Economic Development Myth 2 - Entrepreneurs Must Be Created

Are there other economic development attempts that miss the entrepreneurial raison d´etre and wind up stifling entrepreneurship? Yes, including Myth 2, which frustrates many attempts by economic developers to grow the entrepreneurial creative class in their localities. This myth says:

No entrepreneurs exist and, therefore, we must create incentives to attract them

The myth also has a corollary, replaces economic developers with small communities or governments:

Government must create entrepreneurs

Again, these myths are pulled straight from an economic development presentation – one that fillets both the myth and its corollary. The presentation was part of a study by  Peter J. Boettke, a 2004 Hayek Fellow, LSE, at Oxford University.

The presentation, given about six months after I joined the ranks of economic development and wrote a feasibility study/business plan for Kingsport Office of Small Business Development & Entrepreneurship (the acronym KOSBE was later settled upon), has two primary conclusions.

First, entrepreneurship – far from being dead or non-existent – is omnipresent. Boettke notes that “cultural explanations for a lack of entrepreneurship overlook what people have in common – namely alertness for profit and to improve their general situations.” He goes on to say even “underdeveloped nations do not lack entrepreneurship. Rather, entrepreneurial activities exist, but are not directed toward productive ends conducive to economic progress.” 

His emphasis on the requirement that entrepreneurs be productively directed toward economic progress is best left for Adams-Keynesian tug-of-wars that economists rage against each other, but the point needs to be re-emphasized. Entrepreneurs are everywhere. Just because old-school economic development discounts their value doesn’t mean they don’t exist. Similar to the logical conclusion from the previous blog post, entrepreneurs exist, they just don’t want your help.

Second, since entrepreneurs are everywhere, government cannot create entrepreneurship. Try as we might, we can’t argue with logic, so Boettke points out that “emphasis should be placed on creating a general institutional framework, making payoffs to productive entrepreneurship relatively high compared to unproductive and evasive activities”.

Immediately most old-school economic developers will seize this comment and say Ah ha! Incentives are needed! And we know incentives! Boettke begs to differ, noting that “resources should not be allocated to “‘encouraging’ or ‘training’ [or ‘enticing’] entrepreneurs but to developing the necessary institutional context to allow productive activities to come to the forefront”.

In other words, going back to our picture in the introductory blog, if economic developers must be involved, the proper approach to entrepreneurship is to build the infrastructure and reduce government help and then get out of the way.

Again, as before, change a few words and it brings out a whole new meaning:

Entrepreneurs exist, but we must eliminate those things that push them underground while, at the same time, laying the infrastructure that allows them to flourish.

A good analogy to this is a yogurt culture (not, not the yogurt culture but the culture in which it is nourished). Without a support infrastructure the yogurt will go into hibernation, but it won’t die. Conversely, with the proper support infrastructure, the yogurt will flourish and yield additional batches to work with.

Another example, which I found during a visit to the Jose Cuervo homestead, was the support infrastructure the family had created over 100 years ago to assist in the aging of their choice family reserves. The infrastructure screams utilitarian, consisting of a subterranean cellar with glass bottles, hemp coverings, a few finely-crafted oaken buckets – protected from one another by rough shelving and from outsiders by a set of bars almost indicative of a prison or dungeon – and a stray small window or two. But the final result, designed to age tequila for more than 100 years, proves the infrastructure is doing its job.