Why subsidizing people to become entrepreneurs is a bad idea
Radu imandan [email protected] May 19, 2015
Slide 2
A good thing Entrepreneurship is a good thing. The entrepreneur
is the single most important player in a modern economy. Edward
Lazear Lazear, E. M. (2005). Entrepreneurship. Journal of Labor
Economics, 23(4), 649680.
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Creates jobs; Drives the economy; Makes the founders and
investors rich in the process; Cultivates a sense of independence,
going your own way. People who run their own businesses have
greater job satisfaction than people who don't. A good thing
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Why not have more? Why not have more entrepreneurship? Why not
have the state encourage people to become entrepreneurs?
Subsidizing entrepreneurship having the government pay for start-
ups, e.g. use transfer payments, loans, regulatory exemptions, tax
benets for people who start businesses.
Slide 5
Too much of a good thing? Can you have too much of a good
thing? Can you have too much entrepreneurship? Why encouraging more
people to become entrepreneurs is bad public policy Scott Shane
Small Business Economics (2009) 33:141149
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Too much of a good thing? Subsidizing start-ups leads to
marginal businesses that are likely to fail, have little economic
impact, and generate little employment, that are likely to depend
on state subsidies to survive. The economic growth myth. The job
creation myth. Wage-substitution businesses, self-employment.
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Too much of a good thing? Investing a dollar or an hour of time
in the creation of an additional average new business is a worse
use of resources than investing a dollar or an hour of time in the
expansion of an average existing business.
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Too much of a good thing? You can criticize this approach
saying it is a quantitative analysis, it applies to the US case
only. Who knows, maybe in Romania we would benefit from subsidizing
start-ups.
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Too much of a good thing? THE EUROPEAN UNION CASE Subsidizing
becomes supporting. Entrepreneurship becomes: Inclusive
entrepreneurship Social entrepreneurship Women, disadvantaged and
disabled people as entrepreneurs.
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Too much of a good thing? THE EUROPEAN UNION CASE A social
enterprise combines entrepreneurial activity with a social purpose.
Its main aim is to have a social impact, rather than maximize
profit for owners or shareholders. The Europe 2020 strategy
recognizes entrepreneurship and self- employment as key for
achieving smart, sustainable and inclusive growth.
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Too much of a good thing? THE EUROPEAN UNION CASE People should
be free to open and operate a business, but only as long as they
follow the right goals. Entrepreneurs should not seek profit by
satisfying consumers. Instead they should: Follow social purposes;
Raise awareness; Give back to the community. Translation into more
common language:
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Too much of a good thing? If you've got a businessyou didn't
build that. Somebody else made that happen. Barack Obama, July 13,
2012. Supporting entrepreneurship in specific areas or by specific
categories of people convey wrong ideas about the working of the
market economy. Supporting specific types of entrepreneurship is
yet another instrument that politicians use in the ideological
battle.
Slide 13
Supporting vs. Getting out of the way Two fundamentally
different strategies for making it easy for people to become
entrepreneurs: Supporting vs. Getting out of the way
Slide 14
Source: Worldbank, Doing Business Report, 2015 The cost of
doing business in Romania Supporting vs. Getting out of the
way
