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DaVinci Coders
June 18th, 2005 at 11:05 pm

It’s the Entrepreneurs, Stupid!

Rich Karlgaard:
A dearth of entrepreneurs explains the economic mess in Europe. What a sad turn of events: France, after all, gave us the word entrepreneur. (It comes from the French verb entreprendre, “to undertake.” An entrepreneur undertakes a business, assuming the financial risk for the chance of profit.)

France also birthed one of the giants of economic philosophy, Jean-Baptiste Say (1767-1832). Say’s Law (1803) was popularized soon after by Scottish Enlightenment philosopher James Mill as the well-known adage “supply creates its own demand.” Say said it better: “Products are paid for with products.”



Whichever translation you prefer, the implication of Say’s Law is clear enough. Too bad Europe doesn’t get it. Growth requires production, which requires investment, which must come out of profits. You destroy growth when you destroy investment capital by way of taxation and regulation. Evidence: France and Germany. The latter has had just one year of 3% GDP growth during the last 12 years. Last year France grew at 2.1%, Germany at 1.6%.



Consumption will never lift a country’s growth rate. Only new production–the work of entrepreneurs–will do that. Europe’s recovery depends not on more laws or a reworked EU Constitution (or taxpayer subsidies of so-called national champions, such as the Airbus consortium EADS), but on attracting, keeping and nourishing entrepreneurs. Here’s how.

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Taxes must be reasonable. It’s up to each country to decide what’s reasonable. But governments should bear in mind that investment capital and talent are highly mobile–made more so by the Internet–and are thus always in play. Entrepreneurs and capital will be attracted to lower taxes. Fast-growing Ireland and Poland tax their producers more lightly than do burdensome Germany and France. Producers want to keep their profits–not because of greed but because they want the right to reinvest.



More here.

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