The Political Economy of Entrepreneurship
| Peter Klein |
Entrepreneurship and political economy are two of the fastest-growing fields in applied economics, so it is only natural that they come together. Magnus Henrekson and Robin Douhan have a new volume coming out in the International Library of Entrepreneurship Series, The Political Economy of Entrepreneurship (Elgar, 2007). It contains reprints of classic and contemporary papers by Schumpeter, Kirzner, Baumol, Stigler, de Soto, Acemoglu, Lerner, and many others.
Henrekson and Douhan identify in their introduction (which you can read here) three key aspects of entrepreneurship as it relates to political economy:
(i) Entrepreneurship is dynamic in the sense that it adapts to the politically determined institutional framework within which it acts. Under propitious circumstances, it can be a powerful engine of growth, but it can also be channelled in unproductive and destructive directions.
(ii) Entrepreneurship enters directly into the political system. The close connection to property rights constitutes a link between entrepreneurship and private versus public ownership and redistribution. Under unfavourable institutional circumstances, rent-seeking and predatory entrepreneurship, via the political system, offer greater profit opportunities than the market.
(iii) A political economy approach is necessary in order to understand how the political system shapes the institutional setup. Here, it is emphasized that the distribution of political power is partly determined by economic wealth. Hence, it is relevant to broaden the analysis to the effects on wealth creation and wealth redistribution stemming from entrepreneurial activity.
One topic that doesn’t seem to be covered in the volume (though I could be mistaken) is political entrepreneurship — i.e., the analysis of politicians as profit-seeking or rent-seeking entrepreneurs. Randy Holcombe’s 2002 paper “Political Entrepreneurship and the Democratic Allocation of Economic Resources” provides a nice overview of this area.
Update: See also these remarks by Pete Boettke, which I had previously overlooked.