Venture Work

Employees in Thinly Capitalized Firms

Alexander Styhre

• Publisher: Palgrave Macmillan
• Year: 2018
• Print ISBN: 9783030031794
• eBook ISBN: 9783030031800
• Topic: Business
• Subtopic: Business General
• Index: Business

This book contributes to the ongoing discussion around so-called precarious or venture work, as the proportion of those employed by start-ups and thinly-capitalized firms continues to grow. Filling a gap in literature, the author explores the relationship between venture co-workers and examines how they cope with economic uncertainty, moving away from the previous focus on entrepreneurs and investors. Presenting empirical data from several life science start-ups in Sweden, this book illustrates the impact of institutional and regulatory changes in the finance industry, and demonstrates how these effects can ultimately reshape the meaning of employment.

Part IPart I

Theoretical Perspectives

Introduction to Part I

Part I of this volume provides an overview of the theoretical framework that structures the empirical material reported in Part II, and which serves as the analytical tools and models used in Chap. 5 to discuss the empirical data. Part I is organized into two chapters: The first chapter (Chap. 6) discusses changes in corporate governance practices and how that affects labor markets and the economic security of salaried workers. The second chapter (Chap. 7) discusses how individuals to a varying degree make reasonable and rational decisions in everyday life, and how such capacities are involved when making career choice decisions. Furthermore, the ability to be motivated and to engage with current and potential work assignments is a matter of combining reasonable expectations and instrumental rationality regarding, for example, how work is compensated for by the employer, and how the employer otherwise signals a satisfaction and an understanding of the work effort made. These two theoretical chapters—wherein the former addresses more macro-oriented structural and institutional changes, whereas the latter emphasizes the individual’s role in acting in accordance with, but also deviating from, structural and institutional conditions—jointly constitute the theoretical framework used to examine the empirical material reported in Part II of this volume.

© The Author(s) 2019

Alexander StyhreVenture Workhttps://doi.org/10.1007/978-3-030-03180-0_1

Begin Abstract

1. New Forms of Work in the Post-corporate Economy: Venture Labor, Contract Work, and Freelancing

Alexander Styhre¹

(1)

School of Business, Economics and Law, University of Gothenburg, Gothenburg, Sweden

Alexander Styhre

Keywords

Venture workCorporate governanceEmploymentEconomic inequality

End Abstract

Vignette: Governing Innovation-led Growth

Peter Evans (1995) makes the argument that competitive capitalism is characterized by corporations that are embedded within the governance of the industrial sovereign state, yet being managed as autonomous legal and economic entities. In Evans’ view (1995), embedded autonomy is the governance model that has been most successful in promoting not only economic growth but also in securing a reasonable level of economic equality in advanced economies. For instance, Organisation for Economic Co-operation and Development (OECD) countries that invest in industry policy and support corporations report higher economic growth than states with such limited regulatory initiatives (Evans and Rauch 1999). In an historical perspective—and history does matter, at times surprisingly long after “cases have been closed,” as evidence shows (Banerjee and Duflo 2014)—such claims have been substantiated by empirical studies. As Sklar (1988: 15) remarks, examining the period 1890–1916 in the United States, the regime of corporate capitalism that we today tend to take for granted, “had to be constructed”: corporate capitalism “did not come on the American scene as a finished ‘economic’ product, or as a pure ideal type,” Sklar (1988: 15) says. Neither did corporate capitalism “take over society,” or “simply vanquish or blot out everything else.” Instead, this new economic regime was embedded within the existing economic structure and the institutions of American society, pre-dating corporate capitalism. Furthermore, in order to serve this role, as the blueprint for a new economic regime, what Sklar (1988) calls corporate liberalism was not simply a case of what Scott (1985: 40) refers to as the “symbolic alignment of elite and subordinate class values.” Corporate liberalism served the role of an intersection or a trading zone (with Galison’s 1997, handy phrase) wherein all kind of agents could advocate their interests:

[Corporate liberalism] emerged not as the ideology of any one class, let along the corporate sector of the capitalist class, but rather as a cross-class ideology expressing the interrelations of corporate capitalists, political leaders, intellectuals, proprietary capitalists, professionals and reformers, workers and trade-union leaders, populists and socialists. (Sklar 1988: 35)

Ultimately, corporate capitalism was instituted as a form of embedded capitalist regime of production, benefiting several rather than a few constituencies.

This view challenges the commonplace view that market-based competition is conducive to maximal economic efficiency. Besides the externality of opportunistic behavior being co-produced with increased competition (Charness et al. 2014; Mishina et al. 2010; Kilduff et al. 2016), there are additional empirical studies that challenge belief in the virtues of competition. Amable et al. (2017) argue that industry regulation, branded as a form of rent-seeking in neoclassical free-market advocacy (see e.g., Stigler 1971), and therefore imposing additional “costs” on market actors and their clients and beneficiaries (e.g., creditors) is in fact conducive to increased innovation output. In Amable et al.’s (2017: 2088) view, the conventional wisdom regarding the relationship between regulation and innovation is mistaken inasmuch as regulation in fact coincides with, or generates, innovative behavior. Using an empirical sample, including 13 manufacturing industries in 17 OECD countries during the 1977–2005 period, Amable et al. (2017: 2088) report results that contradict the idea that “technical progress at the leading edge should be grounded on liberalisation policies.” Furthermore, the closer the industry or the specific firm is to the frontier of innovation, the more accentuated are the positive effects of regulation:

Regulation has a positive influence on innovation at the leading edge and, in several cases, directly on productivity as well. Besides, the relationship between the impact of PMR [Product Market Regulation] and the distance to the technological frontier that one can draw from the previous results contradicts the received view: PMR’s beneficial effects are stronger for industries that are closer to the frontier. (Amable et al. 2017: 2096–2097)

Amable et al. (2017) explain the positive correlation between regulation and innovation output on the basis of the risk-aversion premium in high-competitive environments: when firms are exposed to fierce competition, they are reluctant to invest in firm-specific assets that eventually generate competitive advantages, and therefore they cannot create the resources needed to innovate. “Often, the most radical innovations cannot come from private entrepreneurs because they have neither the means nor the will to take the implied risks and make the necessary investments,” Amable et al. (2017: 2102) summarize.

