The following was published for a symposium sponsored by the Center of the American Experiment, titled How Can We Better Encourage and Reinforce the Most Entrepreneurial and Talented Among Us?


“Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth.” —Peter Drucker

“The task of the entrepreneur is to select from the multitude of technologically feasible projects those which will satisfy the most urgent of the not yet satisfied needs of the public.”—Ludwig von Mises

True to the Progressive Era myth of benevolent big government, entrepreneurs at Barack Obama’s recent “Presidential Summit on Entrepreneurship” took a back seat to senior government officials. Summit spokesman Ben Rhodes, deputy national security advisor for the State Department, initially noted that “entrepreneurship is a fundamental American value, and it’s also a force that has the ability to unlock opportunity for people around the world. . . . We’re hosting no [emphasis added] government officials as a part of this. This is a summit that is going to bring together entrepreneurs—social entrepreneurs . . . around this question of how we can galvanize entrepreneurship on behalf of economic growth.”

In fact, the program was led, not by entrepreneurs, but instead by the secretary of commerce, the administrator of the Small Business Administration, the director of the White House Office of Social Innovation and Civic Participation, and a senior director for global engagement of the White House national security staff, plus other officials, with closing remarks by Secretary of State Hillary Clinton.

Earlier in a speech on March 3, 2008, at the Constitution Center in Philadelphia, Obama described free private enterprise as “a corporate culture rife with inside dealing; questionable accounting practices and short-term greed . . . the real problem is not that someone who doesn’t look like you might take your job; it’s that the corporation you work for will ship it overseas for nothing more than a profit.”

The policies from Washington today reflect Obama’s belief that government direction (cartelization) of business and civil institutions is essential to resolve most economic and social problems. Moreover, this “progressive” view has held government programs, including government loans, subsidies, and training programs, as essential to foster the only kind of entrepreneurship to be beneficial and even possible for most people, a dependent and controlled form. Meanwhile, such programs in Maine, Minnesota, New York, Iowa, and California have proven to be failures, draining away into wasteful government agencies entrepreneurial resources that would otherwise be productively utilized to serve consumers.

Exactly contrary to Obama’s view, the crucial factor for the improvement of life in every society has been free private enterprise in which individuals seek to adjust to changing conditions and uplift their lives and those of others. As such, entrepreneurship is neither created or nurtured by government nor reserved to the privileged—indeed, it is found in the poorest of communities in countries worldwide. In his recent book Lessons from the Poor: Triumph of the Entrepreneurial Spirit, Alvaro Vargas Llosa shows that countless millions of small-scale entrepreneurs in Africa, Asia, Latin America, and elsewhere work fervently to produce a vast range of goods and services, despite the enormous burdens created by government bureaucracies and corruption.

Entrepreneurship can be fully beneficial to any society only to the extent that people are free to channel their efforts into voluntary and cooperative ventures that create wealth. Where governments dominate a society, enterprising individuals are stifled and too often misdirected into political patronage to use government power to pursue dubious ventures through the protection of tariffs, subsidies, and regulations, all of which serve to inhibit, misdirect, and destroy wealth creation.

As Benjamin Powell discusses in his book Making Poor Nations Rich: Entrepreneurship and the Process of Economic Development, the enormous, recent economic progress in China, India, Estonia, Ireland, New Zealand, and Botswana vividly demonstrates the power of entrepreneurship resulting from economic liberalization. In such cases, the dynamic process of innovation and productivity is unleashed to the extent that the civil values of individual rights and responsibilities are upheld under a rule of law, with defined and enforced property rights and contracts, low taxes, sound monetary system, and strictly limited government interference.

Numerous economists have shown that without the freedom to learn, discover, and act, the process of entrepreneurship is stymied, and economic progress is not possible. For example, Nobel Laureate F. A. Hayek stressed that because the details of time and place are uniquely perceived at specific moments by some people and not by others, entrepreneurial discovery is decentralized to individuals in a spontaneous, dynamic process. In The Wealth of Nations, Adam Smith understood that having access to this knowledge of time and place of opportunity leads to entrepreneurial discovery. He discussed how such entrepreneurial discovery is necessary for any firm to survive, and when such a process is ignored or hindered by government edicts, the firm’s methods of production can easily become obsolete and the firm left with mounting losses.

As a result, the profit-making of entrepreneurship is essential to all manner of economic and social improvement. All such profit-making consists of a combination of pecuniary and non-pecuniary returns and the extent or absence of each form of return varies, depending upon the kind and circumstances of any enterprise. Neither the poet nor the social worker nor the physicist may become financially wealthy from their work, despite the intrinsic merit, but each is entrepreneurial. Financial considerations are often present in such social entrepreneurship, but they may not factor as high as they would for business entrepreneurs who trade on the Chicago Board of Trade, for example. This is why entrepreneurship guru Peter Drucker could claim the following about the private, faith-based, entrepreneurial firm, the Salvation Army: “The Salvation Army is by far the most effective organization in the U.S. No one even comes close to it with respect to clarity of mission, ability to innovate, measurable results, dedication, and putting money to maximum use.”

Similarly in their book The Voluntary City: Choice, Community, and Civil Society, David Beito, Peter Gordon, and Alexander Tabarrok demonstrate that private business and social entrepreneurship form the basis for most progress in addressing such issues as commerce, education, employment, safety, welfare, transportation, etc. In short, market-based, proprietary development and voluntary, community-based entrepreneurship, not government command and control, are what makes progress in human well-being possible.