This should come as no surprise to us all for, as we all know, almost all of economics is either footnotes to Adam Smith or wrong. But we’ve nice evidence that once again he was right. That evidence comes from a study of entrepreneurs and what is necessary to allow, possibly encourage, them to succeed:
Indeed, entrepreneurialism is strongest in countries that share the English common law tradition – five times higher than those with a French legal origin. There is also a strong correlation between high rates of entrepreneurship in a country and low taxes. Equally, a low regulatory burden correlates strongly with high rates of entrepreneurship. On the other hand, those government and supranational programmes that politicians love to announce to encourage entrepreneurship – such as the EU’s Lisbon Strategy – tend to fail. The lesson is clear: to encourage innovation and entrepreneurialism, governments should do as little as possible, beyond cutting taxes and regulations.
It’s always interesting to see people pointing to the Common Law as we’re quite certain that it’s one of the major beneficial attributes of our society. But leaving that aside this is remarkably similar to Smith’s comment:
Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.
One other point that the study makes: there’s a very large difference between self-employment and entrepreneurialism. I, for example, when writing am self-employed but I am not an entprepreneur. When I am fossicking around for scandium I am both and when I find a nice large pile of it I will be employed by a company but still be an entrepreneur. and as the study notes the rates of the two things can often move in opposite directions. The rate of self-employment in Silicon Valley, the most entrepreneurial spot on hte planet, is actually half the self-employment rate for California as a whole.