Is This Really Entrepreneurship?

When a good government connection is more valuable than a good business idea, the end is near
by Vedran Vuk
Casey Research
Jul. 22, 2011

Flashback: Socialist bike sharing plan in Paris -- "80 percent of the initial 20,600 bicycles stolen or damaged"Yesterday I read about a new company called Alta Bicycle Share in Forbes magazine. The service is pretty simple: At docking stations users can rent bikes with the swipe of a credit card.

Immediate problems with the service come to mind. Personally, I don't commute with a bike and neither do most people. The Zipcar service is one thing, but a rentable bike doesn't make much sense outside a vacation resort setting.

There's a second problem with the business model. Suppose I want to get around on a bike. Buying a bicycle isn't exactly going to break the bank. Zipcar works because owning a car is expensive and in many places highly inconvenient. There's the purchase price plus maintenance, insurance, parking fees, etc. With bikes, none of these issues exist. What's the point of renting a bike? It isn't exactly unaffordable or inconvenient to own one.

These seem like problems for this business model. But don't worry, Alison Cohen (founder of Alta Bicycle Share) has conquered them. Her goal is not to sell the service to consumers, but rather to the government. The article notes, "Cities buy the bikes and install docking stations where users can rent them with the swipe of a credit card. Alta looks after the bikes and collects payment, earning either a cut of the revenue or a flat annual management fee."

Why exactly does the government need to subsidize her bike business? If Alison's company wants to offer consumers an attractive service, I'm more than happy for her efforts. But rather than appeal to consumers, she's taking money from their back pockets through taxes.

In the print edition, above the article in big letters is the word "entrepreneurs." But is this what an entrepreneur really is? When folks say, "We need more entrepreneurship in this country," do they mean more businesses fighting for government contracts? I've mentioned this downward spiral in a previous article. When young businesspeople would rather find ways to sell their ideas to the government than to consumers, we're in real trouble. It reveals a change of mentality.

When a good government connection is more valuable than a good business idea, the end is near. This sort of business environment is a defining characteristic of every backward country in the world.

Often folks complain that our country doesn't produce anything tangible, and as a result, we're headed down the wrong path. But the route of courting government business is even worse. Consider this example: I visit my regular burger joint and order some food. The business pays its employees and earns a slight profit. I'm willing to pay more than the cost of the burger. The owner is better off, the employees get a wage, and I'm satisfied with the convenience.

Here's the problem with the government-contract bikes: The company apparently can't make it in the marketplace alone. Consumers aren't willing to pay for the service because they don't value it enough. When the government forces them to pay anyway, consumers are worse off, and the bike company is better off.

Maybe the service industry isn't the path to prosperity, but this form of government "entrepreneurship" is a straight shot for disaster. What makes free markets work is the voluntary exchange between parties. Each is better off in some form or another.

Yes, some are much better off than others. At the burger joint, I'm better off than having to go home and cook the burger myself. The business owner clearly benefits from the transaction. And the employee's wage is better than no wage at all. Everyone gets something.

In the case of Alta Bicycle Share, my life would be better without its existence. It's just another tax leech lobbying for my money to provide a service that I don't want. This isn't the way to prosperity, and it shouldn't be celebrated in the "entrepreneurs" section.

© 2011 Casey Research, LLC