Monday, June 19, 2006

Turning kiwis into entrepreneurial tigers

Prosperity comes from capital, freedom and the inventive and creative use of the human mind. At the intersection of all three is the concept of entrepreneurship, as Frederic Sautet and Israel Kirzner explain in a new paper:
Entrepreneurship fundamentally is not about business start-ups. It derives from the creative power of the human mind and consists of the discovery of profitable ideas that enable market actors to exploit new, socially beneficial gains from trade. As such, entrepreneurship is the driving force of the market, and it makes progress and sustained prosperity possible.

Israel Kirzner and I explain that entrepreneurship matters more to individual wellbeing than resources. As long as entrepreneurial activity is free to operate, economic systems are very resilient; they can adjust to all sorts of problems. However, when entrepreneurial discovery is stifled, resilience disappears and poverty increases.
Unlike Austrian economics, conventional economics downgrades and often ignores the role of entrepreneurs in wealth creation. And as Frederic Sautet points out, New Zealand has too often done the same. In a report prepared for the Business Roundtable, Sautet answers the question Why Have Kiwis Not Become Tigers?: Reforms, Entrepreneurship and Economic Performance in New Zealand. NZBR have the full report as a PDF download here. Sautet summarises for the Herald here. He concludes:
The West became rich not because of geographical advantages or natural resources but because of the quality of its institutions which enabled people to become entrepreneurs by betting on their ideas.
Modest growth [in New Zealand] is not the result of an overdose of economic reforms or bad cultural attitudes. New Zealand has not become a growth dynamo because the reforms did not go beyond standard OECD practice, and have not been carried forward in a stable, predictable way.
As Martin Wolf put it in the
'Financial Times' in November 2004: "It is simply wrong to describe [New Zealand's] reforms as delivering a laissez-faire paradise. The end point is, rather, a reasonably deregulated, competitive market economy, with prudent monetary and fiscal policies and a better-run government."
A "reasonably deregulated competitive market economy" however, is not enough to generate a high rate of growth in income per capita. The only way to achieve better performance is to improve the institutional environment in which entrepreneurial activity takes place.
If Kiwis are to become tigers, a rollback of recent trends towards bigger government and greater regulation, and the resumption of a programme of market-oriented reforms to encourage and reward entrepreneurial success, are required.
LINKS: The Nature and role of entrepreneurship in markets: Implications for policy - Israel Kirzner and Frederic Sautet, Mercatus Policy Center
Why Have Kiwis Not Become Tigers?: Reforms, Entrepreneurship and Economic Performance in New Zealand - Frederic Sautet, NZ Business Roundtable
Kiwis into tigers - hardly likely - Frederic Sautet, NZ Herald
Why have kiwis not become tigers? - Frederic Sautet, The Austrian Economist

TAGS: Economics, New_Zealand, Politics-NZ

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