1. Economic Freedom, Entrepreneurship, & Prosperity Russell S. Sobel, Ph.D. Visiting Scholar in Entrepreneurship School of Business Administration The Citadel

2. What Explains Prosperity?

3. Adam Smith’s Question: Why Are Some Countries Rich and Others Poor? An Inquiry into the Nature and Causes of the Wealth of Nations (1776) Policies and the system of economic organization (e.g., capitalism) matter more than things such as resources, geography, education, democracy, etc. Policies and the system of economic organization (e.g., capitalism) matter more than things such as resources, geography, education, democracy, etc.

4. Rankings of Reliance on Capitalism

5. Growth is a function of “inputs” AND “institutions” Spending to increase “inputs” won’t work unless the “oven” is turned on

6. Route 50

7. North Korea vs. South Korea Per Capita Income = $1,800 Per Capita Income = $24,200

8. A Quick Tour of The World As we go through these, ask yourself are these people entrepreneurial? Is it the people or the policies that are the problem?

9. Map of Economic Freedom

10. Example 1 A Country with VERY LOW Economic Freedom A Country with VERY LOW Economic Freedom

11. Zimbabwe (in Africa)

12. Families in Zimbabwe (Africa)

14. Example 2 A Country with LOW Economic Freedom A Country with LOW Economic Freedom

15. Romania (in Europe)

16. Families in Romania (Europe)

22. Example 3 A Country with MEDIUM Economic Freedom A Country with MEDIUM Economic Freedom

23. India (in Asia)

24. Families in India

26. Example 4 Another Country with Medium Economic Freedom Another Country with Medium Economic Freedom

27. Mexico (in North America)

28. Families in Mexico

30. Example 5 A Country with HIGH Economic Freedom A Country with HIGH Economic Freedom

31. Hong Kong (in Asia)

32. Families in Hong Kong

35. Example 6 Another Country with HIGH Economic Freedom Another Country with HIGH Economic Freedom

36. United States (in North America)

38. The Role of the Entrepreneur Decentralized entrepreneurship is one main reason why capitalism works to generate progress and prosperity Decentralized entrepreneurship is one main reason why capitalism works to generate progress and prosperity Entrepreneurs keep inventing new things that improve our way of life Entrepreneurs keep inventing new things that improve our way of life

39. Our Homes Percent of homes with Heating & Air Conditioning Percent of homes with Heating & Air Conditioning 1956= 6%1996 = 81% Percent of homes with only one bathroom Percent of homes with only one bathroom 1956= 71%1996 = 9%

40. And They are Better: Our Showers

41. Our Cars We now have DVD players, Air Conditioning, Anti-lock Brakes, Power windows We now have DVD players, Air Conditioning, Anti-lock Brakes, Power windows

42. Our Phones

43. Our Entertainment

44. Our Science

45. Our Computers MacBook Air Least expensive-11-inch, 64GB, $999.00 Most expensive- 13-inch, 256GB, $1,599.00

46. Our Video Games

47. From Pong to Rock Band

48. Our Medicine U.S. Life Expectancy has risen from 48 in 1900 to 76 today

49. Our Music

51. Creative Destruction An economy undergoes continuous change – some industries fail, others are born Capitalism critically relies on entrepreneurship and the profit and loss system to direct this process This process cannot be centrally planned or directed effectively - it must be discovered within the marketplace

52. Nobody Knows Enough to Centrally Plan an Economy: The Future Must be Discovered Ken Olson, chairman/founder of Digital Equipment Corp., 1977. "There is no reason anyone would want a computer in their home." Fred Smith’s (FedEx) Yale University Senior Project Grade Remark: "The concept is interesting and well-formed, but in order to earn better than a 'C,' the idea must be feasible."

53. Would you have invested? Microsoft Corporation 1978

54. Cross State Differences in Economic Freedom Matter Too South Carolina Ranks 43 rd in Economic Freedom Index

55. SC’s PCPI: Rank 46th – 81% of U.S. Average

56. South Carolina is Falling Behind Due to a Slow Rate of Growth

57. Growth Rates:SC = 1.2%OK = 1.8%SD = 2.1%

58. Policy Reforms to Promote Entrepreneurship

59. 1. Make It Easier To Start A Business By Reducing Artificial Barriers To Entry & Competition Regulations should be subject to cost-benefit analysis and include sunset provisions based on proof of effectiveness

60. 2. Make It Easier For Businesses To Be Profitable & Grow By Lowering The Cost Of Doing Business Lower Taxes on Capital Investment National Association of Manufacturers 2009 Competitiveness Redbook SC has the highest effective property tax rate on manufacturers in the US SC = $1,864,900 (highest in the US) GA = $760,381 (about ½ of SC) NC = $491,071 (about ¼ of SC) Firm with $25m assets ($12.5m machinery & equip., $10m inventory, $2.5m fixtures)

61. 3. Reduce The Role Of Government In “Playing Favorites” Or Picking Winners And Losers “Crony Capitalism” is when business winners and losers are determined by political connections rather than private market forces “Crony Capitalism” is when business winners and losers are determined by political connections rather than private market forces Baumol’s Theory of Productive and Unproductive Entrepreneurship Baumol’s Theory of Productive and Unproductive Entrepreneurship “Too Many Lobbyists & Lawyers and Too Few Scientists and Engineers”“Too Many Lobbyists & Lawyers and Too Few Scientists and Engineers” Eliminate Targeted Tax Credits & Subsidies in favor of Broad Based Taxes Eliminate Targeted Tax Credits & Subsidies in favor of Broad Based Taxes

62. 4. Reduce Government Control & Centralization Increase The Share Of The Economy’s Resources Available To Private Entrepreneurs By Reducing The Size Of Government

63. Size of Government S.C. is 42.5% = 7th highest in the U.S.

64. The Case of Delaware

65. 4. Reduce Government Control & Centralization Increase The Share Of The Economy’s Resources Available To Private Entrepreneurs By Reducing The Size Of Government Government Can Also Be Made More Effective By Decentralizing Spending And Power To Local Governments (SC Is The 14 th Most Centralized State)

66. Thank You / Q&A Russell S. Sobel, Ph.D. Visiting Scholar in Entrepreneurship School of Business Administration The Citadel