What%20Role%20for%20Entrepreneurship%20in%20Economic%20Development?

1
What Role for Entrepreneurship in Economic
Development?

• Peter J. Boettke
• 2004 Hayek Fellow, LSE
• Oxford University
• October 12, 2004

2
Types of Entrepreneurship

• Arbitrage
• Discovering the price gaps that exist and acting
  on that margin to close the gap
• Buy low Sell high
• Innovative
• Discovering new trading opportunities (Smith)
• Discovering lower cost or new technologies
  (Schumpeter)

3
Graphical Representation
GUNS
B
C
A
BUTTER
4
But What Determines the Type of Entrepreneurship
in a Society?

• The quality of institutions in any given society
• Rules of the game
• The Legitimacy of the rules
• Social capital issues
• The enforcement of rules
• Public Policies Adopted in any society
• Security of Private Property Rights
• Freedom of Contract
• Monetary restraint
• Fiscal responsibility
• Free Trade

5
The New Comparative Economics Framework
Analyzing Institutional Choice
Public Predation
Questions (1) how do you move between different
enforcement regimes, and (2) how do you shift the
entire institutional possibilities frontier in to
get less bads
Socialism
State regulation
Common law courts
Self-government
Private Predation
6
Institutions and Entrepreneurship

• Effectiveness of different regimes is a function
  of relative price of enforcement
• Relative prices guide behavioral adaptations
• Entrepreneurial activity responds to relative
  prices
• Productive
• Unproductive
• Evasive

7
Evidence papers with Chris Coyne

• Productive
• New start ups (not privatizing old firms, but new
  entrants)
• Rates of innovation and technological absorption
• Unproductive
• Rent-seeking
• Friedman evidence on regulatory burden
• Corruption and Theft
• Soviet Union
• Romania
• Evasive
• Expenditure on avoiding detection
• Romania
• Dom Republic

8
Conclusion

• Entrepreneurship is omnipresent Entrepreneurs
  are present in all settings. Cultural
  explanations for a lack of entrepreneurship
  overlook what people have in common namely
  alertness for profit and to improve their general
  situations. Underdeveloped nations do not lack
  entrepreneurship. Rather, entrepreneurial
  activities exist, but are not directed toward
  productive ends conducive to economic progress.
• Government cannot create entrepreneurship Given
  that entrepreneurs are omnipresent, government
  policy cannot create entrepreneurship.
  Instead, emphasis should be placed on creating a
  general institutional framework, making payoffs
  to productive entrepreneurship relatively high
  compared to unproductive and evasive activities.
  Resources should not be allocated to
  encouraging or training entrepreneurs, but to
  developing the necessary institutional context to
  allow productive activities to come to the
  forefront.

9
Conclusion (continued)

• Transparency and accountability are critical for
  reform In many cases, the lack of transparency
  and accountability allows officials to abuse the
  law for personal gains. One key mechanism for
  creating transparency is a free media industry
  which serves as a check on those in positions to
  abuse the political and legal institutions (see
  Coyne and Leeson 2004). Increased transparency
  and accountability reduce the payoff to
  unproductive activities.
• Reform needs to be decentralized Reform efforts
  should be decentralized to the local level so
  that those that truly understand these challenges
  are involved in the reform process. For example,
  as discussed previously, entrepreneurs in rural
  Romania face a special set of challenges.
  Currently, the national government controls all
  reform efforts and neglects the unique situation
  of rural entrepreneurs.
• Identifying and maintaining indigenous
  institutions is key Indigenous institutions are
  embedded and accepted means of coordinating
  activities and overcoming situations of conflict.
  As such, they provide a ready-made framework for
  increasing coordination on a large scale.
  Institutions, practices and markets that are
  informal or black should be incorporated into
  the formal sector.