[This short lecture in the Entrepreneurship and Values series was recorded at Rockford University and sponsored by the Center for Ethics and Entrepreneurship. Other series lecturers include Professors Alexei Marcoux, Stephen Hicks, Terry Noel, John Chisholm, Robert Salvino.]
Entrepreneurship and Liberty
Professor William Kline (University of Illinois, Springfield)
What we want to discuss is the relationship between liberty and entrepreneurship. One could argue that especially in the field of entrepreneurship, liberty is far more important than it is in the fields like management where one can manage within a bureaucracy, one can manage in various atmospheres. But entrepreneurship, by its very nature, seems to need liberty to function. So, let’s take a look how. What I do want to refer to and serve as a foundation is the work of John Stuart Mill.
Mill writes both an essay called On Liberty, which is a fantastic read, and The Principles of Political Economy. Principles of Political Economy (PPE) is a two-volume set, and unless you are an economist I wouldn’t advise reading all two volumes. However, in the second volume, the last few chapters deal with policy and actually deal with the issues, some of the issues he brings upon On Liberty. We have to talk about both to get an accurate picture of the framework within which entrepreneurship needs to flourish.
Both of in On Liberty and PPE Mill identifies three areas that apply where liberty can be violated. The first one, or how liberty can be violated, is: the government or the authority in charge can violate one’s liberty. Rules can be made against free speech; censorship can be practiced. People can be put in jail; punishments, fines, that sort of thing. And we are very familiar with that sort of violation of liberty.
The second area where liberty can be violated is in culture. Mill had experience with this in his relationship. People can avoid you, people can discriminate against you, people can do a variety of actions, the most severe being things like theft or violating one’s personal rights. Also an individual can violate your right, say, by violation your property rights, and a group of people can as well. And they can do so in an insidious ways. In fact, Mill talks extensively of how a culture or a society, if you will, can violate liberty by not leaving people alone.
The final version of liberty that Mill talks about is economic liberty. He talks about explicitly and especially in the last few chapters of Principles of Political Economy, but we also find it On Liberty. He calls it the Principle of Laissez Faire. Censorship, discrimination and free trade.
Now, how does entrepreneurship fit into this? And why does entrepreneurship require liberty to function? The first thing that we can say is that entrepreneurship is doing something that hasn’t been done before. It’s an innovation. It’s an innovation that has a place in the market. This could destroy past innovations: refrigerators replacing icemakers, or it could be improvements upon old designs and devices, which are many and vary. The government authority can stop entrepreneurship by prohibiting certain things. So, for instance, French guild regulations on silk-making — around the time that Adam Smith is writing The Wealth of Nations — prohibited any new innovations or any disruptions in the existing market. An entrepreneur in the silk industry cannot exist there because, well, quite frankly, entrepreneur activity is outlawed.
We find a parallel today in the US in our education industry where there is a huge potential for entrepreneurial activity and education, yet, because of accreditation requirements and both with accreditation agencies and with each and every state of the union, the barriers and the entry cost to doing something new in education are almost prohibitive. Look at the very few number of new colleges that have started in the past 10 years, and you will see the evidence of this. So governments can actually license and regulate away entrepreneurial activity very, very easily.
Culture and society is an interesting area of debate. One thing we ought to look at and seriously consider if we are concerned with entrepreneurial activity is the effect of social norms. This comes across quite clearly if we go back and we look at segregation in the South of the US. Jim Crow Laws and informal versions of segregation would prevent, in this case, black businesspeople from opening their own businesses or prevent them from having access to a market, not being able to serve white populations. And, conversely, not allowing white populations to serve black populations. People put in place formal laws, government authority put in formal laws precisely because people would violate them. But in the South we found widespread acceptance of this, so it goes beyond a mere formal government edict, which can have various levels of compliance, to a stable social norm whereby black citizens are refused basic services, whether that be eating at a lunch counter or being admitted at university, and also to the host of prohibitions that that would have on somebody being able to just function within a market and take full advantage of the division of labor.
