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October 11, 2004
So Why Do We Do This???
Tim Worstall hit me hard with his article "Entrepreneurs of the World Unite! You Have Nothing to Lose but Your Guilt!" at Tech Central Station. He writes a commentary on a study by William Nordhaus of Yale (published by the National Bureau of Economic Research) which reports that entrepreneurs on average only accumulate 2.2% of the wealth that they create. That's right, only 2.2%!!
Nordhaus summarizes his findings this way:
"We conclude that only a miniscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers."
But, I really like Worstall's reaction to this. He is an entrepreneur and seems to take all of this rather personally!
"As we already know the first and most basic truth about economics is that incentives matter. What incentive is there to struggle to launch a new company or product if having reaped the rewards of doing so one is brow beaten by society into apologizing for the wealth, forced into making grants to puerile non-entities, funding pressure groups on this or that fashionable matter. Where's the incentive for the next generation in that? Far better that those who have won launch into rip-roaring enjoyment of the things that money can buy, create a little envy so as to gee up those making the great decision of life. Whether to work for a salary and pay 20-30% of their income to the rest of us or to innovate and give 98% away?"
So what to do? Are we really going to foster a truly entrepreneurial economy with such a meager share of the spoils?
"We now know that innovation and entrepreneurial activities are hugely profitable for the wider society, almost all of the gains going to that society, not the initiators. We wish to encourage more such activity but have ruled out structural changes because the pols will undoubtedly screw it up."
Amen to that. If the politicians get involved we may get even less! But, with the politics of envy serving as such a staple of American elections we better hang on to our wallets.
What would I suggest we do? Perhaps we should stop taxing that which is creating so much good for our society. That would be a good start. Entrepreneurs are already creating so much public good by creating jobs and stimulating the economy through the multiple effects they create by the consumption of goods and services from other businesses.
What a wonderful platform to begin a discussion on the public policy issues related to entrepreneurship!
(Thanks to Ben Cunningham for passing this along).
Posted October 11, 2004 05:49 AM
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Comments
Glad you liked the piece. Was alerted to the research by Don Boudreaux at Cafe Hayek. I myself was astonished by the figure.
Posted by: Tim Worstall at November 21, 2004 12:31 PM
at Belmont University in Nashville, Tennessee. He consults with a variety of businesses on start-up and growth related issues, and with larger corporations on re-establishing entrepreneurial cultures within their organizations. Dr. Cornwall's current research interests include entrepreneurial finance and entrepreneurial ethics. He has authored or co-authored four books.
