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Background

What public policies promote economic growth? The question is as old as economics itself. An early answer was given by Adam Smith: Economic growth occurs when larger markets lead to higher income because of task specialization, leading to greater skills and proﬁciency of the workforce in each line of economic activity. Globalization promotes trade and specialization (Sachs, 2020). This invites us to examine a different question: What is the role of entrepreneurship in economic development in the twenty-ﬁrst century? Before the great recession in 2008, the U.S. economy had enjoyed remarkable economic success over several decades, as measured by the rate of productivity growth, which determines the long-term rate of advance in average living standards. After surging at an annual 2.6% rate from 1950 to 1973, productivity growth dropped to 1.4% from 1973 to 1995. Although the 1.2 percentage-point decline may seem trivial, compounded over time, it had enormous consequences. At the former rate, living standards would double every 28 years; at the latter rate, this doubling would take almost twice as long, or over 50 years. After 1995, the trend reversed again. What accounts for this reversal? Conventional economic wisdom has converged on the view that the “information technology revolution”—especially the rapidly falling prices of computer chips and the products in which they are The Digital Platform Economy and the Entrepreneurial State: A European Dilemma

321embedded—has been key. As measured by conventional statistics, there seems to be a lot of truth in this (Oliner & Sichel, 2002).

But a deeper change in the structure of the American economy itself—a decadeslong transition from managerial to entrepreneurial capitalism—also seems to have played an important role in the acceleration of productivity growth. This transition was perhaps ﬁrst articulated by Acs (1984), in saying that new markets, new technology, and entrepreneurship were at the heart of a transition from managerial to entrepreneurial capitalism. The full ﬂowering of this process has recently been retold by David Audretsch (2007) and Carl Schramm (2006). Acs, Audretsch, and Schramm all push back against the notion of a managed economy.

Both Audretsch and Schramm describe the managed economy of the 1950s in detail, carefully documenting the interaction between labor, big business, and government. In a remarkable way, both Audretsch and Schramm come to similar conclusions about the nature of the new American society. However, they do not see its future in the same way. Audretsch believes that the rest of the world learned from the American model, thereby threatening its own comparative advantage. He notes (2007, p. 192), America had in ten years transformed itself from a self-doubting society to one of self-

celebration. America had it, and the rest of the world did not. . . Having spent considerable

time in Europe and Asia observing recent efforts to create their versions of an entrepreneurial

society, I wondered, ‘What will the United States do when the rest of the world catches up?’

Carl Schramm has an answer for Audretsch: Far from fearing an entrepreneurial transformation around the globe, the future of the American experiment actually depends on the rest of the world emulating it!

For the United States to continue its global leadership, it must help the world see clearly the

breadth and depth of our economic evolution. . . It is in America’s interest to see our system

replicated all over the world. We must believe that in ﬂourishing entrepreneurial economies

the widening distribution of wealth and the creation of new jobs will naturally help lead to

the spread of democracy. . . It is imperative that we—everyone everywhere—go into this

entrepreneurial future together. (Schramm, 2006, p. 176, emphasis added)

Entrepreneurial capitalism differs from managerial capitalism in several respects: • Firm structure is more dynamic. Following World War Two, the U.S. economy

was dominated by large ﬁrms, often in oligopolies (industries characterized by

only a few ﬁrms). Turnover among the largest ﬁrms in the economy was limited;

new ﬁrms played a minor role. In the last several decades, this has changed

dramatically. New ﬁrms offering new products and services—in information

technology, biotechnology, retailing, and foreign entrants in the traditional indus-

tries (e.g., car-making and steel)—have been a main, if not the main, drivers of

economic growth. • Markets and ecosystems are replacing bureaucracies (inside and outside the

private sector). A hallmark of entrepreneurial ﬁrms is that they have relatively

ﬂat management structures that can rapidly change direction in response to

market demands, in contrast to large ﬁrms, where management is hierarchal,

more bureaucratic, and decision-making takes longer. In the managerial Z. J. Acs

322economy, there was an implicit compact between “big labor, big business and big

government” (Galbraith, 1952). That compact, if it ever existed, is clearly now

gone. Labor’s share of the workforce has fallen dramatically, big business is in

ﬂux (with constant changes in the rankings of America’s leading ﬁrms), and

government at all sectors is increasingly contracted out to the private sector. • Multisided markets are replacing many traditional markets in the economy.

