Entrepreneurship, Institutions and Public Policy

1
Entrepreneurship, Institutions and Public Policy

• Peter J. Boettke
• George Mason University
• August 2007

2
Main Points

• Entrepreneurship is an element of human action
  and thus universal
• Institutional setting direct entrepreneurial
  behavior in productive or unproductive directions
• Public Policies which curtail the predatory
  proclivities of man, rather than encourage them,
  generate wealth creation and generalized
  prosperity

3
Entrepreneurship and Economic Theory

• Maximizing Behavior and Market Equilibrium
• Intellectual apparatus of neoclassical economics
  crowds out the entrepreneurial element in
  economic process by design
• Pre-reconciliation of plans
• Rational choice as if the choosers were human
• Important role of ERROR in understanding how
  markets work
• Delusion on ends
• Ineffective choice of means
• Open ended choice and the reconciliation process
  of exchange
• Market Processes
• Competition as a procedure for learning and
  discovery

4
Entrepreneurship and Economic Progress
Guns
?C
innovation
?B
?A
arbitrage
Butter
5
Institutions, Imperfect Humans, and Economic
Performance

• Institutions informal rules formal rules
  enforcement
• Fundamental Institutions --- rule of law, codes
  of just conduct, etc.
• Policies of Economic Freedom --- property rights,
  monetary responsibility, fiscal restraint and
  open trade
• The natural proclivities of humanity
• Truck, Barter, Exchange
• Rape, Pillage, Plunder
• Economic Performance through time
• Malthusian trap
• Smithian increasing returns

6
The Allocation of Entrepreneurial Talent

• Tale of Two Countries
• Ireland
• India
• Predation and Productivity
• The protective state, the productive state, and
  the redistributive state
• Buchanans puzzle in political economy

7
Conclusion

• Adam Smith wrote that Little else is requisite
  to carry a state to the highest degree of
  opulence from the lowest barbarism but peace,
  easy taxes and a tolerable administration of
  justice.
• Economic Freedom Index demonstrates the strong
  correlation between policies that respect
  property rights, promote monetary responsibility
  and fiscal restraint, and open borders to
  international trade and higher rates of economic
  growth and higher levels of per capita income.
• But why?
• The willingness of individuals to bet on ideas
  and find the financing to bring those bets to
  life in the marketplace. In short,
  entrepreneurship that realizes the gains from
  trade and the gains from innovation.

8
The Horse Race Determining Our Future
Smith --- gains from trade Schumpeter --- gains
from innovation Stupidity --- governmental
predation on wealth creation