Nobel Prize Winner on the Entrepreneurial Economy

The 2006 Nobel Prize winner in Economics, Professor Edmund S. Phelps, is a strong supporter of free enterprise and entrepreneurship. In a recent Op Ed piece from the Wall Street Journal, Phelps outlines two basic economic systems prevalent in the Western world.

Several nations–including the U.S., Canada and the U.K.–have a private-ownership system marked by great openness to the implementation of new commercial ideas coming from entrepreneurs, and by a pluralism of views among the financiers who select the ideas to nurture by providing the capital and incentives necessary for their development….This is free enterprise, a k a capitalism.

The other system–in Western Continental Europe–though also based on private ownership, has been modified by the introduction of institutions aimed at protecting the interests of “stakeholders” and “social partners.” The system’s institutions include big employer confederations, big unions and monopolistic banks.

Phelps argues that the private-ownership system of the US has drifted away from what was its purest form. And the further we drift the bigger the risk that we will lose the entrepreneurial engine that powers our economy. We have seen this economy drift more toward the kind of system we see in Western Europe. He asserts that companies like Microsoft, those that have not only vast economic power but also political power, are a “deviation from the model.” As Schumpeter showed us, a dynamic economy requires free markets that allow newcomers to come in and participate in its evolution and growth. Owning capital and wealth does not make one an entrepreneur. Entrepreneurs are the newcomers, the disruptors, who fuel dynamic economic development.
This is an important time to listen to the words of Professor Phelps. Our economy is more dependent on true free enterprise and the work of real entrepreneurs than it has been in over one hundred years. This is no time for us to embrace the kind of socialized entrepreneurship we see in much of Western Europe. Government should not be in the business of institutionalizing economic winners. It should, instead, be the protector of the economic newcomer entrepreneurs, who if we let them, will create our economic future.
(via National Dialogue on Entrepreneurship).