Demographics and Entrepreneurship blog series: Louder applause plus less regulation equals greater entrepreneurship
As part of the blog series summarizing the Fraser Institute’s Demographics and Entrepreneurship essays, this post examines the effects of overregulation on entrepreneurship.
As explained in previous blogs, unleashing entrepreneurship is a critical imperative for the developed world. One policy lever available to governments where there’s a mounting consensus relates to excessive regulation and other related impediments that dampen entrepreneurial innovation.
In my contribution (titled Liberty’s Unfinished Business) to the Fraser Institute essay series, I provide an overview and assessment of what available contemporary theory and evidence say about the linkages between government regulation and entrepreneurial activity. It also reviews what we do not know and perhaps cannot measure.
The best news is that countries can learn from both the good institutions that have allowed other countries to prosper, as well as from mistakes those countries have made. The task for policymakers—and that of entrepreneurs themselves—is to affirmatively reduce existing, and avoid new administrative and regulatory constraints, beyond the foundations necessary for maintenance of rule of law and sustaining property rights.
With that foundation, the chapter details policy prescriptions to elevate economic freedom and promote entrepreneurship, as well as cautions against excessive zeal in “promoting” entrepreneurship via political means. Importantly, along with governments, the entrepreneurial/business sector itself has an urgent still-unappreciated role to play in forging “Do-er/Thinker alliances.”
In the course of my research, I particularly appreciated the observation of entrepreneur John Chisholm in Unleash Your Inner Company, demonstrating how important minimizing regulation’s deleterious effects can be in the context of entrepreneurship:
Define any metric that you wish of potential entrepreneurs that combines ratings of such qualities as skill, passion, perseverance, self-confidence, ambition, and resources. Your metric will distribute the entrepreneurs along a [bell-shaped] curve... No matter how you define your metric, many potential entrepreneurs, especially at the low end of your rating scale, are being blocked by regulations. The numbers blocked each decade grow as regulations grow. The very men and women in society who find it hardest to provide for themselves and their families and live in self-sufficient dignity are blocked.
By now, scholars have adequately established that regulations negatively affect entrepreneurship, yet regulators continue to downplay the deleterious impacts of their rules and often hope to improve rule “quality.” Clearly, a better appreciation of regulatory costs and the real-life responses of entrepreneurs to regulation, such as the inclination to start a business in the first place, or to hire part- rather than full-timers, should remain a priority. Policymakers should become “entrepreneurial” themselves when it comes to rolling back the regulatory enterprises they oversee.
Numerous pressures can constitute barriers to entrepreneurship including economic, labour and environmental regulation, “competition policy,” frontier-sector regulation, rent-seeking and more. Halting further encroachment of overregulation, and maximizing economic freedom around the world to unleash entrepreneurship, constitutes Liberty’s Unfinished Business.