Yesterday I argued that since bias is inherent in institutions and neutrality between individual and social spheres is illusory we should harness and direct the bias of institutions towards a free and virtuous society characterized by individual liberty and sustained by religious principles.

One of the ways we can do that in the economic realm, I believe, is to encourage a bias toward entrepreneurship and away from corporatism. As Derek Thompson, a senior editor at The Atlantic, says, “It would be naive to think we can cleanse the law of all biases. But what if the law were biased, not toward the oil and gas industry or the cotton farmers, but toward the creative, the self-employed, and the entrepreneurs?”

Thompson proposes a new framework for competitiveness:

“If you look at a list of US cities sorted by population, the number of successful startups per capita varies by orders of magnitude,” the renowned inventor Paul Graham wrote. “Somehow it’s as if most places were sprayed with startupicide.”

Until scientists invest such a thing for government procurement, the United States would be advised to do the second best thing and adopt a holistic policy to support startups. This isn’t industrial planning. It’s not about picking winners. It’s making rules that increase the odds that entrepreneurs play the game in the hope that many of them will win.

As a general rule, entrepreneurs don’t win. They mostly fail. Trying to start a company is like playing a high-risk casino game with your career. It’s roulette, except thousands of dollars, thousands of hours, and unquantifiable sacrifices are on the table. If we want more people to play startup roulette, we shouldn’t focus on how much to tax them if they win $200,000. We should focus on minimizing the downside of losing so that startup roulette feels less risky. After all, startups shouldn’t just be for rich kids who can afford to take a chance on a big idea.

While I think Thompson is on the right track, I get the impression that he believes that his recommendations are primarily applicable at the federal level. As an advocate of subsidiarity I would prefer the federal government to have, as far as possible, an extremely limited role in business policy. The federal level rarely gets involved in a way that doesn’t lead to an expansion of the corporate state. Because of this fact Thompson’s recommendations for an “entrepreneurial state” are (with the exception of federal tax policy) best applied at the state and local level.

However, some liberty-loving business folks, whether actual entrepreneurs or merely armchair capitalists, will take issue with the idea that the state and local levels of government should have a pro-entrepreneur bias. They believe that upholding the rule of law is not just the primary role for the government, but the State’s only legitimate role.

In an abstract sense, this might indeed be preferable. But as I pointed out in my previous post, the rule of law itself reflects the government’s bias. State and local government are not neutral; they are already biased either for or against entrepreneurs.

For this reason, we have to work within the system we have, not the system we would design if we were starting from scratch. As much as I am attracted to the abstract, ideal worlds of both distributists and libertarians, my preference for solutions that can actually be implemented in the real world keeps me from endorsing their policy preferences.

We can neither change human nature nor, as Thompson says, “cleanse the law of all biases.” But we can attempt to stack the deck in favor of liberty. Contrary to the view of my libertarian friends, I do not think that liberty can long survive in a state of government neutrality even if such a condition were possible (which it isn’t). We must continuously prod the government to maintain a bias in favor of liberty and economic self-determination. If we do not, then someone else will successfully push for the government to be biased in favor of corporatism, socialism, or other liberty-destroying idealogies.


  • Roger McKinney

    Again, I disagree that any libertarian thinks the state can be unbiased. Libertarians are terrified of the state and for good reason: it is biased toward giving itself greater power and growth. For that reason the state must be kept as small and its power limited as humanly possible. That requires a severe devotion, not just bias, in favor of liberty.

    So far the discussion has remained very vague: conservatives want a state biased toward liberty and libertarians want a state that is neutral. I disagree that libertarians think the state can be neutral, but let’s have some specifics. How would conservatives bias the state toward liberty in a way that libertarians wouldn’t. What is it that conservatives want that libertarians don’t want?

    The great psychiatrist Viktor Frankl discovered a principle he called paradoxical intention which he used to cure many people of stuttering and debilitating phobias. The principle was to deliberately attempt to initiate the problem the patient sought deliverance from. For example, he encouraged stutterers to try to stutter. He applied paradoxical intention to sports, too: teams that made winning their goal often lost, while those who focused on doing their best often won.

    A similar law of paradoxical intention exists in economics. In morality, Adam Smith pointed out that liberty and competition reduced greed far more successfully than laws attempting to prevent it. History has taught us that the states most blind to the needs of the poor provide for the poor far better than any state who attempted to directly aid the poor.

    We need to keep these paradoxes in mind when creating policy. 

