1. Entrepreneurship and Economic Progress Randall G. Holcombe Florida State University

4. Why Are We Better Off Today than People 100, or 50, or 20 Years Ago? US per capita income was 7 times higher in 2000 than in 1900. South Korean per capita income was 10 times higher today than in 1960.

5. Growth Versus Progress The income growth of the 20 th century would not have been possible without progress: New and improved goods.

6. Progress Comes From Innovation and Entrepreneurship Entrepreneurs look for ways to produce more value for consumers. Joseph Schumpeter distinguished invention from innovation.

7. Economic Progress Is Only a Few Hundred Years Old Life in 1500 AD was not that different from life in 500 AD. Only after the Industrial Revolution would people be able to see economic progress in their lifetimes.

8. Why Did Economic Progress Begin With the Industrial Revolution? Capitalism!

9. The Role of Profit Schumpeter: Without development there is no profit, without profit no development. Which of the following is true? a.Profit is a sign of inefficiency in the use of resources. b.Profit is necessary for the efficient use of resources.

10. Equilibrium Versus Progress Schumpeter: Capitalism … is by its nature a form or method of economic change and not only never is but never can be stationary. … Capitalism is the perennial gale of creative destruction. Example: Computer industry Profit is an indicator of value added to the economy.

11. Creative Destruction Turns Profit Into Consumer Surplus

12. Management Versus Entrepreneurship Managers allocate resources efficiently Entrepreneurs innovate to bring new and improved products and production methods to market.

13. Prices, Knowledge, and Entrepreneurship Which is “better?” Entrepreneurship as arbitrage. Uncertainty created by production and time.

14. Entrepreneurship Creates Entrepreneurial Opportunities

15. Firms Must Be Entrepreneurial to Remain Competitive Good management helps boost profits. Entrepreneurship is essential to firm survival. Versus

16. Institutional Building Blocks for an Entrepreneurial Economy Rule of law Protection of property rights Low taxes Low regulatory barriers to business activity Freedom to trade internationally Stable money Give entrepreneurs the freedom to be entrepreneurial, and the right to profit from the value they add to the economy. Entrepreneurship is risky. Do entrepreneurs have the incentive to take those risks?

17. Government Policy to Promote Entrepreneurship Government is not good at picking winners, or directing economic activity. (Why did Industrial Policy work so well?) Government promotes entrepreneurship by providing an institutional framework that allows entrepreneurs to make their own decisions, and bear both the costs and benefits produced by those decisions.