Entrepreneurship Needs the Right Context

Entrepreneurship is really sexy right now.  Startup founders are like rock stars and you can’t go a day without seeing articles about them.  As far as it goes, I welcome this trend.  Entrepreneurship, as J.B. Say might define it, is the act of moving resources from lower to higher valued uses, or more concretely, creating a new process or product to solve old problems in innovative ways.  This seems a pretty good thing to glorify, at least compared with some other superficial traits that get a lot of attention.

Still, if entrepreneurship is praised across the board, regardless of the context, bad things can happen.

Absent competition and markets, being entrepreneurial has no value.  In fact, it can destroy value if channeled into the political process.  Political entrepreneurs find new ways to access resources first taken from others by force (taxation), and therefore do not create wealth.  They shift existing wealth around with no value-add, because the profit/loss signals are short-circuited.  Furthermore, they divert resources from productive activity to lobbying, currying favor, or massive projects with populist appeal but no market value.

Just about any entrepreneurial endeavor with the words “green” or “sustainable” has a high likelihood of being a fraudulent political game rather than genuine value creation.  The web of grants and subsidies and tax incentives and price supports and mandates in this industry make it all but impossible to identify real value creation as distinct from political shenanigans.  There are a great many media friendly entrepreneurs who chase government dollars instead of private investor or customer dollars, which are the real indicator of value creation.

Furthermore, all the buzz about entrepreneurship has given tech founders a huge platform from which to weigh in on a great many other issues.  Many people assume anyone smart enough to build a great app or billion dollar company could improve public policy.  The problem is that policy doesn’t get debated and implemented in a startup environment, but a monopolized, violence-backed, and fundamentally warped institution with all the wrong incentives.  The technocratic desire many startup types have to make gov’t more like a Silicon Valley company is what Hayek might call the fatal conceit.  It won’t work.  “If only smart people would control all the resources (and the guns that seize them) we’d make public infrastructure flawless!”  This kind of thinking is more dangerous, even if more noble on its face, than political actors openly seeking their own enrichment and not trying to solve grand problems with central plans.

The same thing happened in the industrial era.  Titans like Vanderbilt, Rockefeller, Morgan, and Carnegie were heroes because of their amazing success at improving the world through entrepreneurial action in the market.  When they turned their attention to politics, Gilded Age entrepreneurs built up a horrific behemoth of graft and monopoly that only slowed progress.

In a free or mostly free market entrepreneurs are the greatest force for good the world has ever known.  More than any amount of philanthropy or good intentions.  Outside the market context there is nothing inherently noble about entrepreneurship, and when directed to the political process it can be downright destructive.

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