Correlating Freedom and Successful Capitalism: Dahl’s Framework For Prosperity

At Reason:

What is productivity? Simply getting more output from the same or less input. Dahl showed in his talk the institutional context in which productivity improvement flourishes. His findings will gladden the heart of any libertarian, and anyone else who wants a prosperous future for the billions of people on this planet who are mired in poverty. He began by asking why South Asians and Cubans are more productive outside of India and Cuba? Why do Russians have the highest per capita income of any ethnic group in the U.S., but very low per capita income in Russia? Why are Mexicans five times more productive in the U.S. than in Mexico?

The answer is that productivity flourishes when people are free, safe, and justly treated. Dahl calls this the framework for prosperity. “This principle holds not only for nations, but for any organization or institution that seeks to unleash its potential to achieve improvement and growth,” declared Dahl.

The article has supporting graphs.

Book Notes: The Entrepreneurial Imperative by Carl J. Schramm

The book The Entrepreneurial Imperative by Carl J. Schramm is subtitled “How America’s Economic Miracle Will Reshape the World and Change Your Life”.

This is not a book on entrepreneurship, but rather a book on why entrepreneurship (practice of, promotion of, as foreign policy) is important to the a public policy for future USA.

Right from page one the thesis is presented directly:

For the United States to survive and continue its economic and political leadership in the world, we must see entrepreneurship as our central comparative advantage. Nothing else can give us the necessary leverage to remain an economic superpower. Nothing else will allow us to continue to enjoy our standard of living. We either support and nature increasingly entrepreneurial activities in all aspect of our society and around the globe or run the very real risk that we will become progressively irrelevant on the world stage and suffer economically at home.

In short, entrepreneurship in business and universities; in our approach to both government and forign policy; and in our personal lives is the only answer if we hope to continue to thrive.

Aren’t there other solutions?


The author offers these definitions:

  • Entrepreneurship is the process in which one or more people undertake economic risk to create a new organization that will exploit a new technology or innovative process the generates value to others.
  • The Entrepreneur is one who undertakes personal economic risk to create a new organization that will exploit a new technology or innovative process the generates value to others.

Those definitions work for me well enough for me.

I’d like to see what candidates for President in 2008 are going to talk this up – if any.

For foreign policy, this means promoting in entrepreneurial capitalism over democracy promoting (or even business/globalization in general) .

For domestic policy, this means creating environments were entrepreneurship is rewarded, and risks are reduced (less risk = more entrepreneurial activity). What might this mean: National systems of employer independent pension and health insurance systems (not gov run), and new financing and legal mechanisms.

For schools and universities, this means entrepreneurship should be taught and practiced.

This seems like an important book to me. At under 200 pages it is a quick read. Hey, used copies are a buck on too!

Update: I corrected many grammar/spelling mistakes.

Nobel Prize Winner Phelps on “Dynamic Capitalism”

Edmund Phelps writes in the opinion Journal on “Dynamic Capitalism:

There are two economic systems in
the West. Several nations–including the U.S., Canada and the
U.K.–have a private-ownership system marked by great openness to the
implementation of new commercial ideas coming from entrepreneurs, and
by a pluralism of views among the financiers who select the ideas to
nurture by providing the capital and incentives necessary for their

The other system–in Western
Continental Europe–though also based on private ownership, has been
modified by the introduction of institutions aimed at protecting the
interests of “stakeholders” and “social partners.”

Let me use the word “dynamism” to
mean the fertility of the economy in coming up with innovative ideas
believed to be technologically feasible and profitable–in short, the
economy’s talent at commercially successful innovating. In this
terminology, the free enterprise system is structured in such a way
that it facilitates and stimulates dynamism while the Continental
system impedes and discourages it.

When building the massive
structures of corporatism in interwar Italy, theoreticians explained
that their new system would be more dynamic than capitalism–maybe not
more fertile in little ideas, such as might come to petit-bourgeois
entrepreneurs, but certainly in big ideas.

Friedrich Hayek, in the late 1930s and early ’40s, began the modern theory of how a capitalist
system, if pure enough, would possess the greatest dynamism–not
socialism and not corporatism. First, virtually everyone right down to
the humblest employees has “know-how,” some of what Michael Polanyi
called “personal knowledge” and some merely private knowledge, and out
of that an idea may come that few others would have. In its openness to
the ideas of all or most participants, the capitalist economy tends to
generate a plethora of new ideas.

Second, the pluralism of
experience that the financiers bring to bear in their decisions gives a
wide range of entrepreneurial ideas a chance of insightful evaluation.
And, importantly, the financier and the entrepreneur do not need the
approval of the state or of social partners. Nor are they accountable
later on to such social bodies if the project goes badly, not even to
the financier’s investors. So projects can be undertaken that would be
too opaque and uncertain for the state or social partners to endorse.
Lastly, the pluralism of knowledge and experience that managers and
consumers bring to bear in deciding which innovations to try, and which
to adopt, is crucial in giving a good chance to the most promising
innovations launched. Where the Continental system convenes experts to
set a product standard before any version is launched, capitalism gives
market access to all versions.

Globalization has diminished the importance of scale as well as distance.

Instituting a high level of
dynamism, so that the economy is fired by the new ideas of
entrepreneurs, serves to transform the workplace–in the firms
developing an innovation and also in the firms dealing with the
innovations. The challenges that arise in developing a new idea and in
gaining its acceptance in the marketplace provide the workforce with
high levels of mental stimulation, problem-solving, employee-engagement
and, thus, personal growth.

Dynamism does have its downside.
The same capitalist dynamism that adds to the desirability of jobs also
adds to their precariousness. The strong possibility of a general slump
can cause anxiety.

Why, then, if the “downside” is so
exaggerated, is capitalism so reviled in Western Continental Europe? It
may be that elements of capitalism are seen by some in Europe as
morally wrong in the same way that birth control or nuclear power or
sweatshops are seen by some as simply wrong in spite of the
consequences of barring them. And it appears that the recent street
protesters associate business with established wealth; in their
minds, giving greater latitude to businesses would increase the
privileges of old wealth. By an “entrepreneur” they appear to mean a
rich owner of a bank or factory, while for Schumpeter and Knight it
meant a newcomer, a parvenu who is an outsider. A tremendous
confusion is created by associating “capitalism” with entrenched wealth
and power. The textbook capitalism of Schumpeter and Hayek means
opening up the economy to new industries, opening industries to
start-up companies, and opening existing companies to new owners and
new managers. It is inseparable from an adequate degree of competition.
Monopolies like Microsoft are a deviation from the model.

I have been meaning to write an article on this, but I am backed up with stuff. So I am trying to clear my backlog (tossing stuff, or doing short posts for future reference).

Here are some thoughts:

  • “good” globalization (based on dynamic capitalism) vs “bad” or so-so globalization (based on stake-holder capitalism). What does this mean for PNM theory which relies partially on unfettered support for globalization to shrink the gap?
  • Entrepreneurial Capitalism = Dynamic Capitalism. “Good Globalization” = Entrepreneurial Peace Theory?
  • Reference Postal’s The Dynamist blog and book
  • Bobitt’s successor state forms need more work. His “market-state” is a post-nationalism dynamic-capitalism state. Another competing form could be the stakeholder-state (post-nationalism, stakeholder-capitalism). The other forms are…[heh for long simmering post.]

A Bold Choice for the 2006 Nobel Peace Prize

Just when I want to dismiss the prize and their recipients out of hand, the committeee goes and does this:

The Norwegian Nobel Committee has decided to award the Nobel Peace Prize for 2006, divided into two equal parts, to Muhammad Yunus and Grameen Bank for their efforts to create economic and social development from below. Lasting peace can not be achieved unless large population groups find ways in which to break out of poverty. Micro-credit is one such means. Development from below also serves to advance democracy and human rights.

Muhammad Yunus is a Bangladeshi Economist by training and a Banker / Social Entrepreneur by Profession and a father of microcredit.

Microcredit (any microfinance) is an important tool for bottom-up economic development and should be an integral part of any nation-building/sysadmin activity.

Here are other related links:

Organizations and Markets
The Austrian Economists
The Intangible Economy

Rainy Saturday Links

The Importance of Birth Order Debunked at Econlog

The Shana Hiatt Blooper Reel

Althouse: A fantasy scenario of trying Bin Laden A bullet to the head by the capturing American Infantryman works for me.

Is the Thai Coup…a prelude to Islamization of Thailand?

IEEE Spectrum Special Report: Unlocking the Terrorist Mind

Peace Through Commerce at the FlowProject

Muslim Brotherhood controls Al-Jizera? The Muslim Brotherhood is the best candidate for a large proto-5GW organization.

Old 5GW posts at ChumpFish here and here.

Possible 5GW Tactics: Culture Jamming and Memetic Engineering

AmendmentNine on Moral War

Live USB Hacking

TV Zone: Five essential lessons from Grover

MindStream: CyberIntel

Bank Machine Hacking

Marginal Revolution on the The phantom Tyler Cowen. Sounds a bit like the abstract OODA part of Phatic Communions Revised OODA.

Here is the only link to something related to Paris Hilton I will every make (it is really about marketing and networking).

TDAXP on Corporate Espionage One side effect of the blowback from the HP affair is that organization will get smarter about doing this sort of thing. I would see you will see hybrid enterprise consisting of Law Firms, and skilled intelligence folks. The doing it all through an outside law firm coordinated by the internal counsels gives legal cover. Also lots of money are at stake, so I see where corporate officers, accustomed to being told how smart they are will report to this.

Shrinkwrapped on the UN

Voting Machines Security

Data Theft And Executives

Top 20 Japanese Commercials (My favorite was the Cockroach vs the Samurai!)

LGF: Another 9/11 Memorial Hijacked By Leftists

We Don’t Need No Welfare State

Offshoring Lawyers. Great – Lawfare will become cheaper. Not good.

Lastly: Chapelle Show’s Jedi Knight Sex Scandal

Wednesday Night Links

Shining City has: Fetal Shark Attacks

Arnold Kling’s Suggested Ed Reform

TV Squad investigators are all over the Lost video clues

ISC Incident Handler on Information Security Standards

Islam Is The Problem?

Alt-History links

On the War: Reasons for Optimism (5 part series) by guest Owen Johnson at Swinkwrapped. I have read them; FuturePurpleSlog needs to write a post on it.

Why Do They Hate Walmart? I don’t shop there, but I like the idea of Walmart efficiency being added to banking and other services. The whole point is innovation of product (different,needs,style) and process (faster,cheaper,better). Competition (for the rewards = profit) foster creativity (incentives for progress) and Entrepreneurs. Better product,processes give people more life options (less misery, more happiness, human potential used).

Culture Jamming. Hmm… 4GW/5GW/InfoWarfare technique?

Lastly: Star Wars Burlesque – Not Safe for Work –>

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Our Lucky Constitution and Entrepreneurialism

I was reading this at an Althouse post:

The writer makes a connection between our old Constitution and our willingness to fight wars. Do you see that connection?

Some thoughts offhand:

  • Could the same things that lead to stable constitutional rule set lead to a greater willingness to be bold?
  • Is war-fighting willingness to change and shape the world to make it a better place, to not be cowed under, another expression of American
  • What is the essence of entrepreneurialism anyways: risk-taking for a better relative and absolute group and personal future (powerful incentives, optimizing forces).

Entrepreneurial Peace Theory Thoughts

Just some thoughts I scribbled into a notebook over the weekend on Entrepreneurial Peace Theory (because Democratic Peace Theory and PNM Theory‘s Gloabilization = Building Connections = Peace seem to be incomplete to me):

  • It is not capitalism or business or globalization that is the key
  • It is the exercise of entrepreneurial capital and creative destruction…the optimizing effect
  • Wonder and advancement
  • Capitalism can be just making money
  • Entrepreneurial-ism is about progress and change and improvement
  • Striving for a new future, not just collecting rents on what has already been acquired
  • Entrepreneurs by definition are meritocracy based

Freedom Spreading (aka Gap Shrinking) via the Promotion of Entrepreneurial Capitalism

Via the PSD Blog, Carl Schramm writes in USA Today, starting with:

Smith‘s great revelation was that political freedom would most likely emerge and persist under conditions of economic freedom, what we now call capitalism. Our democratic system as defined in our Constitution incorporated respect for this economic system. Like Smith’s invisible hand in the market, the Framers saw an invisible hand in our politics. They believed that, if allowed to work freely,
these hands together would shape America into the land where invention, creativity and entrepreneurial activity would flourish.

and then the money quote:

More than the export of democracy, it is the export of entrepreneurial capitalism that can produce a new birth of peace and freedom around our globe. Entrepreneurial capitalism is based on individual invention, and because wealth comes from one’s own initiative, it advances human dignity.

And here is the good news. Virtually every country, whatever its
political system, wants to embrace it. They have seen the success of
the American economy.

The benefits of PNM Theory‘s Globalization flows from the above. It is analogous to the Democratic Peace Theory, sort of an Entrepreneurial Peace Theory.

I have not written much on PNM Theory yet (I have been putting off a series of post on it). One thing that always bothered me was the avoidance of idea promotion especially democratic ideas. I did not see how the gap could shrink if it didn’t introduce new memes to replace long existing bad memes.

Entrepreneurial Peace Theory (aka PNM Globalization) is sort of a backdoor (think 3GW or 4GW) to the same result as Democratic Peace Theory (think 1GW or 2GW). Entrepreneurial Capitalism promotion might be more subtle/indirect then Democracy Promotion and therefore have a greater chance of success. The best results will come from promoting both as there is much overlap and re-enforcement between the two. Considering the above and PNM Theory, the effort on behalf of Entrepreneurial Capitalism promotion should be at least twice that of directed toward Democracy Promotion.

Notes from Liberty Magazine: John Mackey and the Freedom Movement

From Liberty Magazine, John Mackay has an article entitled Winning the Battle for Freedom and Prosperity [Update: Use this LINK] that I came across while killing time on Monday. It is both a first person journey into capitalism and libertarianism of Mackay, and his thoughts on the direction the Freedom Movement (read Libertarianism) should take.

There where many interesting portions:

The most important thing I learned about business in my first year was that business wasn’t based on exploitation or coercion at all. Instead I realized that business is based on voluntary cooperation. No one is forced to trade with a business; customers have competitive alternatives in the market place; employees have competitive alternatives for their labor; investors have different alternatives and places to invest their capital. Investors, labor, management, suppliers — they all need to cooperate to create value for their customers. If they do, then any realized profit can be divided amongst the creators of the value through competitive market dynamics.

In other words, business is not a zero-sum game with a winner and loser. It is a win, win, win, win game — and I really like that.

The above definition, the systems of voluntary cooperation, is the best explanation of Democratic Capitalism I have ever read.

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