Entrepreneurs are vital to a healthy economy. They look for unmet needs in society and then try to fill them with a new good or service. They take risks without any certainty of reward. They push forward new technology. They try things that others might consider unlikely to succeed, and occasionally this results in successes that would never have even been attempted otherwise. In difficult economic times entrepreneurs help in multiple ways by creating jobs and finding unique and creative ways to provide society with the goods and services they desire. It’s hard work, and many new endeavors fail, but the contribution of entrepreneurs to a productive economy cannot be overstated.
The economy needs entrepreneurs, but what do entrepreneurs need? How can we help these entrepreneurs create jobs and drive new ideas to market? Study after study shows that entrepreneurs need economic freedom. This makes sense; economic freedom is the ability to control your own resources free from government interference, and having control of your own resources is obviously important to an entrepreneur. Consider how the five indicators used in the Fraser Institute’s Economic Freedom of the World Report impact entrepreneurial activity.
- The size of government determines what amount of resources are consumed by the state; if the government remains relatively small then there are more resources for entrepreneurs.
- Security of property rights is essential to entrepreneurs; very few people would take the risk of starting a business if they weren’t certain that their property rights were going to be upheld.
- Having access to sound money is also essential for similar reasons. If the value of money isn’t certain then the investment becomes substantially more risky.
- Freedom to trade internationally ensures that the products or services that the entrepreneur creates will not be restricted to domestic sales, and it also helps them get the products and services they need from foreign countries.
- Lastly, the regulation of credit, labor, and business is also crucial. A country with a high level of regulation in these areas makes it very difficult to start or maintain a business when the cost of compliance is so high, and it also makes it more difficult to engage in the least costly paths to being an entrepreneur (for example, starting a food truck instead of a restaurant).
According to the Small Business Administration, “Small firms accounted for 65 percent (or 9.8 million) of the 15 million net new jobs created between 1993 and 2009.” If the economy needs entrepreneurs to drive job creation and innovation, and entrepreneurs need economic freedom to thrive, then we need to increase economic freedom to get our economy back on track.
A version of this blog originally appeared on EconomicFreedom.org, a project of the Charles Koch Institute. The Institute republished it here on July 31, 2015.