True entrepreneurs don't need encouragement
Small business is the subject for debate in today鈥檚 Wall Street Journal.聽 Small business is said to be the main job creator in the U.S. economy and with unemployment still high, and a punk business climate, a goosing from government policy is thought to be the tonic to put us right back comfortably in bubble land.
All we need is a massive wave of entrepreneurship and we鈥檙e off to the races.聽 And if you believe Noam Wasserman, who teaches entrepreneurship at Harvard Business School, we can all be entrepreneurs.聽 Dr. Wasserman says doctors, lawyers and engineers are trained, why not entrepreneurs?
Forget about the school of hard knocks, students can study other people鈥檚 mistakes, learning what pitfalls to avoid and presto:聽 any business school grad has what it takes to launch the next Facebook or maybe just聽 an internet cafe downtown.
But Ludwig von Mises contends,
What distinguishes the successful entrepreneur and promoter from other people is precisely the fact that he does not let himself be guided by what聽 was and is, but arranges his affairs on the ground of his opinion about the future.聽 He sees the past and the聽 present as other people do, but he judges the future in a different way.
Peter Klein explains that for Mises, entrepreneurial judgment is not a mechanical process of formulating values using known probabilities.聽 Instead it鈥檚 鈥渁 kind of Verstehan that cannot be formally modeled using decision theory.鈥� 聽 This echos the view of Frank Knight, who believed entrepreneurial decision making is not modelable.
Klein explains,
Mises emphasizes, some individuals are more adept than others, over time, at anticipating future market conditions,聽and these individuals tend to acquire more resources while those whose forecasting skills are poor tend to exit the market. Indeed, for Mises, the entrepreneurial selection mechanism in which unsuccessful entrepreneurs鈥搕hose who systematically聽 overbid for factors, relative to eventual consumer demands鈥揳re eliminated from the market is the critical 鈥渕arket process鈥� of capitalism.
Instead of the unfettered market directing capital to successful entrepreneurs, the Small Business Administration (SBA) seeks to direct capital to anyone who thinks they might be an entrepreneur, especially聽 if they fall into certain favored categories of race and gender.聽 Veronique de Rugy argues that the SBA is a waste of money, citing Frederic Bastiat鈥檚 insight that those helped by government policy are very visible, while those harmed聽 by the same policy go unnoticed. 聽聽 Ms. de Rugy writes, 鈥渨e don鈥檛 know how many more jobs might have been created if market forces determined the allocation of capital.鈥�
Arguing the other side is Barbara Kasoff who claims the SBA 鈥渉elps keep capital, contracts and know-how flowing to small businesses,鈥� citing plenty of big numbers making the case for government鈥檚 capital steering involvement. 聽 But the SBA assumes capital is homogeneous and that everyone (who can qualify for an SBA loan) is equally gifted as an entrepreneur. 聽 However, if these borrowers had proven track records of entrepreneurial acumen, presumably no government guarantee would be needed for banks to be induced to make the loans in the first place.
The mere fact that government has interceded means capital is being misdirected away from those with proven entrepreneurial ability聽 and toward those who are lacking the same.聽 Over time, while its proponents claim the SBA program is creating jobs, it is in fact destroying capital, and jobs along with it.
