Robert Hahn is director of economics at Oxford's Smith School, chief economist at the Legatum Institute, and a senior fellow at the Georgetown Center for Business and Public Policy. Peter Passell is a senior fellow at the Milken Institute in Santa Monica and the editor of its quarterly economic policy journal, The Milken Institute Review. They co-founded Regulation2point0.org, a web portal on economic regulation.
Is this (in the immortal words of James Rado and Gerome Ragni) the dawning of the Age of Aquarius? No, seriously: Are we 21st century humans about to experience an era of unprecedented growth and increase in well-being?
Professor Philip Auerswald of George Mason University makes a convincing case that entrepreneurs will contribute more than we think to "the coming prosperity," which is the title of his book just published by Oxford University Press. (Note to reader: The author recently made the pitch at the Legatum Institute in London, where Hahn is director of economics).
Auerswald argues that ideological labels in capitalist democracies are so yesterday. What really matters, in his view, is whether countries set up a more hospitable environment for entrepreneurs by not favoring entrenched interests.
If this sounds familiar, go to the head of the class. The great economist and political theorist Mancur Olson made a similar point in his book on The Rise and Decline of Nations, in which he proposed that democracies become sclerotic as they accumulate incumbents with much to lose from change. The problem is that, short of revolution or war, it's hard to shake things up in ways that favor innovators.
But even if societies don't get all the institutions right, Auerswald concludes that entrepreneurship can flourish. One example: the introduction of a private mobile phone network in Afghanistan, which is thriving in an environment of greed and violence. A higher percentage of Afghans, it seems, now possess cell phones than can read.
He further argues that entrepreneurship is only likely to grow in importance. This makes perfect sense. The pool of talent is growing rapidly, as more people (think China and India) move out of poverty, networking becomes easier and the cost of diffusing information declines.
It's hard to dispute the notion that entrepreneurship, along with the accumulation of wealth, is likely to be an animating factor in coming decades. The catch is that the new riches could come at the expense of income inequality. Indeed, this already seems to be happening in many nations that are growing (and in some that aren't). Actually, there's a second catch: Some entrepreneurship, such as cyberwarfare and the creation of addicting designer drugs, may produce "bads" instead of "goods."
A big unknown here is whether the increase in entrepreneurship of all kinds will be sufficient to address the major problems—everything from climate change to nuclear proliferation—that will beset the human race in this century and will more than offset the explosion of enterprise. Auerswald recognizes that, in some cases, effective government action could be key to curing what ails, but that action may come too little and too late. Thus, much depends on the flexibility of private sector, and recognition of enlightened self-interest on the part of entrepreneurs.
Speaking to the latter, we see three positive roles that entrepreneurs can play in building a better society. First, and most obvious, they can create wealth. Second, they can make it possible for the global economy to adapt to the risks inherent in change. And third, they can harness their skills to address social problems directly—consider, for example, the Gates Foundation's path-breaking efforts in subduing malaria.
The truth is, the jury's out. On the one hand, the knowledge/entrepreneur economy is opening astounding possibilities. On the other, the route forward to peace and prosperity is littered with landmines. But nobody will dispute the proposition that Auerswald's careful reasoning offers a welcome antidote to now-fashionable pessimism.