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The Economy as an Ecosystem

On Wednesday I testified before the Senate Committee on Small Business and Entrepreneurship. The title of the hearing was “Perspectives from the Entrepreneurial Ecosystem: Creating Jobs and Growing Businesses through Entrepreneurship [1].”

It was a less-formal type of hearing than I have done before. There were lots of witnesses, no formal oral statements, and we could more or less raise our placards whenever we wanted to talk.

In my one-minute introduction, I noted that George Mason University came to national prominence in 1986 when James Buchanan won the Nobel Prize here for his pioneering work in public choice. (Vernon Smith [2], another active researcher in the field of public choice, would become Mason’s second Nobel laureate in 2002). I then said:

Public choice focuses on the ways in which government policies are actually determined and carried out. And I think this weighs on entrepreneurship, in particular. I, too, appreciate the ecological metaphor. I think it is a really appropriate metaphor. Recently, I’ve been looking at the public choice ways in which the ecology of entrepreneurship can sometimes be interfered with. Just like a natural ecology, entrepreneurial ecologies need to be a bottom-up process. And quite often can be subject to interference from governments.

I was pleased that the Committee’s chairwoman, Senator Landrieu (D-LA) largely agreed with me. Channeling her inner-Hayek [3], she replied:

That is an excellent point and I hope that we’ll have a little bit more of thought provoking comments about that. Just like governments can ruin physical infrastructure—I mean physical and natural environments—governments can also, with the wrong policies, disrupt the… I don’t know if you’d call it ‘natural,’…but the strength, the dormant strength or natural strength of a people to grow jobs and produce wealth.

Unfortunately, not all of her comments were so Hayekian. Another of the witnesses was tech-entrepreneur-turned-academic, Vivek Wadhwa. Today he wrote about the hearing in the Washington Post [4]:

Government leaders — at least some of those present — actually seemed to believe they could, through legislation and spending, increase entrepreneurship and innovation. They asked questions [5] such as: What legislation can we enact to build innovation ecosystems, facilitate mentorship, and teach entrepreneurship? They didn’t seem to understand that these are things entrepreneurs do—not governments.

I couldn’t agree more.