Rewarding Peaceful Entrepreneurs

by Andreas Fransius, Peace Is Profitable Contributor

Peace is Profitable is based on the premise that entrepreneurs can strive for profits while making the world a better place. At the same time, the prevalence of socially responsible profit-making varies across time and national borders. It is not so much that some places are more entrepreneurial than others, but that some offer greater opportunities for entrepreneurs to drive societies forward rather than cementing existing structures. The factors that promote productivity and peaceful relations are particularly relevant for contemporary America.

In 1990, Professor William Baumol published a seminal piece on the productive, unproductive and destructive sides entrepreneurship. Through a historical overview spanning Ancient Rome and medieval Europe, Professor Baumol shows that while all societies have entrepreneurs, they are not always a source for good. A crude summary is that while some entrepreneurs struggle for a piece of the pie, such as a part of the state’s largesse, others actively work to expand the pie by providing people with new opportunities by inventing new products or systems.

The struggle to capture a piece of the pie is typically termed rent-seeking in Economics. In their recent book Why Nations Fail, Daron Acemoglu and James A. Robinson illustrate how institutions in different nations have created incentives for such destructive rent-seeking behavior. Unfortunately, this is far from a historical curiosity and one of the most flagrant examples is the military-industrial complex that Egypt’s military are clinging onto. In an article this week, John Kay persuasively argues that the real tragedy of this system is not so much that members of the Mubarak family have been able to get obscenely rich, but that the system that enabled them to steal also destroys the opportunities for others to generate wealth through legitimate means.

Incidentally, rent-seeking is currently playing a pivotal role in holding back peaceful entrepreneurship in the United States.  The Nobel-prize winning economist Joseph Stiglitz explores this subject in The Price of Inequality. Professor Stiglitz argues that regulatory capture by powerful vested interests have produced a set of rules that govern market behavior in favor of entrenched power structures. This has promoted rent-seeking and consequently aggravated social divides in an unprecedented manner.

Today we are living in an economy that has raised the payoffs of financial speculation to the detriment of productive investments. This is done by, for instance, taxing capital gains at lower levels than income and through bankruptcy laws that provide priority for derivatives. The end result is that the US is no longer a land of opportunity for peaceful businessmen.

In short, making peace profitable requires not only creative entrepreneurs but effective rules that unleash their energies to the benefit of society. As a consequence, we need to strive to shift public policy in a direction that opens up opportunities for socially responsible profit-making rather than rent-seeking.

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