Entrepreneurship and The Regulation Dice Game Joab Corey Florida State University 2013 Creative Ideas Teaching Workshop 1

Economics… 2

…And Boxing 3

… And Entrepreneurship 4

What is Rent-Seeking Rent-Seeking: Actions by individuals and groups designed to restructure public policy in a manner that will either directly or indirectly redistribute more income to themselves or the projects they promote. Examples of rent-seeking can include: bribery, political lobbying, and limiting access to occupations. 5

So What’s The Problem With Rent- Seeking? There are two ways people can acquire wealth: production and plunder… Production involves making the economic pie bigger, plunder involves taking someone else’s piece. 6

Rent-seeking, Entrepreneurship, and Growth According to Schumpeter (1912): Entrepreneurs are those who: 1.Introduce new goods 2.Introduce new production methods 3.Open a new market 4.Employ a new source of raw materials 5.Carry out the new organization of any industry …. Innovate in a way that grows or expands the economy The possibilities are endless! 7

8 Being Entrepreneurial 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."

9 Being Entrepreneurial Would you have invested?

10 Being Entrepreneurial Who would have thought….

Rent-seeking, Entrepreneurship, and Growth Baumol (1990): Entrepreneurs can also innovate by discovering new ways to take the wealth of others. 11

Rent-seeking, Entrepreneurship, and Growth So entrepreneurial resources can be employed both productively and unproductively… The way in which they are employed depends on the Rules of the Game! 12

Regulations and Occupational Licensing as an Example of Rent-Seeking A common form of rent-seeking is using the government to pass regulations designed to keep potential competitors from entering an industry. 13

Regulation, Competition, and Economic Growth Competition promotes the efficient use of resources and provides a continuous stimulus to improve, innovate, operate efficiently, keep costs down, and cater to the preferences of consumers. A heavily regulated business climate tends to reduce competition and lead to a lack of economic progress… 14

Regulation, Competition, and Economic Growth For Example: Lets look at my home state of West Virginia! 15

Regulation, Competition, and Economic Growth For Example: Lets look at my home state of West Virginia! 16

Regulation, Competition, and Economic Growth “Thirty years ago, there were 80 occupations for which one or more state governments required a license. Today there are roughly 1100…” – (Miller et. al. 2010, pg. 120) Some regulation occupations include: 1.Wallpaper hanger in California 2.Barbering in many states 3.Florists in Louisiana… 17

The Regulation Dice Game! Let’s play a game to see how different regulatory environments affect economic growth! 18

World Bank Data CountryEase of Doing Business Rank # of days it takes to start a business # of procedures it takes to start a business Income per capita (2010 data) Singapore133$41,120 Hong Kong233$31,757 United States466$47,153 Average2.3344$40,010 Rep. of Congo $2,970 Venezuela $13,590 Haiti $671 Average $5,744 19

Conclusion The use of excessive regulation and rent-seeking (in any form) over more productive forms of entrepreneurship will likely retard economic growth because it involves using more resources on activities designed to take (or prevent) the wealth of others and less resources on activities designed to create wealth for everyone! 20

Thank You! Any Questions or Comments? 21