Welfare For Entrepreneurs


 'Extraordinary Bodies (Photo Exhibition)' by Chris

Big businesses is the most important part of the economy to get right because big organizations are where most productivity-enhancing innovations are created.  The vast majority of entrepreneurs work in low-productivity-growth businesses.  But entrepreneurship is important too and The Atlantic Monthly has been much more worried about the 30-year decline in American entrepreneurship than I have been.  Now, Walter Frick at the Atlantic argues that the decline in the US safety net is an important reason why entrepreneurship has declined. He says that ordinary Americans can’t afford to take as much risk to start businesses with a weaker safety net.  In some cases he is undoubtedly right. This is one reason why I think it is important to study how greater equality can increase economic efficiency.

Most Americans want greater efficiency and greater equality and economists have the unfortunate tendency to obsess about cases where there is a trade off between the two.   Instead, we should be spending more efforts to develop synergies for simultaneously creating both.

Frick gives some good arguments for a number of ways social programs that increase equality could increase efficiency, but he largely skips over two of the main social programs that have that effect. Universal health insurance systems are more equal and more efficient (cost effective) and it boosts entrepreneurship.  The US healthcare system is the least equal of any developed nation and it is the least efficient.  The old US employer-based healthcare system discouraged entrepreneurship for anyone who wasn’t young, male, and healthy.  It was extra expensive or impossible for most potential entrepreneurs to get health insurance.  Hopefully, our move towards universal health insurance will give Americans greater freedom to become entrepreneurs.

Entrepreneurship also requires educated people and nations with greater equality of educational opportunity will have more successful entrepreneurship.  Even people with zero education can find menial jobs working for someone else, but productive entrepreneurs need to manage marketing, accounting, technology evaluation, purchasing, and many other complex tasks that require high levels of literacy and analytical skill.  There is no country ever in the history of the world that achieved a high median income without a successful public education program that produced high-quality universal education.  As with healthcare, the US has a much less equal public education system than most rich nations and it is one reason why other nations are surpassing the US in average educational attainment.

Posted in Development, Inequality, Labor, Managerial Micro

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