In the Canadian political landscape, entrepreneurship is as good as apple pie. Every Canadian politician claims to want to help entrepreneurs. However, there is considerable confusion about the kinds of public policies that foster entrepreneurship. It isn't unusual for a given reform to have both detractors who think it will undermine small business, and supporters who think it will prop them up. Bill Morneau's most recent small business tax reform is a case in point. Politicians routinely take advantage of this confusion to propose various interventionist programs designed to encourage entrepreneurship.
One way for policy makers in Ottawa to clear up the confusion and to ground policy in a sound understanding of entrepreneurship would be to focus on the research being pursued by the Austrian school of economics.
"Austrian economics" refers to a type of economic analysis that, historically, had its roots in the scholars of the University of Vienna in Austria — hence the name. Today, it is an approach to economic research with academic practitioners throughout the world. One of its characteristics is thinking of most economic phenomena, and in fact many kinds of human interactions, in terms of entrepreneurial processes. Understanding what it really means to act entrepreneurially, beyond the business environment, and the kind of alertness to opportunities that is prior to any entrepreneurial venture, provides important insight into entrepreneurship.
In fact, most positive aspects of the market economy are the result of entrepreneurial action. From innovation to growth, to the allocation of resources, all are ultimately the product of entrepreneurs "buying low and selling high," and innovating to outcompete other entrepreneurs.
Good policies can encourage these processes, and orient entrepreneurial activity toward the kind of market-oriented problem solving that we want — the kind that's productive, conducive to growth, and constantly introducing new products and services, and also new ways of obtaining products and services. Such policies further strengthen the basic principles that allow property, prices, and profit/loss to exist and provide their information, incentives and innovation. These are what allow entrepreneurial activity to take place in the market economy.
What these policies do is make some entrepreneurial ventures impossible by escalating costs.
Bad policies, on the other hand, will distract entrepreneurs from productive businesses, and make other kinds of opportunities more appealing. Such policies can take the form of excessive capital gains and corporate and personal income taxes; occupational licensing and labour regulations; a heavy regulatory burden in many industries; limits to provincial and international trade; and the quota system of supply management for dairy, poultry and eggs, just to name a few.
What these policies do is make some entrepreneurial ventures impossible by escalating costs. This reduces the incentives, the information and, ultimately, the innovative thinking of entrepreneurs as they become attracted to other, less productive projects. High public spending and government control over specific industries, such as health care or alcohol distribution, crowd out entrepreneurship in sectors that would benefit from it. Sometimes, the government outright forbids entrepreneurs to pursue certain opportunities.
The analysis of Austrian economics suggests that above all, policy-makers should be guided by the principle, "First, do no harm." Before calling for policies to promote entrepreneurship directly, such as subsidies to start-ups, it would be better to remove the obstacles that stand in the way of entrepreneurs.
To be sure, when it comes to entrepreneurship, Canada fares relatively well, even with some policies that do not contribute to this state of affairs. Austrian economics provides a rich analysis that can help to better understand which Canadian policies are detrimental to entrepreneurship. If we do not address these policies, we are, metaphorically, leaving money on the table by not doing everything we can to push Canadians toward productive entrepreneurship.
Written in collaboration with Pete Boettke, Professor of Economics and Philosophy at George Mason University.
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