1. Economic Freedom, Entrepreneurship, & Prosperity
Russell S. Sobel, Ph.D.
Professor of Economics and Entrepreneurship
Baker School of Business
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.

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
= $37,900

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

11. Zimbabwe (in Africa)

12. Families in Zimbabwe

13. Families in Zimbabwe

14. Example 2
A Country with LOW Economic Freedom

15. Romania (in Europe)

16. Families in Romania

17. Families in Romania

18. Families in Romania

19. Families in Romania

20. Families in Romania

21. Families in Romania

22. Example 3
A Country with MEDIUM Economic Freedom

23. India (in Asia)

24. Families in India

25. Families in India

26. Example 4
Another Country with Medium Economic Freedom

27. Mexico (in North America)

28. Families in Mexico

29. Families in Mexico

30. Example 5
A Country with HIGH Economic Freedom

31. Hong Kong (in Asia)

32. Families in Hong Kong

33. Families in Hong Kong

34. Families in Hong Kong

35. Example 6
Another Country with HIGH Economic Freedom

36. United States (in North America)

37. United States

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

39. Our Homes Percent of homes with Heating & Air Conditioning
1956 = 6% = 89%
Percent of homes with only one bathroom
1956 = 71% = 7%

40. And They are Better: Our Showers

41. Our Cars
Features added such as Air Bags, Air Conditioning, DVD players, Accident Avoidance, Automatic Parking
2016

42. Our Phones

43. Our Entertainment

44. Our Science

45. Our Computers MacBook Air Least expensive-13-inch, 128GB, $850.00
Most expensive- 13-inch, 256GB, $1,299.00

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

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

51. 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."

52. Would you have invested?
Microsoft Corporation 1978

53. Cross State Differences in Economic Freedom Matter Too
South Carolina Ranks 36rd in Economic Freedom Index

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

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

56. South Carolina is Falling Behind Due to a Slow Rate of Growth
Growth Rates: SC = 1.2% OK = 1.8% SD = 2.1%

57. Policy Reforms to Promote Entrepreneurship

58. 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

59. 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)

60. 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
Baumol’s Theory of Productive and Unproductive Entrepreneurship
“Too Many Lobbyists & Lawyers and Too Few Scientists and Engineers”
Eliminate Targeted Tax Credits & Subsidies in favor of Broad Based Taxes

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

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

63. The Case of Delaware

64. 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 14th Most Centralized State)

65. Thank You / Q&A Russell S. Sobel, Ph.D.
Professor of Economics and Entrepreneurship
Baker School of Business
The Citadel