that to former Enron adviser Paul Krugman, whose prescription for every malady is "More stimulus!" and whose New York Times columns appear to be ghost-written by White House interns.