  • http://www.facebook.com/profile.php?id=19002050 Jameson Graber

    I really get more than a bit irritated with this game of trying to paint your opponents as too idealistic, and then pretending to be more “practical” by establishing a dualistic framework in which one side has to win. The idea that you will either favor big business or small entrepreneurs is based entirely on the presuppositions of the present time. It seems to me conservatives are just trying to avoid the hard work of figuring out how we got to where we are, and thinking what principles (as opposed to pragmatic moves) should guide our way forward.

    The main flaw in this “favor the entrepreneur” idea is that the only way for the government to make a certain activity less risky is to force the rest of us to insure against potential losses. The question is, why should we have to do that all? I’m willing to admit that in some theoretical sense the government can’t be “unbiased,” but in the very concrete sense of choosing firms to insure, it’s actually pretty clear: the government can and should be unbiased, and the problem is that it isn’t. If that’s too “doctrinaire” for you, then I’m sorry, but I just don’t have time for this. I fail to see how you’re living up to the name “Lord Acton” or at least to the classical liberalism associated with that name.

    If I were a politician, I would probably compromise to shift the balance of power away from corporations and toward entrepreneurs. But if an organization like the Acton Institute is just going to be political and pragmatic rather than put forward ideals worth pursuing in the long run, then what is it good for? Increasing the number of entrepreneurs is not an ideal, it’s just one potential benefit of a free society. The true ideal worth pursuing is a government restrained by respect for individual rights and not by the prejudices of the present time.

    One last thought: if you want to talk about government throwing a bone to startups, why don’t we just talk about all the absurd regulations that get in the way of entrepreneurs? Go talk to the Institute for Justice and see what they have to say about this.

  • Phocion

    Thomson:  If we want more people to play startup roulette, we shouldn’t focus on how much to tax them if they win $200,000. We should focus on minimizing the downside of losing so that startup roulette feels less risky.

    First of all, no entrepreneur entered into a business driven by his passion for mitigating losses upon failure.  So, let’s focus on first concerns:  Expected ROI (Return on Investment) – or more specifically the macro factors that would widen a presumptive gap between ‘R’ and ‘I’ (and motivate entry into the market).  For optimizing ‘R’:  things like a sound economy (expectation of demand) and a chance to keep more of what he earns, and more.  For mitigating ‘I’:  things like lower regulation, bureaucracy, minimum wage and payroll taxes, health care costs, etc.

    And because I share a belief in the roiling nature of a successful capitalist economy (where the empty storefront of the muffin top visionary who just went bust is quickly secured by another fresh face), I’m ok with systematically taking a greater share of the economies of scale from mature enterprises (admittedly a “progressive resistance” applied to later stage growth).  None of this is meant to imply picking favorites – simply a system in which it is easier (ergo more inviting) to cut your business teeth.

    To go back to the point of minimizing downside:  good news.  The United States abolished debtor’s prisons in 1833 and today’s bankruptcy protection laws do a pretty fair job of keeping a bad business ventures from becoming an unrecoverable personal tragedy.  But if I may borrow a bit from Mr. McKinney’s principle above, it is a paradox where as a founder may enjoy less personal downside, other seed investors do not.  Skin in the game (material motive to not fail) is one component of attracting capital and an antidote to the high Kool-Aid levels found in the bloodstream of many entrepreneur types.

  • http://twitter.com/jurisnaturalist Nathanael Snow

    The recent emphasis on SMEs (Small to Medium Enterprises) has me a bit concerned.  The truth is we can’t know what the right size firm for any industry is.  We never could know, though we might have expected the right size firm to emerge in the absence of state interventions.  As it is, the right size firm for an environment with the current set of interventions has emerged.  
    Praise the entrepreneur?  Absolutely!  But focus on only SMEs and villify corporations per se?  No.  Villify corporatism?  Yes.

    • http://www.facebook.com/joe.p.carter Joe Carter

      I completely agree. Being “biased in favor” of entrepreneurs certainly doesn’t mean that we should vilify large corporations. It just means that since all companies have to pass through the startup phase before they get to the “large corporation” phase, we should make sure they have a clear path.

      I think of it as akin to the way that family law has a “bias” in favor of the welfare of children. The law isn’t against adults, necessarily, but it understand that there is a need to protect the vulnerable so that they can someday become adults of their own. 

      Favoring SMEs eventually aids the common good—and helps large enterprises as well.

      • Roger McKinney

         Japan, Italy, Argentina and many other places favor SME’s and it harms the common good because SME’s tend to be far less efficient. Large companies tend to be large because they are more efficient.

