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Oh Look, Turns Out A Strong Welfare State Produces More Entrepreneurs

Why is this a shock to anyone?
Oh Look, Turns Out A Strong Welfare State Produces More Entrepreneurs
Image from: planphilly.com

I don't know why the author of this Atlantic piece sounds so surprised. Has he never been in a poor neighborhood? Guys selling T-shirts, handbags, produce and used appliances on the street -- of course putting an economic floor under people encourages them to take a shot at something bigger and better. Walter Frick for The Atlantic:

Reagan was right about the link between startups and growth, but wrong in assuming that small government was the way to encourage them.

His belief in a tradeoff between taking care of citizens and promoting innovative new businesses is at odds with the evidence. In fact, one way to get more people to start companies, according to a growing body of research, is to expand the welfare state.

Pundits and researchers often note the negative correlation between government spending and entrepreneurship, both within the U.S. and internationally, and conclude that growth requires trimming social welfare programs. Jim Manzi of theNational Review, for example, a thoughtful commenter on economic policy, wrote last year that, “we must accept some amount of social dislocation in return for innovation.”

Yeah, he kind of lost me at the point where he describes a National Review writer as "a thoughtful commenter on economic policy," but do go on:

But correlations can be misleading. A series of more recent studies challenge the view that larger or more activist government necessarily threatens entrepreneurship. In fact, that may get the relationship precisely backwards.

Entrepreneurs are actually more likely than other Americans to receive public benefits, after accounting for income, as Harvard Business School’s Gareth Olds has documented.

And in many cases, expanding benefit programs helps spur new business creation.Take food stamps. Conservatives have long argued that they breed dependence on government. In a 2014 paper, Olds examined the link between entrepreneurship and food stamps, and found that the expansion of the program in some states in the early 2000s increased the chance that newly eligible households would own an incorporated business by 16 percent. (Incorporated firms are a better proxy for job-creating startups than unincorporated ones.)


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Interestingly, most of these new entrepreneurs didn’t actually enroll in the food stamp program. It seems that expanding the availability of food stamps increased business formation by making it less risky for entrepreneurs to strike out on their own. Simply knowing that they could fall back on food stamps if their venture failed was enough to make them more likely to take risks.

And of course we've seen that entrepreneurship is picking up since the advent of Obamacare. It's not rocket science: Give people a guarantee that they'll eat and get to take their kids to the doctor no matter what, and chances will be taken.

It's a good thing!

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