Institutional Entrepreneurship

As you noticed I have been terrible about updating the blog the last six months, as I am working on a book. This will continue for another month or so, but after that I hope to write regularly again.

For now, Edward Elgar publishing has released a book edited by me and Magnus Henrekson titled “Institutional Entrepreneurship”.

The volume contains 25 articles chosen by us which deal with entrepreneurs and institutions and the interaction of the two, one of which is ours.

William Baumol (1990) argued that the institutional environment determines whether entrepreneurship is directed toward productive wealth creation or destructive wealth redistribution. In well-functioning western countries the best way talented individuals rich is typically to build companies or in other ways create surplus.

When institutions ensure that the well-being of individuals and society generally coincide, the economy does well. However in a country with low quality institutions the best way to become rich may be to cleverly lobby the state to grant you a monopoly. Often the cost of such destructive entrepreneurship is far higher than the pilfered wealth itself; a destructive entrepreneur would gladly destroy billions of national wealth to earn a few million for himself.

In this context the definition of entrepreneurship is far, far broader than business entrepreneurship, and includes any individual who reorganizes others in new ways. To take a historic example of destructive entrepreneurship, Robert Ferguson points out that Viking raiding expeditions were privately organized enterprises, often with an individual “entrepreneur” at the center who gathered ship and men and who kept much of the surplus. A less fanciful example of destructive entrepreneurs is Russian Oligarchs.

What‘s more, entrepreneurship is not only influenced by institutions; entrepreneurs often shape institutions themselves. Entrepreneurship abiding by existing institutions is occasionally disruptive enough to challenge the foundations of prevailing institutions. Entrepreneurs also have the opportunity to evade institutions, which tends to undermine the effectiveness of the institutions in question. Lastly, they can directly alter institutions through political entrepreneurship. Similar to business entrepreneurship, innovative political activity can be either productive or unproductive, depending on the entrepreneurs‘ incentives.

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