Articles: Economic Freedom and Entrepreneurship


Peter Drucker defined entrepreneurship as transferring resources from where they are less productive to where they are most productive.

And entrepreneurship has four advantages. For the individual is a source of self-realization and personal wealth: the entry into the stock market by Facebook was worth $16 billion; Liquid Paper, the corrector, which is basically white paint in a container, brought the secretary Bette Nesmith $ 48 million in 1979; Youtube was sold 1.5 years after its creation by 1.7 billion dollars; and Kitty Litter, the granulated clay that Ed Lowe changed from construction sector to the boxes of cats to make their needs, allowed him a cash inflow of $ 200 million in 1990.

Then to the society, entrepreneurship and innovation are the source of progress: examples, not to mention the obvious like Apple, Google, etc, are the biodegradable cutlery Verterra, social supermarkets, micro-credit, quinine (a natural product of the cinchona tree and brought to Europe by the Jesuits), semiconductors that caused all the information in the world is almost free and instant for everyone, or air conditioning, which is as much part of quality of life, as it is a productivity source (imagine Singapore without it).

Finally, entrepreneurship and innovation also contribute to the social wealth through creative destruction (Schumpeter) and the multiplier effect (Keynes).

In fact, the correlation coefficient between the innovative capacity of a country and its GDP per capita is 0.61 (with 0% probability of being due to chance). Also the correlation between innovation and competitiveness (of countries) is also very strong. On top innovators list are Germany, USA, Switzerland and Taiwan; at the end of the list are Cape Verde, Haiti, Congo and Angola.

In summary, entrepreneurship and innovation are important. Both individually and socially. For reasons of personal fulfilment, quality and standard of living.

The question is therefore how to promote it?

First, there are some cultures that are more enticing for innovation than others.

Drucker (again) said that in some societies the best go to the priesthood (Italy), to the bureaucracy of the central government (France), to the universities as professors of philosophy, literature or sociology (England), or to management (USA).

The education system is also important. Several OECD countries lack specific courses on entrepreneurship, as they don’t know that entrepreneurship requires different knowledge, which cannot simply be imported from other disciplines.

In other countries, however, not only entrepreneurship is recognized as a discipline in itself, as is often mandatory (not merely optional), and even starting in the secondary level of education (in addition to the university).

Then there are three other reasons that explain the fact that some countries are more innovative than others: a not very large public sector with a multitude of companies to whom banks prefer to lend money; little bureaucracy (for start-ups and in the day-to-day); and intense competition (and loyal, that is based on price, quality and delivery and corruption-free) between the private.

The last three causes are the focus of anti-trust, supervision and regulation and have a simple name: economic freedom.

There should therefore be no surprise that the most economically free countries are also the most innovative. The correlation coefficient is 0.56 (and again with 0% probability of being due to chance).

In short: economic freedom generates entrepreneurship and innovation, which in turn are a source of economic growth, social welfare, and personal self-realization.

Which means that, to be an entrepreneur you need to be willing and able. And the saying "want is power," is easier said than done in some societies.

Article by Professor Jorge Sá, president of the Institute for Economic Freedom,
Drucker School MBA, PhD Columbia University, Tenured professor, Economic freedom speaker
Published in the editorial column of VE newspaper.

No comments: