lecture 3 entrepreneurship in business

ENTREPRENEURSHIP IN BUSINESS By Assistant Professor Octavian–Dragomir Jora, Ph.D.

The Bucharest University of Economic Studies The Faculty of International Business and Economics The Applied Modern Languages Program 2013-2014

The economic problem and the institution

of private property rights. Indices and indexes

revealing the economic freedom of the world LECTU

RE

3

LECTURES (I)

1) Introducing and organizing the course. (The enterprise of delivering lectures about entrepreneurs) 2) On method in economic science. Praxeology and two questions: “how much economics the entrepreneur needs to be aware of?” and “how much economics do we need to be aware of the entrepreneur?” 3) The economic problem and the institution of private property rights. Indices and indexes revealing the economic freedom of the world 4) Spiritual values and entrepreneurial spirit. Projection of a documentary movie and debate upon it: „The Call of the Entrepreneur” (2007) 5) Economic functions: the capitalist-entrepreneur, the administrator-manager, the operative-technician, the public servant-bureaucrat. Division of labour and social coordination 6) The entrepreneur as creator of firms. Economic calculation and limits of business organizations. Small and medium entrepreneur versus business magnates: „small is beautiful, big is gorgeous”. Course with invitee from the Foreign Investors Council / Romanian Investors Council 7) Profits and losses. The problem of the business cycle

2 LECTURE 3: ENTREPRENEURSHIP IN BUSINESS

LECTURES (II)

8) Entrepreneurship and competition. Factors (of production), (mass) phenomena and football. Projection of a documentary movie and debate upon it: „Once in a Lifetime: The Extraordinary Story of the New York Cosmos” (2006) 9) Entrepreneurs across cultures: a sincere geography of the history of some modern entrepreneurs 10) Entrepreneurs in socialism, entrepreneurs in transition, entrepreneurs in kapitalism. Screening the entrepreneurial behaviours in Central and Eastern Europe. Course with invitee from ECE business environment 11) Knowledge economy, green economy, inclusive economy and the entrepreneur 12) Entrepreneurship and sustainable development. Institutions and instruments of the long run 13) Entrepreneurs of Romania. Mass media and political ideologies. Between the divinization and diablization of the business person 14) Concluding course. (Recap and preparing for the exam)


RECOMMENDED READINGS

This lecture owes to the presentation entitled “The Morality of Global Capitalism and its

Future”, delivered by Dr. Tom Palmer’s on15th of.September.2013, at Predeal, Romania,

in a seminar organized by CADI & IES-Europe


So… What Is Free Market

“Capitalism”?

CAPITALISM represents…

“…that subspecies of all the systems characterized by private property, which carries out new combinations of factors of production and involving the creation of credit…” Joseph Schumpeter, Can Capitalism Survive? “…a system in which private individuals take initiatives with their own capital to – usually to enhance production, but to produce something that they can sell on the market for a profit…” Joyce Appleby, interviewed on her new book The Relentless Revolution: A History of Capitalism “…private property and free labor without central planning, regulated by the rule of law and by ethical consensus;” “the age of innovation,” Deirdre McCloskey, Bourgeois Dignity It is an economic system…

…a legal system… …a cultural/social system…of relentless innovation resting on equality of well defined and legally secure rights (including “careers open to talent”) and on decentralized innovation and processes of trial and error through the voluntary processes of market exchange


The alternative to “Free Market” is

no longer “Socialism,” but “Cronyism”

It comes from the Greek “χρόνιος” – which means “long-term”

It refers to “friends” of long standing, but has come to be used in the sense of people who will support politicians in exchange for favors from them

It rests on the ability of the holders of political power to “bend the rules” or apply them arbitrarily to favor some at the expense of others


Free Market Capitalism is based on a

RADICAL claim….(Hold on…)

Other people don’t belong to me… Accordingly, Free Market Capitalism Rests on Respect for Property ─ In One’s Person ─ In One’s Freedom ─ In One’s Estate, characterized by the “Three D’s”

– Definable – Defendable – Divestible

And as Corollaries, ─ Equality before the Law ─ The Presumption of Liberty (including Freedom of Association and

Contract) ─ The Rule of Law


The Problem of Voluntary Social

Coordination

Humans Need Some Institutional Means of Transmitting KNOWLEDGE and COORDINATING Behaviour Property and the Market Provide Signals to Guide Our Behavior We call them PRICES The result of voluntary exchange is ORDER – spontaneous, polycentric, and unpredictable in its details In contrast, interventionist “planning” generates disorder – PLANNED CHAOS



Coordination


Institutions Shape Incentives, which Shape Human Behavior “Institutions provide the incentive structure of an economy; as that structure evolves, it shapes the direction of economic change towards growth, stagnation, or decline.” Douglas North, 1993 Nobel Prize Winner in Economics

The Problem of Economic and Social Coordination to Produce Order… “is a problem of the utilization of knowledge which is not given to anyone in its totality.” Friedrich Hayek, 1974 Nobel Prize Winner in Economics

Private Property – free markets – prices – coordination “Our civilization is inseparably linked with our methods of economic calculation. It would perish if we were to abandon this most precious intellectual tool of acting”. Ludwig von Mises, 1920

http://www.google.ro/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=zccwkzeK6Coj9M&tbnid=JvuKyOtTFuBQgM:&ved=0CAUQjRw&url=http://thevulgarmises.tumblr.com/post/21519981400/i-love-that-money-i-need-that-money-it-gives-me&ei=PWpQUon9MI_Dswbzo4CwBw&bvm=bv.53537100,d.Yms&psig=AFQjCNGesPeSO9QpRJ86eJDBsanLT1xe_A&ust=1381088178294285


Coordination

Markets need “regulation” by the rule of law, not disruption by intervention Controlling the price of milk may be intended to keep milk prices low, but the result I to create shortages of milk, which makes milk harder to find, causes long lines, fosters black markets and corruption, and makes the full cost consumers bear higher (price + waiting in line + bribes); those unintended consequences in turn often lead to calls for yet more intervention to fix the problems caused by the first intervention, and those secondary interventions may in turn yield additional problems that lead to calls for more interventions.


Interventionism vs. “Regulation”

The resulting mass of interventions is incoherent and follows no deliberate “plan”; The rule of law is what makes markets “regular”; interventionism does not. Piling one intervention onto another generates, not a coherent whole, but a system that fails to meet any coherent goals, is prone to periodic crises, and is, in effect, kept together with the legal equivalent of string, tape, and paperclips.


Because interventionism is so chaotic

and difficult to trace out…

Interventionist systems are not coherently planned, but instead lurch from crisis to crisis. Consequently, such systems are often described, as “free markets” or “laissez faire” by people who don’t take the time to understand the network of interventions and to trace out the incentives they create, how they affect behavior, and how they lead to unintended consequences and then more interventions. THE RULE OF LAW – NOT INTERVENTIONISM -- IS THE REGULATION MARKETS NEED TO FUNCTION EFFECTIVELY, EFFICIENTLY, AND JUSTLY


Order Emerges Spontaneously when the

law is just, predictable, and stable

“The more prohibitions there are, The poorer the people will be. The more edicts are promulgated, The more thieves and bandits there will be. Therefore a sage has said: So long as I ‘do nothing’ the people will of themselves be transformed. So long as I love quietude, the people will of themselves go straight. So long as I act only by inactivity the people will of themselves become prosperous.” Lao Tse, ca. 500 B.C.E.


無為 “Wu Wei”

LANGUAGE MATTERS. It is important to

correct the Poisoned Discourse about

Capitalism:

─Competition Opposite of Cooperative: “Dog Eat Dog,” “Cutthroat” OR: COMPETITION IN ORDER TO COOPERATE ─ Exchange “Selfish,” “Greedy” OR: MUTUALLY BENEFICIAL ─ Profit “Obscene,” “Windfall” OR: MEASURES OF VALUE ADDED


Free market capitalism is characterized by

what the economist Joseph Schumpeter called

“creative destruction.”

“The problem that is usually being visualized is how capitalism administers existing structures, whereas the relevant problem is how it creates and destroys them.” Joseph Schumpeter, Capitalism, Socialism, and Democracy


Innovative Free Market Capitalism made the difference between wealth and poverty…

and still does


The Key to a Dynamic Economy

is Economic Freedom

“Individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others. An index of economic freedom should measure the extent to which rightly acquired property is protected and individuals are engaged in voluntary transactions.”* * James Gwartney and Robert Lawson et al., Economic Freedom of the World: 1996 Annual Report (Fraser Institute of Canada)


Measures of Economic Freedom

The Key Measurable Components Are: Size of Government Legal System and Security of Property Rights Sound Money Freedom to Trade Internationally Regulation There are 24 components in the index that are comprised of a total of 42 distinct variables.


Incentives and Institutions Matter

Incentives give signals to rational actors about what will advance their purposes Institutions give form to incentives What incentives do different people have to create light?


To Understand Incentives, It Helps to

Distinguish Different Kinds of “Games”

─Zero Sum X + Y = 0 ─Positive Sum X + Y = + ─Negative Sum X + Y = -


THE LESSON

(CONCLUSION)

A POSITIVE SUM SOCIETY IS A COOPERATIVE, JUST, AND MORAL SOCIETY AND THAT REQUIRES FREE-MARKET CAPITALISM

AND THE RULE OF LAW

+


STRONGLY

RECOMMENDED READINGS

http://www.adamsmith.org/


DEBATE QUESTION

IS THE FREE MARKET CAPITALISM, AS WE MAY SEE IT IN THE MOST FREE SOCIETY ON THE PLANET NOW, THE BEST WORLD POSSIBLE TO LIVE IN?


lecture 3 entrepreneurship in business

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