Monday, January 5, 2009

Destructive Entrepreneurship

In "Entrepreneurship: Productive, Unproductive, and Destructive," William Baumol laid out different ways of thinking about entrepreneurship and encouraged scholars to recognize that the number of entrepreneurs in a society may not change, but what those entrepreneurs do does change. Thus, perfectly capable self-starters may find it more rewarding to pursue a job working for the government rather than starting a business. In extreme cases, individuals will find reward through destruction.

On the front page of today's NYTs was a story about the prevalence of kidnappings in Mexico and how the rewards are increasingly being paid by family members in the US (NYT).

In Good Capitalism, Bad Capitalism, Baumol et al capture the costs of this clearly: "A society in which theft is not punished will soon no longer be a "society" but instead a disconnected set of individuals, each fearful of the other, a true "Hobbesian" state of nature." (p. 114)

Trust is an important and well documented ingredient of a fully functioning state and economy so let's hope the Mexican authorities are able to get this problem under control. No society can successfully function for very long if there are greater rewards and incentives to doing evil.

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