In Praise of Market Entrepreneurs

by Don Boudreaux on August 22, 2011

in Complexity & Emergence, Innovation, Seen and Unseen

I’m honored to have a column in the new monthly magazine President & CEOHere’s my inaugural effort.

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Manfred August 22, 2011 at 11:34 am

I am not sure how I would have written a column for this new magazine; however, a comment that comes to mind is that I think I would have, perhaps, emphasized two things: a) as an economist, I am *not* pro-business, but I *am* pro-market; it seems to me that the in the pundit commentariat out there, they equalize the two, when in fact they are not the same; and b) I would have emphasized, maybe, the “creative destruction” aspect of the market a bit more; business failure is as important as business success, because failures are an indication where society should *not* put resources in.

Surfisto August 22, 2011 at 12:09 pm

But Manfred, business failure is a result of failed capitalism. Businesses succeed when the right mix of regulation exisit to keep them from failing. I have no real idea what Don was trying to point out in this first article. The point to me was the weed wacker. Why is it here? As I debate with my fellow human I realize I need to focus on one small thing at a time, if I don’t I get lost and the conversation quickly gets out of hand. In the end you could be correct, but when I first started posting here and reading economics it helped me to take baby steps.

Manfred August 22, 2011 at 1:11 pm

no, business failure is definitely NOT a failure of capitalism, au contraire, my friend. Business failure just means that the business was not producing what the market wanted, and thus, the business was allocating resources wrongly, and thus, the business needed to fail.
Think of it this way: the great Milton Friedman used to point out time and time again, that the free enterprise system (“capitalism”) is a profit AND loss system. And I would add (I am not sure Friedman emphasized it) that the LOSS part is sometimes more important. Business failure is just the ultimate expression of such loss.
This is how capitalism evolves, businesses rise and fall, businesses introduce new products and retire old ones, businesses try stuff that works and stuff that does not work.
And in the process, our general welfare rises, because such evolution means investment, more capital, more technology, and thus, rising wages and rising standards of living.

Surfisto August 22, 2011 at 7:22 pm

Sorry, I was being sarcastic in my first two sentences. I was trying to play the advocate of regulation and what that person might write back to Don and not focus on the weed wacker and why it is here.
I do however want to discuss one of your points and see where it goes.
“business failure is definitely NOT a failure of capitalism,” and “because such evolution means investment.” If malinvestment leads to failure and part of business cycle theory says that there will be more malinvestment when money is cheap, isnt business failure a result of capitialsim? The second part of my question would be if there was a perfectly free system including money would there be less cycles, zero? Maybe we need perfect information, which is probably imposible.

vidyohs August 22, 2011 at 1:05 pm

Can one be pro-market without being pro-business? If one is not pro-business what does one expect is going to take place in that market?

If someone tells me he is pro-business I have to automatically draw the conclusion he is also pro-market.

Manfred August 22, 2011 at 1:17 pm

I think your perception is very common, but in my opinion this perception is not correct.
When I say that I am pro-market, but not pro-business, it is in the sense that I do want businesses to succeed AND to fail in the market. I do not want political allocation of capital, I want market allocation of capital; I do not want the government to force-feed “solar energy”, and I do not want the government to support Wall Street investment bankers. I want all of those to succeed in the market; if they do not, they should fail and disappear and do something else.

Fred August 22, 2011 at 2:10 pm

Pro-business, to me anyway, implies a willingness to use government force to prop up existing businesses, usually by limiting or eliminating competition.
Since competition is the essence of the free market, if someone tells me they are pro-business I have to automatically draw the conclusion that they are anti-market.

Steve_0 August 22, 2011 at 2:25 pm

Business is one half of the total market participants. The consumers are the other half. Belief in the fundamental theory of Trade, or Markets, is to say “I hope Fred and Barney trade to mutual benefit”. To be pro-business is to say “I’m pulling for Fred”.

vidyohs August 22, 2011 at 2:32 pm

My but Manfred and Fred build a lot unwarranted superstructure on the simple phrase pro-market.

Do you assume that being pro-business means anything other than supporting a business climate in which businesses are free to succeed or fail on their merits?

I ask the same question about markets. Only I will add a caveat, when it comes to markets, if a business deal dies from lack of agreement or successful contract, that is a market success not a market failure. If a business can not succeed in the marketplaces because its product is non-competitive, that is a market success not a market failure. The market succeeds in weeding out the competitors.

I can not see how a free market can ever be anything but a success. Now the individual businesses may fail in the competition of the market, but is a business failure, not a market failure.

The problem with that free market is, we all know, outside (government) interference in the process by which business expose themselves. It is no surprise or secret that the market can be badly warped by that interference, and businesses that the market says are failures can be propped up by government and the market process bypassed altogether.

Fred August 22, 2011 at 2:45 pm

“Do you assume that being pro-business means anything other than supporting a business climate in which businesses are free to succeed or fail on their merits?”

I would call the above statement pro-market.

I think of pro-business as using government to try to prevent politically connected or politically correct businesses from failing.

vidyohs August 22, 2011 at 9:44 pm

Seems to me that your thinking is exceedingly narrow.

God’s knows how many hundreds of thousands of businesses in the USA have no political connection or influence at all (Joe’s muffler shop down the street) yet my pro-business stance in their favor does not count with you? Strange, and even more strangerousness!

Fred August 23, 2011 at 7:46 am

Supporting an environment where businesses are free to fail doesn’t sound very pro-business to me.
If you are pro-business then wouldn’t that mean you want businesses to succeed?
Wouldn’t you want to protect them from failure?
If you are protecting them from failure, which ones do you protect?

I get the impression that you are pro-markets, not pro-business.

jdcllns August 22, 2011 at 11:35 am

Bravo Don!

PoliteEdward August 22, 2011 at 11:56 am

Weird, what I get is very blurry in firefox:

I tried again in Internet Explorer and it was fine. So, to anyone that gets a blurry mess, you might want to try another browser…or disabling their add-ons, maybe one of my firefox add-ons was messing things up.

Steve_0 August 22, 2011 at 2:27 pm

It just takes a second for the PDF to resolve. Could be a problem with your PDF reader interaction with Firefox, or could have been the server was just temporarily slowed down at the time you looked at it with Firefox. I looked with Firefox, it was a preview image for about a second, and then it looked fine.

robert_o August 22, 2011 at 3:04 pm

I see the same from Opera.

W.E. Heasley August 22, 2011 at 3:28 pm

Dr. Boudreaux:

Your column is most excellent!

Innovation and the use of innovation becomes mundane. But the perceived mundane, in reality, is a working marvel. The marvel, although considered mundane in every day passing, doesn’t in fact “just happen”. It happens in part due to incentives. Incentives matter. But “incentives matter” also becomes mundane.

From time to time, if one steps back for a moment and considers how the heck all this stuff got here and how all this stuff works together to improve life, the very last thought regarding how in the devil it got here, would be, in fact, the concept “politicos through the mechanism of government”. You know, the Malthusian politico trap.

Imagine wild eyed innovations like term limits, no politico pensions, and the citizen-politician. Some day someone will think up ideas like the above mentioned. Just imagine! Likely this wonderful science fiction type futuristic innovation will be named the “Politico Weed Wacker”.

rbd August 22, 2011 at 8:32 pm

Newly elected Congressmen sit through numerous courses designed to educate the freshman politician on all manners of things. One of them very definitely ought to be a course taught by Prof Boudreaux. This class on basic economics would make everything else they learn seem so pedestrian.

Rayray August 23, 2011 at 8:41 pm

You look really happy to be there.

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