        Now if you want to remove the regulatory capture and 2big2fail policies that big corps enjoy, that would be different.

  • Roger McKinney

     Thanks for being more specific about the brand of conservatism you want. You seem to be talking about politics vs principles. Of course in politics one has to compromise with opponents in order to achieve good. No one disagree with that. The problem occurs when compromise becomes your only principle.

    Imagine the Church taking your advice on the Gospel and only preaching the parts that sinners are willing to accept. The Church has to maintain principles when it teaches while compromising where necessary in politics in order to achieve some good.

    In the same way, libertarians try to maintain and teach the principles while compromising where necessary in politics. It seems to me that the only conservative principle is pragmatism.

    “During the banking crisis of 2008-2009, the preferred libertarian solution was to let the banks fail… But the one thing we knew with certainty was that the public did not have the stomach to risk our economy by seeing if the libertarians were right.”

    Very sad! At one time the libertarian position was the conservative position. Judging from the strong reaction against the bank bailout afterwards I would say the libertarians had the public ear better than conservatives.

    “The difference is that I believe that principles must be able to be applied in a pragmatic fashion if they are to be a guide to our way forward.”

    Pragmatism is nothing but short term thinking. Following principles is long-term thinking. The economic disaster we currently enjoy results from decades of short-term thinking. Unfortunately, the long term always arrives at the most inopportune time and is ugly as sin because of all the pragmatism that created it.

    “I would have no problem with the federal government giving tax breaks to entrepreneurs.”

    That’s very pragmatic. But think of the long run unintended consequences: you reinforce the idea that the state can choose winners. Look at the recent fiasco over federal funding of green energy. You’ll only get more of the same if you let the state support entrepreneurs.

    “Now one of the central characteristics of every form of true conservatism is a deep
    suspicion of ideology. Conservatism at its best is good at playing it as it lays.”

    Ideology is nothing but principles. So Wilson is saying conservatives have no principles? I would agree completely with his description of Conservatism. It looks very much like socialism-lite.

    “I also believe that there are good men within the current system pushing in the right direction”

    How do you push in the right direction without having principles that oppose the wrong direction and let people know you oppose the wrong direction? If all you do is compromise, how do you push in the right direction?

    “This is because the purist would prefer purity and dead prophets to Obadiah’s fear of
    the Lord, service to Ahab, and protection of the prophets. This weird preference is what it means to be a sectarian ideologue.”

    Don’t now any purist like that. Can you give examples? Hayek and Mises were among the purist libertarians ever to exist and both worked in government positions. I have read posts on blogs by purists who think no libertarian should work in government, but I have never read a leading light of libertarianism ever suggest such a thing.

    So is your attack on libertarians just about the lunatic fringe?

    “Why limit ourselves to only fighting absurd regulations (which is admittedly important) when other actions can also be taken to encourage entrepreneurship?”

    Because entrepreneurship is not the ultimate good. A just society is the ultimate good for a state. The unintended consequences and long term effects of the state promoting entrepreneurship in the current environment would be disastrous. It would be like having the state promote religion.

  • Roger McKinney

    Read Hayek on the history of conservativism and you’ll discover that libertarianism of today is the inheritor of the mantel of classical liberalism and the original conservativism of Lord Acton.  Hayek refused to call himself a conservative because of the huge change in principles from those of Acton to his day among conservatives.

    Pragmatism is short term thinking. Mises wrote that the man in the street is much better at discerning the short term needs. The job of the economist is to force him to consider the long term once in a while. Good economists have a comparative advantage in long term thinking over the man in the street.

  • Roger McKinney

    “At
    all times sincere friends of freedom have been rare, and its triumphs
    have been due to minorities, that have prevailed by associating
    themselves with auxiliaries whose objects often differed from
    their own; and this association, which is always dangerous, has
    sometimes been disastrous, by giving to opponents just grounds
    of opposition.”

    ~
    Lord Acton

    Quoted in “Why I am Not a Conservative” by Hayek at http://www.lewrockwell.com/orig6/hayek1.html

  • Adedejiakintayo

    @facebook-650435386:disqus What best approach can a libertarian entrepreneur do in an unstable economy system in Africa and how can a determined young entrepreneurs in Africa proof the Rich kids wrong on using my ideas with entrepreneurship profitability. Considering your word ”After all, startups shouldn’t just be for rich kids who can afford to take a chance on a big idea”. 

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