A pair of striking excerpts from a discussion at CNN Money between motivational speaker Ken Blanchard and Scott Shane, professor of entrepreneurship at Case Western.
Here is Scott Shane on whether the government should encourage entrepreneurship or craft policies to divert resources to high-growth companies:
“From a societal point of view, if you have a group of people who do something that makes them happier but less productive (which the data support), and you aggregate that, then entrepreneurship is an economic drain. If the goal of the policymaker is to make everybody in your country happy, then let everybody start businesses. But most policymakers seek to create jobs and promote growth. If that’s your goal, you want to stop all these people from starting marginal businesses that don’t go anywhere and devote the resources to encouraging high-growth companies. In terms of tax policy, for example, you could argue that the government should eliminate the home-office tax deduction — which doesn’t differentiate between high- and low-performing businesses — and beef up R&D tax credits.”
Shane seems to pose an opposition between the individual pursuit of happiness and the aggregate collective utility — and to suggest policies that advance the latter at the expense of the former.
Here, by contrast, is Ken Blanchard after a discussion of different rates of entrepreneurship between the races and the sexes:
“Forget sex and color: Entrepreneurship is all about fire in the belly. I spent time recently with Magic Johnson. He told me that he got interested in business even before he started playing basketball. In high school Johnson worked on an office-cleaning crew to make money. He always volunteered to clean the CEO’s office — his co-workers avoided those offices because they were bigger. While Johnson was in there cleaning, he would shut the door, push the intercom and say: ‘Mrs. Jones, bring me a cup of coffee.’ He just had that fire in the belly early on.”
Blanchard puts the individual at the center and admires the drive that leads individuals like Magic Johnson to set and achieve high goals for themselves.
So two questions:
(1) Is there an economic-growth difference in between a regime of laissez-faire entrepreneurship and a regime of government-tweaked tax policies that advantage high-growth companies?
(2) If so, and if the data show that the latter is better in the aggregate, should the government discourage the pursuit of happiness in the name of economic growth, or should it leave people to pursue their fire-in-the-belly dreams?
Question (1) is an economic question; (2) is moral and political-philosophical.
My answer to question (1) is to expect, for good Austrian and Public-Choice reasons, that individual initiative and the market will be better than government officials at picking winners and generating aggregate economic growth.
My answer to question (2) is, for good Objectivist reasons, that the moral function of government is not to manage the economy but to protect individuals’ liberty to pursue their own economic goals.
[Photo credit to Brad Hines and Michael Nemeth.]
Isn’t the growth of the U.S. in the 19th century a gigantic counter-example to anyone claiming the government can better direct entrepreneurs?
An incorrect premise in Shane’s thinking is the idea that any group of people can predict what will be the next best thing to develop; even the entrepreneurs don’t know what is going to succeed.
Shane thinking is not incorrect when in comes to predicting entrepreneurship. A number of studies have shown that high potential entrepreneurs are vastly different from low potential entrepreneurs. If you need proof look at the results of the VC industry. They back a few hundred companies each year that create a large proportion of the new jobs and economic growth in the US.