The final area of liberty, one that Mill talks about, isn’t necessarily government, isn’t necessarily culture, but just about the economics. And oddly enough, Mill says that the principle of laissez-faire is not covered under The Principle of Liberty, as he talks about it On Liberty. In On Liberty, he says that individuals ought to be free to think what they want, to say what they want and experiment lifestyles that they want. The most obvious reason for this is Mill thinks everybody will be better off if they are allowed to do this. But running clear through his writings in On Liberty is the notion that somehow what you believe and who you believe with are fundamental to what we are as human beings. There is something exceedingly important about that if you violate it, you are violating something that strikes at the core of what it is to a human being and that makes it bad, to silence somebody, to force him to believe in a God they don’t believe in, to force them to not be with the ones that they love are just horrible things in and of themselves. And we ought not to do that, either culturally or through the government. And that’s his argument in On Liberty. But when he gets to free trade, he says quite simply ‘Well, you know, this is just money.’ Quite frankly, that is what his argument boils down to. This is just money and if we intrude on matters of money, it does not have the same impact that intrusions here have. And what I submit to you, as you are watching this video, is to think about that principle as well. Is that true? Is that an intervention in economic activity a neutral intervention that does not have the same impact as an impact into one’s belief set or who one can marry? And I suggest that Mill overlooked, seriously overlooked entrepreneurial activity.
I am at the Center for Ethics and Entrepreneurship talking to you about this today. The CEE has interviewed more than dozens of entrepreneurs over the last 6 years. I believe each and every one of those interviews makes it clear how the entrepreneur being interviewed did not view their business since as a way to make money. It was a way to make money, it was a way, in some cases, to make a lot of money. But whatever they were doing, whether being a sports team, a cable company, art work, you name it, it meant something. That is, an entrepreneur attaches meaning to what they do in many cases because they love doing that, that’s why they thought about it, that’s why they stayed up late at night, that’s why they made many sacrifices, that they had a vision that they wanted to carry through. They saw something that was not there, and that motivated them to get out of the bed in the forming to face all the government hurdles to face whatever cultural norms might be present, in order to make this dream a reality.
Of course, they have to eat; of course, they want to make money; of course, they are self-interested. Not of that is denied, but I can’t figure out why it’s also denied on this view of Mill’s that has any meaning whatsoever. The facts don’t bear it out. These things, for these people, are just as important as any other lifestyle that Mill chose. Choosing to be an entrepreneur and choosing to make your dream a reality is a choice of a lifestyle. And it ought to be accorded. There is no reason to exclude from having the same sort of importance that any other lifestyle choice would have.
So, one of things I want to point out working within this framework is many people do understand how legal activity can prevent entrepreneurship. Many people do understand how cultural and social norms which often, for better or worse, are viewed as appropriate norms of behavior. People understand how those will affect entrepreneurship, and then they will say ‘But it’s just a money-seeking activity, is just self-interest, so, this economic drive really doesn’t have the same weight as, well, the public good we are looking for, the alleged public good, or the alleged traditional norms that we value as a people’.
And what I wish to point out here is that one of the keys entrepreneurial activity in realizing why we have to work to keep a free and open market so that innovation can be made, of those reasons is so that these people can pursue their lifestyles just as surely as anybody else can pursue their lifestyles. So, this meaning can be protected, so that this is entirely worthy lifestyle and choice of activities is protected just as surely as one would protect religion. And I don’t pretend that that’s not controversial, but, why? Who are we to say that somebody else’s belief set is less important than our belief set and what we are not to be forced to be believe something, but it’s entirely appropriate to ban behavior that is essential to somebody else? That’s not the notion of liberty, that’s the language of special exception, that’s the language of favor, that’s the language of mercantilism or even despotism. So, we have three areas of liberty that we can easily recognize, and the message that I take to you today is that this can then be a meaningful way to pursue one’s life that ought to be protected in addition to profits.
[Dr. Kline’s video lecture follows.]
The full series of Entrepreneurship and Values short lectures is here.