Tom’s business cannot with any confidence be said to be rent seeking behavior:
There is value for being closer to customers (as you pointed out)
Assuming no cartelization, the quantity supplied for car repair and maintenance increases reducing price, society is therefore richer in terms of amount of car repair.
On the margin Fred may be forced to give more of his surplus to his employees to keep them (potentially enticing a more efficient number of mechanics for optimal allocation of resources that makes society richer as a whole)
If Fred were to go out of business, the city might be left with a more optimally placed/ran shop and his building and employees are then available for more productive uses.
This scenario breaks down the second you leave ideal spherical cow static city land. In cases where Tom’s business is reducing total productivity, it could become productive at a moments notice from any number of hypotheticals: a large new housing development opens, a new common car is found to have lots of issues, Fred dies/a new shift manager is terrible. Tom is providing value simply by being latent capacity for car repair.
In your other examples:
Venture Capitalist—finding the great startups that need funding weeks sooner is of massive value, to the extent they outcompete others, society is just left with VC that funds good deals sooner and the slow competitors employ fewer resources.
Sushi Restaurant—Restaurants are very low margin, if 15% of demand moved to their 2% better restaurant each time, eventually the city is just left with 2% better sushi restaurants only, not 2% sushi and empty restaurants.
Payroll Company—If the product is the same, they are at least providing redundancy of firms for whenever a competitor makes a big mistake. Its not like their competitors will keep the same staff, you end up with a similar amount of employees working in payroll in the end if companies are just as efficient.
You are ignoring the point the hypothetical is attempting to illustrate in order to quibble with practical details of the stories I tell in the post. My point is that new businesses (even productive ones, with few negative externalities) typically make money through siphoning the value of other businesses and also creating value. In some cases the ratio is highly positive (i.e. the companies I list), in most cases it is not.
If you need a more “realistic” example of a business that is almost entirely and clearly predicated on redirecting money from other businesses, see the high frequency trading industry.
You are the one that made the strong claim “Most successful entrepreneurship is unproductive”. Are you saying that claim doesn’t need to hold up in the practical details? If so, maybe the post should be titled, “Successful Entrepreneurship Can Be Unproductive”.
If the hypotheticals in the post are all potentially not actually cases where successful entrepreneurship was unproductive for society, I am highly skeptical of the claim.
I understand illustrative hypotheticals, but to call most entrepreneurship unproductive by disregarding one the most important functions of entrepreneurship (price discovery) is silly; try having a productive society without efficient prices. The price discovery requires the “creative destruction” of businesses that, at a first glance, appears to be unproductive to happen.
Maybe I am just not understanding a nuance in your post.
Tom’s business cannot with any confidence be said to be rent seeking behavior:
There is value for being closer to customers (as you pointed out)
Assuming no cartelization, the quantity supplied for car repair and maintenance increases reducing price, society is therefore richer in terms of amount of car repair.
On the margin Fred may be forced to give more of his surplus to his employees to keep them (potentially enticing a more efficient number of mechanics for optimal allocation of resources that makes society richer as a whole)
If Fred were to go out of business, the city might be left with a more optimally placed/ran shop and his building and employees are then available for more productive uses.
This scenario breaks down the second you leave ideal spherical cow static city land. In cases where Tom’s business is reducing total productivity, it could become productive at a moments notice from any number of hypotheticals: a large new housing development opens, a new common car is found to have lots of issues, Fred dies/a new shift manager is terrible. Tom is providing value simply by being latent capacity for car repair.
In your other examples:
Venture Capitalist—finding the great startups that need funding weeks sooner is of massive value, to the extent they outcompete others, society is just left with VC that funds good deals sooner and the slow competitors employ fewer resources.
Sushi Restaurant—Restaurants are very low margin, if 15% of demand moved to their 2% better restaurant each time, eventually the city is just left with 2% better sushi restaurants only, not 2% sushi and empty restaurants.
Payroll Company—If the product is the same, they are at least providing redundancy of firms for whenever a competitor makes a big mistake. Its not like their competitors will keep the same staff, you end up with a similar amount of employees working in payroll in the end if companies are just as efficient.
You are ignoring the point the hypothetical is attempting to illustrate in order to quibble with practical details of the stories I tell in the post. My point is that new businesses (even productive ones, with few negative externalities) typically make money through siphoning the value of other businesses and also creating value. In some cases the ratio is highly positive (i.e. the companies I list), in most cases it is not.
If you need a more “realistic” example of a business that is almost entirely and clearly predicated on redirecting money from other businesses, see the high frequency trading industry.
You are the one that made the strong claim “Most successful entrepreneurship is unproductive”. Are you saying that claim doesn’t need to hold up in the practical details? If so, maybe the post should be titled, “Successful Entrepreneurship Can Be Unproductive”.
If the hypotheticals in the post are all potentially not actually cases where successful entrepreneurship was unproductive for society, I am highly skeptical of the claim.
I understand illustrative hypotheticals, but to call most entrepreneurship unproductive by disregarding one the most important functions of entrepreneurship (price discovery) is silly; try having a productive society without efficient prices. The price discovery requires the “creative destruction” of businesses that, at a first glance, appears to be unproductive to happen.
Maybe I am just not understanding a nuance in your post.