|Montréal, 8 juillet 2000 / No 64||
by Edward W. Younkins
–Dagny Taggart in Ayn Rand's novel Atlas Shrugged
There exists a widespread hostility within society to entrepreneurs and entrepreneurship. This is due, to a certain degree, to envy on the part of those who are less competent, less visionary, less creative, and less successful than others. In the past, entrepreneurs such as Rockefeller, Vanderbilt, and Carnegie were maligned and vilified for being innovative and focused businessmen with uncommon vision and an unrelenting work ethic who helped advance the standard of living of all Americans. Bill Gates, Sam Walton, and Ken Iverson are among their modern day counterparts. Attacks on such great enterprises tend to come from less efficient and envious rivals who attempt to achieve through the political process what they failed to accomplish in the marketplace.
It is a fact of human existence that some individuals are more capable
than others, that some individuals are harder workers than others, and
that some individuals are better at creating wealth than others. Envy is
an egalitarian outcry against the claimed metaphysical injustice of the
existence of individual differences in abilities, accomplishments, and
monetary outcomes. There will always be inequalities among people. Differences
between people simply exist. The idea of justice does not apply to conditions
built into the nature of life – justice is a concept that only pertains
to other-directed human actions.
Perhaps the envious will be less likely to disparage the wealth creator once they have learned:
Entrepreneurs are Wealth Creators
Wealth, in the form of goods and services, is created when individuals recombine and rearrange the resources that comprise the world. Wealth increases when someone conceives and produces a more valuable configuration of the earth's substances. Although resources or raw materials are finite, the human mind, through ingenuity and creativity, is able to continually increase the wealth of the world. Profits are a person's reward for wealth creation.
It is the existence of unremitting change in human activities that summons entrepreneurs in their search for profits. A critical ability for a successful entrepreneur is to make appropriate predictions regarding the uncertain future. Since accurate knowledge of the future is a valuable asset, the entrepreneur is willing to invest time and money in information gathering and dissemination.
Every one of us makes predictions about an uncertain future and we all make our life decisions in terms of our assessment of that future. However, some individuals are so capable at forecasting the future that they specialize in that activity by becoming entrepreneurs. The entrepreneur predicts, responds to, and creates change regarding the discovery of new resource sources, new consumer desires, and new technological opportunities. He seeks profit by creating new products and services, new businesses, new production methods, etc. The successful entrepreneur correctly anticipates consumer preferences and efficiently uses resources to meet these preferences. The goal of an entrepreneur is to know the consumer's future wants before the consumer knows them.
Markets create incentives to search for opportunities that a person's singular knowledge provides to him. No individual has perfect knowledge of the earth's resources and their potential uses. Profits result when a man reduces imperfections in knowledge by discerning and producing a more valuable arrangement of things. An entrepreneur is concerned with opportunities that are not perceived as such by others.
The potential for profits motivates men to discover and use new information before it becomes widely known to others. Profit opportunities always await alert individuals with creative ideas. Attentive people reinterpret the world in order to grasp and act upon profit opportunities that have eluded others. Ultimately, wealth is a product of intelligence and creative vision. Foresight, envisioning the potential of some product, service, process, technology, or market, precedes action.
An entrepreneurial insight is checked against reality through its incremental development as knowledge and experience are amassed. New ideas are refined, changed, refocused, improved, and expanded through incremental experimentation and the constant search for betterment.
The successful entrepreneur realizes that knowledge and opportunities are constantly changing, highly local, and individuated. Information exists as dispersed bits of knowledge possessed by various individuals throughout society. This information consists of both scientific knowledge and the disarrayed knowledge pertaining to the particular conditions of time and space.
Although the wealth creator can experience luck and serendipity, he does not rely on them. Profits and losses are not the results of totally random processes. Entrepreneurs do not randomly choose their projects. Rather, they seek out knowledge by constantly asking questions, looking for patterns, making novel connections, imagining possibilities, and projecting the future.
Regardless of a person's metaphysically given natural endowments, it takes great effort and choice to actualize one's potential. Reality requires that valuable goods and services be created. Although ability (especially intellectual ability) is crucial, it is not sufficient. The entrepreneur must be a man of ideas and a man of action, who can implement appropriate ideas, often in the face of adversities.
