Entrepreneurship is more important than ever, as long as it is guided by Schumpeter and Smith and not Keynes: The case of Entrepreneurship in Portugal in the early COVID Era

By Heitor Benfeito, Director Portugal Ventures VC, Lecturer and Researcher in the Areas of Entrepreneurship, Venture Capital and Finance – Porto – Portugal

In the current public health pandemic context, policy makers and governments are tackling the economic effects of the lock-down mostly with heavy duty financial activity, mostly with quantitative easing, acquiring non-investment grade securities, creating an “economic non-sense” zero interest rate setting, fostering indiscriminate financing even for companies that were bankrupted before the pandemic: it is taking Keynes’ “beauty contest” to a completely new level, by completely misunderstanding Keynes and vulgarizing moral hazard. It is still to be proven that this practice will save jobs, or foster growth, given the new debt burden, or even prevent the spread of the pandemic which would have further health and social impacts in societies.

Entrepreneurs tackle the issues

With the pandemic and government actions, entrepreneurship is more important than ever to solve economic, health and social problems. Entrepreneurship has tackled these problems within a Schumpeterian creative destruction approach, with the awareness of the economic and social context that created a true “invisible hand” as suggested by Adam Smith.

It is refreshing to see that reality continues to be the locus and commitment of the entrepreneurial ecosystem, from entrepreneurs to early stage investors.

The pandemic and consequent social distancing and economic disruption changed economic behaviour, impacted the labour market and work practices, massive dropped demand, changed international supply chains, forced different methods in education and healthcare as well as family and international interactions. It also created a need for co-creation for companies, scientists and entrepreneurs to work on developing a vaccine and devise new approaches to tackle these pressing issues. Those are the real economic challenges to be tackled with the sense of urgency and agility that only entrepreneurs can deploy.

Portuguese ecosystem responses

The Portuguese entrepreneurial ecosystem is an example on how agile, coordinated, constructive, committed, cost efficient and effective is tackling the pandemic effects. It was ranked by OECD as the country fostering the highest number of innovative initiatives to fight the impacts of the pandemic. But this should not be the metric, rather the balanced and coherent, broad scope and consistency of the initiatives created by the ecosystem and not any centralized body. These allowed some of the most pressing issues to be tackled.  Some of these are highlighted here: (full disclosure, some of these are led by portfolio companies from Portugal Ventures)

  • Diagnostic and Therapeutic approach to pandemic: several initiatives of fast testing and one of the main institutes has allocated significant resources for the development of a vaccine
  • Labour disruption: created a marketplace for start-ups for cross-help, temporarily allocating freed tech teams from companies whose demand was negatively impacted by pandemic to ventures that were positively impacted as well as other businesses; created an online volunteer marketplace to help moving objects between locations, including delivery of meals;
  • Supply Chain and cyclical goods drop of demand: entrepreneurs with manufacturing settings quickly readjusted their industrial settings to produce alcohol gel or surgical masks or face masks allowing them to keep their labour force.
  • Support local business:
    • Created a marketplace for local and small businesses of discount vouchers to generate short-term cash-flow and allow to ease the relaunch of business after the lockdown;
  • Support to healthcare activities:
    • Support Healthcare workers and their families:  Created a free online booking service for health professionals to keep their families safe by staying in non-occupied hotel rooms or airbnbs for free;
  • Pandemic tracking and solutions to foster social distancing:
    • Crowd sourced solution to allow consumers to have more visibility on venues use of best practices of preventive COVID-19 measures;

These and other initiatives are fundamental to foster current and potential new challenges and entrepreneurs are paving the way for time and cost-efficient solutions.

Beyond these short term initiatives, entrepreneurs are already developing new business models, recognising  new consumer preferences, new management and leadership practices and flexible operational settings. It is up to the remaining constituents of entrepreneurial ecosystem, from scholars to policy makers and investors to maintain that pace, with the  understanding that economics should always precede finance.