1. Economic Freedom, Entrepreneurship, & Prosperity Russell S. Sobel, Ph.D.

2. What Explains Prosperity? Is it Resources? Location? Democracy? Or ……

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. Economic Freedom Economic Freedom means that people are free to trade with others, compete in markets, buy what they want, earn a living in a job they choose, keep what they earn, and own things privately.

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

7. Route 50

8. Wise use of Tax Money?

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

10. A Quick Tour of The World

11. Map of Economic Freedom

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

13. Zimbabwe (in Africa)

14. Families in Zimbabwe (Africa)

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

17. Romania (in Europe)

18. Families in Romania (Europe)

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

28. India (in Asia)

29. Families in India

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

32. Mexico (in North America)

33. Families in Mexico

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

36. Hong Kong (in Asia)

37. Families in Hong Kong

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

41. United States (in North America)

43. 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

44. 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%

45. And They are Better: Our Showers

46. 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

47. Our Phones

48. Our Entertainment

49. Our Science

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

51. Our Video Games

52. From Pong to Rock Band

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

54. Our Music

56. 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

57. 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."

58. Would you have invested? Microsoft Corporation 1978

59. Cross State Differences in Economic Freedom Matter Too

60. Policy Reforms to Promote Entrepreneurship Three general categories: Make it easier to start a business by reducing artificial barriers to entry and competitionMake it easier to start a business by reducing artificial barriers to entry and competition Make it easier for existing businesses to be profitable and grow by lowering the cost of doing businessMake it easier for existing businesses to be profitable and grow by lowering the cost of doing business Reduce the role of government in “playing favorites” or picking winners and losersReduce the role of government in “playing favorites” or picking winners and losers

61. Barriers to Entrepreneurship Licensing, Regulations, and Labor LawsLicensing, Regulations, and Labor Laws Secondary Effects / Unintended Consequences of RegulationSecondary Effects / Unintended Consequences of Regulation No natural profit/loss mechanism to get bad ones repealed (Example: Taxi Cab Regulation)No natural profit/loss mechanism to get bad ones repealed (Example: Taxi Cab Regulation)

62. Increasing Profitability & Growth Lower Taxes on Capital Investment Legal reform: Excessive lawsuits make it both more costly and risky to do business Specialization is limited by extent of the market – lowering costs makes businesses more competitive in national and global markets

63. Quit Playing Favorites “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 - The Case of Serious Materials- The Case of Serious Materials 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

64. Reduce Government Control & Centralization Reduce the Size of Government to Shift Resources Back into the Private Sector Decentralize Government

65. Thank You / Q&A

66. 1965 PCPI Ranks: WV=42, GA=41, NC=45

67. 2005 PCPI Ranks: WV=48, GA=33, NC=35 Growth Rates: WV=1.4%, GA=2.0%, NC=2.2%

68. WV’s PCPI: Rank 48th – 75% of U.S. Average

69. You can see it at our state border 50 years ago Charleston WV and Charlotte NC had the same population and per capita income West Virginia will soon be only one of two states with no city of 50,000 or more