A person's actions are motivated from within. An inspired individual may seek to attain his goals and values, to better the conditions of his life, to accomplish something outstanding, etc. Whatever his incentives, he must be committed to action, reality, and the need to transform ideas into concrete form. An entrepreneur attains wealth and his other objectives by providing people with goods and services that further flourishing on earth. Entrepreneurs are specialists in prudence – the virtue of rationally applying one's talents to the goal of living well.
A wealth creator tends to be a person of superior ability who pursues his goals relentlessly even in the face of obstacles, opposition, setbacks, and failures. To be a self-driven doer, one must expend both mental and physical effort. He must persist in the face of adversity, confront the unknown, face challenges, risk and learn from failure, have confidence in his capacity to deal with the world, and take practical rational steps in the pursuit of his goals. The successful entrepreneur tends to be a visionary, competent, independent, action-oriented, passionate, confident, and virtuous person who uses reason to focus his enthusiasm on reality in his efforts to attain his goals.
We Live in a Positive-Sum World
A zero-sum game is one in which the winner's earnings come solely from the loser's losses. In a zero-sum world, if one person profits then someone must lose because there is only a fixed amount to go around. We must always come up with a sum of zero when we add together all the changes in the economic wealth of all individuals, since one person can only prosper at the expense of others. In such a static world, economic activity merely redistributes existing wealth.
Fortunately, we do not live in a zero-sum world. Individuals' subjective valuations determine the economic value of things. Personal valuations of a marketable good can have different values for a given person in different situations and at different times. In addition, the same item can have dissimilar values for various individuals in the identical situation and at the same time. In a free exchange both parties benefit or they would not make the exchange. Exchange in a free market is a positive-sum game involving mutual accommodation.
Entrepreneurs create wealth by offering what is perceived to be a more valuable combination of resources than the combination that existed previously. Profits are an entrepreneur's reward for increasing the wealth of individuals in society. The entrepreneur does not profit at the expense of others. Rather, he gains because the product of his actions is judged to be worth more than what existed before his undertaking.
Obstacles to the Entrepreneur
The wealth of certain individuals and groups is tied to the status quo. The discovery of new products, services, and processes means that some established products, services, and technologies will be valued less. As a result, firms tied to the past may find their products, services, and methods becoming obsolete and may even experience business failure.
The government often responds to politically influential interests by acting against progress in order to preserve the status quo. The greatest enemy of the entrepreneur is government intervention in the form of regulation, paperwork, taxes, high interest rates, occupational licensing fees, government-conferred monopolies, etc. Such obstacles actively discourage innovative activity and risk-taking and arrest the wealth-creating process. In addition, information is lost when price signals are stifled by price ceilings, rent controls, minimum wage laws, etc. The entrepreneur requires accurate information regarding incomplete or mistaken market responses in order to know which actions should be taken.
When the government protects some against failure, it actually increases the overall costs of failure by imposing it on others. If the government did not protect unsuccessful businesses, then the loss of wealth experienced by them would be accompanied by a transfer of resources to those who would put them to more valuable uses. Allowing some businesses to fail and others to begin would provide an incentive to redirect capital into more productive and profitable uses. Economic failure cannot be avoided if we are to experience economic progress. If an individual is responsible for his losses then the market will work to permit the adoption of appropriate behavior. Profits and losses are inherent in the human condition.
Protecting Market Entrepreneurs
Profit opportunities are best discovered and pursued within a legal framework that permits individuals an interest in discovering them. The entrepreneur requires the freedom and flexibility to adapt to individuated conditions by acting in accordance with his best judgment. It is necessary to protect the ability of all people to enter the market without restraints and favors perpetuated by the state.
Political entrepreneurs seek and receive help from the state and, therefore, are not true entrepreneurs. Market entrepreneurs do not request nor obtain such assistance. They are the only true entrepreneurs. A successful market entrepreneur accepts the responsibility of using his own judgment, uses his mind to create material values, is honest in his dealing with others and with reality, risks failure and loss, persists in the face of adversity, is alert for information regarding previously unrecognized needs and ways of meeting them, and earn profits as his reward for increasing the wealth of individuals in society. Unlike the political entrepreneur, the market entrepreneur relies on the market mechanism to sort out the successful from the unsuccessful entrepreneurs.
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