Multisided markets or platforms are companies that help different groups of

users ﬁnd each other. Multisided platforms create value by reducing transaction

costs and making markets more efﬁcient. They also raise several sorts of issues in

antitrust, competition, and regulation. • Innovation is very different in managerial and entrepreneurial settings. New

ﬁrms, led by risk-taking entrepreneurs, are disproportionately responsible for

radical or breakthrough technologies, although larger, managerial ﬁrms are

typically needed to reﬁne, mass-produce, and market these breakthroughs. The

innovations that now characterize contemporary life—the automobile, the tele-

phone, the airplane, air conditioning, the personal computer, most computer

software, and search engines for the internet—were all developed and commer-

cialized by entrepreneurs. Because radical innovations tend to lead to faster

overall growth than incremental improvements, it is no coincidence that the IT

revolution—which has accounted statistically for the signiﬁcant acceleration in

U.S. productivity growth over the last decade—was largely sparked by entrepre-

neurial companies. • Along with innovation, there was the revolution in information and communica-

tions technologies. The digital revolution began in the 1950s with the invention of

the transistor and the microprocessor in the 1970s helped shape and transform the

way much of the world works. Over the years, the United States has developed laws and institutions that, for the most part, effectively encourage entrepreneurship. These laws and institutions include a legal system that protects rights of contract and property (including intellectual property); state and local registration systems that make it easy to start a business; a tax system that has generally moved to lower marginal tax rates (thus enhancing rewards from both employment and entrepreneurial activity); and laws to facilitate the growth of a ﬁnancial system that generally backs the formation and growth of new ventures (Schramm, 2004). Two different but related questions are important: What should entrepreneurship policy look like? and What does policy look like in an entrepreneurial economy?

For much of the managerial economy’s existence, governments supported the small and medium sector of the economy. However, this was largely to promote democracy, not efﬁciency. In other words, SME policy was less about productivity growth and more about political pluralism (Ács & Audretsch, 2002).

During the 1990s, a string of initiatives focused attention on individuals instead of ﬁrms. The ﬁrst careful treatment of the distinction between SME policy and entrepreneurship policy was by Lundstrom and Stevenson (2005). However, this all misses an essential point: There is no such thing as entrepreneurship policy per se, The Digital Platform Economy and the Entrepreneurial State: A European Dilemma

323only policy in an entrepreneurial economy. This overarching view was the subject of a Kauffman Foundation policy paper, Roadmap for an Entrepreneurial Economy (Kauffman, 2006), which included one key question: “How can policies makers maintain, and ideally accelerate, the continuing transition toward a more entrepreneurial economy?” The world is now undergoing a global transformation. The evidence seems to support Hobijn and Jovanovic’s (2001) conjecture that new ﬁrms were needed to introduce at least certain new technologies. Of the 167 publicly traded companies that make up the DPE, 86% were startups. Whereas during the 1970s, a mix of old and new ﬁrms introduced microprocessors, the key breakthroughs came from Intel and AMD, which were both started in 1968. By the 1980s, the computer industry was dominated again by old and new ﬁrms, but the gap had narrowed. During the 1990s, with the introduction of the internet and search engines, almost all the ﬁrms were startups. While the United States and Asia followed the Jovanovic model of relying on a mix of old and new ﬁrms, Europe rejected the importance of new ﬁrms and focused on knowledge-creation and existing ﬁrms. By looking to evidence of the platform economy, it is possible to better understand this evolution internationally and historically (Acs et al., 2021a, b).

The Platform Economy9

3

Song (2019) further reﬁned the DEE framework and expanded it to multisided platforms. The concept of multisided platforms includes innovation platforms,