Alex Tabarrok, a libetarian economist who writes for Marginal Revolution, has a new paper out: Is regulation to blame for the decline in American entrepreneurship? No, he finds. I admire his intellectual honesty, but I question his definition of “economic dynamism.”
There’s a book, by Scott A. Shane, called The Illusions of Entrepreneurship. Shane explains that there is a huge gap between what we imagine when we think of “entrepreneurship” and the reality of what the go-to statistics describe. Things like the “rate of new startup formation” are dominated overwhelmingly by the churn of things like laundromats, taco trucks, and lawnmowing services, not by firms driving the adoption of new technology or economic growth. Think of people you know who own small businesses – would any of them be excited to hear that the rate of entry and exit into their market has gone up? And would you, as a consumer, be happier if the rate of laundromats in your neighborhood opening up and closing down were high or low?
Countries that do have high rates of entrepreneurship tend to be developing countries where many ambitious people are excluded from the formal job market – and often, small business in developed countries are run by immigrants or others whose access to domestic employment networks is limited. These are not signs of economic health, so if we want to measure “economic dynamism” in the sense we imagine it – the adoption of new and better technologies and business techniques – we need different metrics.