Hugin & Munin Journal

A lazy explanation appears whenever development is described as a cultural deficit: poorer countries struggle because people are unwilling to take risks. There is not enough entrepreneurship, not enough venture capital, not enough ambition. The explanation mistakes the kind of risk visible to investors for risk-taking itself. Across many developing economies, people start businesses without meaningful safety nets, trade through unstable supply chains, lend through family networks and keep firms operating through power cuts, inflation, regulatory uncertainty and sudden changes in demand. These are not risk-free lives waiting to be awakened by a motivational seminar. The missing ingredient is often not risk, but a credible relationship between risk and reward. Productive entrepreneurship requires some confidence that successful investment can be retained, contracts can be enforced, failure can be survived and growth will not simply make a firm easier to tax arbitrarily, regulate sele...

A familiar theory of innovation says that progress becomes harder because the low-hanging fruit is picked first. Early discoveries lie close at hand; later advances require larger machines, larger teams, deeper specialisation and more money. Nicholas Bloom, Charles I. Jones, John Van Reenen and Michael Webb developed an influential empirical version of this argument in “Are Ideas Getting Harder to Find?” . Across semiconductors, agriculture, medicine and firm-level innovation, they found research effort rising substantially while measured research productivity declined. Their most striking example is Moore’s Law: maintaining the historical rate of improvement in chip density requires far more researchers than it did in the early 1970s. There is considerable truth in this. Mature fields accumulate technical difficulty. Once obvious routes have been explored, the remaining work often requires greater precision, more infrastructure and command of a much larger body of knowledge. The m...

Venture capital attracts criticism for familiar reasons: too much money chasing fashionable ideas, companies scaling before they understand their customers, founders and investors protecting themselves while employees discover that their options are worthless. Look only at the visible failures and the verdict seems straightforward. Yet venture capital also finances a kind of company that ordinary debt handles badly. A young firm may have little collateral, uncertain revenue, a prototype rather than a product and a serious chance of producing nothing valuable at all. Requiring regular loan payments while those questions remain unresolved can end the experiment before it produces an answer. The usual defence of venture capital nevertheless states the case too neatly. Venture investors do not absorb failure on behalf of society. They construct portfolios in which losses are expected because a small number of exceptional companies may repay them many times over. The financial write-off...