Amable et al.’s (2017: 2102) findings thus challenge the conventional wisdom in some policy-making circles, inherited from the free-market and anti-statism doctrines of the Chicago School of Economics, for example, that product market regulation wields negative effects on innovation and economic growth. Such faulty beliefs may in turn have inhibited economic growth and innovation, with considerable consequences following. Aghion and Roulet (2014) make an important distinction between imitation-led and innovation-led growth , and suggest that the latter economic regime demands a more active state but also risk-tolerant actors willing to endure periods of uncertainty during their careers. In order to promote innovation-led growth, Aghion and Roulet (2014: 915) call for “smart state institutions and practices” to be implemented, and list Canada, Germany, the Netherlands, and the Scandinavian countries as examples of countries at the forefront of such industry policies. Furthermore, Aghion and Roulet (2014: 917) point out some of the requirements that need to be fulfilled to promote innovation-led growth. First, there is a need to adopt “a new approach to public spending,” which also means that highly precise and considerate investment decisions to allocate public funds to potential high-growth industries and firms are needed: “public investments should be targeted to a limited number of growth-enhancing areas and sectors,” claim Aghion and Roulet (2014: 917). Second, which underlines the role of the embedded autonomy of the corporation, public spending “should be accompanied by appropriate governance to ensure that public funds are efficiently used” (Aghion and Roulet 2014: 917). The monitoring of public investment demands both significant degrees of economic, financial, legal, and regulatory know-how, but also integrity on the part of state-funded agencies and officers held responsible for the activities. The literature offers some evidence that an active state contributes to innovation-led growth. Howell (2017: 1162) examines early-stage innovation grants, and finds that such direct subsidies have “large, positive effects on cite-weighted patents, finance, revenue, survival, and successful exit” in recipient firms. Receiving an early-stage innovation grant enables the firm to “invest in reducing technological uncertainty,” which makes the firm “a more viable investment opportunity,” Howell (2017: 1162) argues. Furthermore, this class of grants offers the benefit of not “crowding out” private capital. Instead, these grants “enable new technologies to go forward,” and transform some of the “awardees” into “into privately profitable investment opportunities” (Howell 2017: 1137). In addition, Conti (2018) stresses the role of what Anderson (2018) refers to as policy entrepreneurs in designing research and development (R&D) subsidies. R&D subsidies, Conti (2018: 134) argues, often “come with multiple restrictions that governments impose on recipients to ensure that their goals are attained.” In some cases, a too strict framework for who is eligible for state-funded R&D subsidies may undermine the efficiency or the legitimacy of the policy, resulting in limited or disappointing outcomes. This condition offers a space for policy reform, wherein presumptive policy entrepreneurs may advocate and campaign for more relaxed selection criteria. Conti examines a R&D subsidy reform in Italy and provides empirical evidence that indicates that “restrictions on the external transfer of subsidized know-how made subsidies less effective in promoting innovation” (Conti 2018: 136). Howell (2017) and Conti’s (2018) studies suggest that not only venture capital investors supply “smart money” (Sørensen 2007), but the state also offers these benefits when policies and R&D subsidies are carefully designed and monitored.

As innovation-led growth demands substantial finance capital investment, both in the build-up of regulatory activities and institutions supportive of firm-based activities, and as direct venture capital investment benefiting firm-specific development work, “credit constraints” are a primary concern for policy-makers promoting innovation-led growth. The lack of venture capital and qualified venture capital investors, for example, “[m]ay further limit or slow down the reallocation of firms toward new (more growth-enhancing) sectors,” Aghion and Roulet (2014: 918) warn. Furthermore, even in the case where the supply of venture capital funds is favorable, so-called knowledge spillover effects (Owen-Smith and Powell 2004) or “information leakage” (Pahnke et al. 2015) occurs, where the advancement of know-how in one firm may also benefit other firms, thus free-riding on others’ investments (as in the case, for example, where financial institutions such as banks develop algorithms that can be used for trading otherwise illiquid assets; see MacKenzie and Spears 2014: 437). In such cases, it may be difficult for firms to borrow or raise money from private capital markets to finance their growth as their assets are not assisted by legal protection that secures a return on an investor’s initial financial capital (Aghion and Roulet 2014: 918). In this situation, the sovereign state can make investments that benefit a broader set of actors, or a sub-field within an industry, as in the case of military research spending, or the financing of scientific programs such as in the European and North-American space programs.

In the end, Aghion and Roulet (2014) suggest, innovation-led growth is not the outcome of heightened competition (which instead inhibits innovative work; Amable et al. 2017; Aghion et al. 2005), but from re-embedding the economy within the realm of the governance of the sovereign state, or within the transnational initiatives in which the state participates. This new model of innovation-led growth, the conventional wisdom of neoclassical economic theory, and policy-making doctrines derived therefrom, make up the free-market model, which stipulates the market as the origin and source of all meaningful rent-seeking activities, as being outmoded and even what undermines innovation-led growth initiatives, for example. Instead, the embedded autonomy of the individual corporation is re...

Table of contents

• Cover
• Front Matter
• Part I. Part I
• Part II. Part II
• Back Matter