One of the reasons I’ve been drawn to what is called “Austrian Economics” for as long as I have is because Austrian economics recognizes what has always been obvious to me. The entrepreneur is key to real economic growth and prosperity.
Many economists of the generally statist variety have long dismissed the budding businessperson. Indeed, for some, especially in the middle of the 20th Century but this bias still lingers, the entrepreneur was (almost – it depends on the school) seen as a hindrance to economic growth. A wild hair on the backside of big government economic planning.
If there is no general lack of entrepreneurial spirit and entrepreneurial activity, what is holding back the spread of economic development? As Mises notes, entrepreneurs are driven by profit and loss and base their judgements on economic calculation. Consequently, cronyism and patronage, as well as inflationary policies — which are widespread in the developing world — distort the signals and tools entrepreneurs depend on to make their judgements. Moreover, a lack of secure property rights increases the investment risk of entrepreneurs, who can never be sure whether their profits might be expropriated. This is compounded by obscure and, at times, arbitrarily enforced regulations, and serves to drive entrepreneurs into the informal economy, limiting the scope of their activities. Lastly, successful entrepreneurs do not only require spirit, but also skills, many of which can only be acquired through practice and experience.
Thus, to embark upon the path of economic growth, developing countries need to free their entrepreneurs and provide a framework to engage in their activities. They should secure their citizens property rights and free their markets from artificial barriers. Moreover, if both less-developed and advanced economies open up their markets to the free flow of goods, capital, and labour, they can increase competition and the international exchange of entrepreneurial skills and experience, which will allow developing countries to see their own classes of successful entrepreneurs emerge and further prosperity around the globe.