Why subsidizing people to become entrepreneurs is a bad idea Radu Şimandan May 19, 2015

A good thing Entrepreneurship is a good thing. “The entrepreneur is the single most important player in a modern economy.” Edward Lazear Lazear, E. M. (2005). Entrepreneurship. Journal of Labor Economics, 23(4), 649–680.

Creates jobs; Drives the economy; Makes the founders and investors rich in the process; Cultivates a sense of independence, “going your own way”. People who run their own businesses have greater job satisfaction than people who don't. A good thing

Why not have more? Why not have more entrepreneurship? Why not have the state encourage people to become entrepreneurs? Subsidizing entrepreneurship – having the government pay for start- ups, e.g. use transfer payments, loans, regulatory exemptions, tax benefits for people who start businesses.

Too much of a good thing? Can you have too much of a good thing? Can you have too much entrepreneurship? “Why encouraging more people to become entrepreneurs is bad public policy” Scott Shane Small Business Economics (2009) 33:141–149

Too much of a good thing? Subsidizing start-ups leads to marginal businesses that are likely to fail, have little economic impact, and generate little employment, that are likely to depend on state subsidies to survive. The economic growth myth. The job creation myth. Wage-substitution businesses, self-employment.

Too much of a good thing? “Investing a dollar or an hour of time in the creation of an additional average new business is a worse use of resources than investing a dollar or an hour of time in the expansion of an average existing business.”

Too much of a good thing? You can criticize this approach saying it is a quantitative analysis, it applies to the US case only. Who knows, maybe in Romania we would benefit from subsidizing start-ups.

Too much of a good thing? THE EUROPEAN UNION CASE “Subsidizing” becomes “supporting”. “Entrepreneurship” becomes: “Inclusive entrepreneurship” “Social entrepreneurship” Women, disadvantaged and disabled people as entrepreneurs.

Too much of a good thing? THE EUROPEAN UNION CASE “A social enterprise combines entrepreneurial activity with a social purpose. Its main aim is to have a social impact, rather than maximize profit for owners or shareholders.” “The Europe 2020 strategy recognizes entrepreneurship and self- employment as key for achieving smart, sustainable and inclusive growth”.

Too much of a good thing? THE EUROPEAN UNION CASE People should be free to open and operate a business, but only as long as they follow the right goals. Entrepreneurs should not seek profit by satisfying consumers. Instead they should: Follow social purposes; Raise awareness; Give back to the community. Translation into more common language:

Too much of a good thing? “If you've got a business—you didn't build that. Somebody else made that happen.“ Barack Obama, July 13, Supporting entrepreneurship in specific areas or by specific categories of people convey wrong ideas about the working of the market economy. Supporting specific types of entrepreneurship is yet another instrument that politicians use in the ideological battle.

Supporting vs. Getting out of the way Two fundamentally different strategies for making it easy for people to become entrepreneurs: Supporting vs. Getting out of the way

Source: Worldbank, Doing Business Report, 2015 The cost of doing business in Romania Supporting vs. Getting out of the way

Thank you.