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Entrepreneurship and free money juli 1, 2017

Posted by Kaj Grüssner in Byråkrati, Ekonomisk politik, Nationalekonomi, Välfärd.
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Some of the greatest entrepreneurs of our age seem very sold on socialist ideas and that capitalism simply doesn’t work. These include pioneers such as Bill Gates and Mark Zuckerberg. Especially the latter made a passionate plea for universal basic income. Mr. Zuckerberg’s reason for promoting UBI was that it would increase entrepreneurship. His argument was that if people didn’t have to work for a living, they could spend their time developing their business ideas and turn them into successful companies.

This is one of those things that may sound superficially plausible, and many people seem to be buying this. The fact that the claim comes from one of the most successful entrepreneurs of all time gives it even more credence. However, the UBI might not the panacea Mr. Zuckerberg believes it to be.

Firstly, Mr. Zuckerberg’s claim necessarily assumes that most (or at least a very significant minority) people are budding entrepreneurs, whose main reason for not realizing their entrepreneurial potential is the necessity to work for a living. In other words, because they have to work to earn a living, they lack the time and energy needed to develop their ideas.

It should be clear that this assumption doesn’t hold true. Entrepreneurs are by their very nature scarce compared to non-entrepreneurs. There is a reason for why there are a lot more employees than employers. Being an entrepreneur requires very specific skills and characteristics that very few people possess. UBI won’t change this fact.

He also completely discounts the fact that entrepreneurs exist today and have existed for centuries, Mr. Zuckerberg himself being a prime example of this, all of whom have made due without UBI, proving that UBI is not a prerequisite for becoming an entrepreneur. These are people who have possessed the necessary skills and characteristics. And as in all cases, some have succeeded and others have failed.

Most entrepreneurs are not game changers like Mr. Zuckerburg is, nor are they great innovators like Steve Jobs. The vast majority doesn’t bring anything new in terms of products of services. They are contractors, shopkeepers, franchisees, doctors, lawyers and consultants of various kinds etc. They don’t bring innovation, they bring supply, alternatives to existing providers. This is very valuable, but it is not something that requires an undefined period of time with guaranteed income in order to bring it to fruition. It is hard to see how UBI would increase entrepreneurship of this kind.

Mr. Zuckerberg also forgets that people respond to incentives. In some cases, people become entrepreneurs simply in order to employ themselves because they can’t find jobs. Starting a company is a way of employing oneself, when other employment opportunities aren’t available. Such entrepreneurship is borne out of necessity. UBI is far more likely to smother entrepreneurial inclinations in these cases, as the driving necessity is removed.

All Western countries today are welfare states, with substantial welfare programs available to virtually everyone. If Mr. Zuckerberg’s theory of UBI’s positive effect on entrepreneurship, then the myriad of existing welfare programs should provide some proof of his theory, which is obviously not the case. Here Mr. Zuckerberg would probably say that UBI removes much of the red tape associated with present programs, and that the UBI would mean much more money than recipients receive now. That may very well be true, but the more money you give people for free, the more it cost for everyone else and the higher the incentive for simply living off the rest. At no time in human history has the sense of entitlement been as strong as it is today, and UBI would only make that worse, a lot worse.

In addition to welfare programs, Western countries also have very high levels of taxation and extensive regulatory frameworks. Considering the combination of onerous taxation and complicated regulation that is characteristic for any Western country, in addition to the never-ending vilification of companies and profit seeking, it is pretty amazing that we have as many entrepreneurs as we have.

If Mr. Zuckerberg wants to promote entrepreneurship, he’d be better off calling for slashing regulations, government spending and taxes than calling for yet another government program, that as all other government programs will have to be paid for by some and enjoyed by others. We have quite enough of that already.