Critics often blast entrepreneurs as people who think only about ways to make a buck. That characterization bothers Felix Livingston, professor of economics at Flagler College. During a spring visit to Campbell University, Livingston explained why he’s promoting a concept called “honorable entrepreneurship.” Livingston shared his ideas with Mitch Kokai in a conversation for Carolina Journal Radio. (Click here to find a station near you or to learn about the weekly CJ Radio podcast.)
Kokai: What do you mean by honorable entrepreneurship?
Livingston: Well, the concept of honorable entrepreneurship was inspired by Alexis de Tocqueville’s discussion of honor in his book Democracy in America. In that book he pointed out that groups, in order to advance their position in society, it makes sense for them to praise the actions of their members that strengthen the group, and to condemn the actions of members that undermine and weaken the group.
And so, in a sense, historically, conceptions of honor were sometimes in conflict with religious doctrine and written law. But honorable entrepreneurs as a group, entrepreneurial flourishing, is actually compatible with freedom, general prosperity, and the rule of law. And so that’s basically what it’s all about, is entrepreneurs who behave in such a way that strengthens the rule of law. Liberty and private property rights are honorable. And those entrepreneurs that engage in activities that undermine the rule of law — liberty — are dishonorable.
Kokai: Some people will hear the words “honorable entrepreneur” and think, “That must be an oxymoron.” What do you say to people who have a negative impression of entrepreneurs?
Livingston: There is a segment of entrepreneurs that are bad, and they’re called crony capitalists. Crony capitalism is a worm that’s rotting the core of the private enterprise system. But entrepreneurs who make their profits and advance themselves the old-fashioned way are actually honorable. … As Adam Smith pointed out, when people advance their self-interest in ways that … devise new products and services that meet the needs of people, we invent new systems, we adapt technologies, and so on. … Think of the market as a daily election, a daily plurality, and consumers are the electors, and they cast their dollars … as votes.
It’s a very tough way to be successful, but as Adam Smith pointed out, it’s the cause of the wealth of nations. And Smith pointed out that, look, … market capitalism is — it’s not so much the intentions of the participants, but it’s the outcome that raises up the poor from the most abject level of poverty. But there is a form of entrepreneurship called crony capitalism that indeed, I think, is dishonorable.
Kokai: Do negative perceptions of entrepreneurs stem from the growth or increasing pervasiveness of crony capitalism?
Livingston: There are a number of social costs associated with crony capitalism. One is, look, if I can get ahead … with a complacent or a compliant political authority, to gain preferences and privileges — to gain at the expense of consumers, to gain at the expense of my competitors — in effect, what happens is people lose their respect for the law or they lose their moral sense. Either way, they lose their respect for government. They lose their trust in government.
And recent studies have shown that there’s an incredible decrease in trust for government. I think politicians now rate, perhaps, below used car dealers on the scale of credibility. And that’s one of the effects of crony capitalism.
Kokai: Let’s say I have the entrepreneurial spirit. How could I be an honorable entrepreneur?
Livingston: Be successful the old-fashioned way. Again, you know, win a daily election where the electors are consumers casting dollar votes. Find a better way of doing things. Find a more convenient place to make things available at a more convenient time. There are numerous ways to, in effect, create mutual benefits. The essence of honorable entrepreneurship is mutually beneficial transactions — mutual benefits among entrepreneurs, among entrepreneurs and their workers, among entrepreneurs and consumers. It’s a kind of social network that is highly beneficial if it’s done correctly.
Kokai: What kind of damage does crony capitalism cause to our economic system?
Livingston: People lose respect for the system. They think the system is basically a manifestation of these crony capitalists and everybody is that way. They’re not. Not everybody is that way. There are lots of honorable entrepreneurs who are in the trenches every day, trying to satisfy their customers.
The economic cost is immense. For example, a number of years ago when President Bush put a tariff on imported steel to save jobs in the steel industry, more jobs were lost in the steel-using industries than the entire amount of employment in the steel industry. You can’t create benefits for one industry without decimating, often, other industries.
Here’s another example: tariffs on sugar. Sometimes the U.S. price for sugar is twice the world price. It’s estimated — I just read this recently — that for every sugar job saved, customers pay $500,000 a year. That’s the extra expense of having to buy American sugar because of the sugar tariffs.
But you can go on and on. … There are lots of variations of crony capitalism. The problem is that this is creating a web, a complex web, and it — you know, honest entrepreneurs don’t know where to turn. They don’t know what to do. It becomes very difficult. They become stultified, in a sense, within this system — this growing web of regulation and restriction.
Kokai: With all of the crony capitalism hurting our economic system, is it still possible for someone to be an honorable entrepreneur and succeed?
Livingston: Absolutely. It’s done all the time. We just don’t hear about it. We don’t elevate the ones who are honorable that strengthen the social fabric. We only hear about the negative cases. The fact is that many, many entrepreneurs are honorable. So, yes.
Now someone might say, “Well, why not launch a program on honorable public policy?” Well, I’ll tell you why: because politicians haven’t changed in 3,000 years, that’s why. Because, as Machiavelli said, the study of politics is a study of the quest for power. And there are always in every era some people who are willing to do anything it takes, within the law or outside of the law, to achieve their ends. So that’s why I think it’s difficult to be a long-term successful politician and to be honorable, to be honest with you. It is possible to be an honorable entrepreneur, though.
Kokai: For those of us who aren’t entrepreneurs, is there anything we can do to help the honorable entrepreneur to succeed and not the crony capitalists?
Livingston: You know, there is a multitude of ways that the free society is under attack. So I think the best thing is to become knowledgeable in a certain area, write letters to the editor, be vigilant. If someone gets a handout in a way that is targeted, that’s unfair, that’s kind of a manifestation of crony capitalism, just don’t let that go by. You know, make some type of commentary. Write letters.
So, other than that, the way I see it is if we could create a society that draws in like-minded people, both people who are not entrepreneurs and people who are entrepreneurs, who, in effect, embrace this idea of private property, the rule of law, general rules of justice and property, and we elevate the great examples in history … The problem is that entrepreneurs who are honorable only affect their families, the people they deal with immediately, but they aren’t raised up generally. They aren’t known. And when they die or when they sell their business, they’re forgotten.
So I think a society that raises up these people as role models and says, “This is the way you conduct business, this is the way you do it honorably” — if we could celebrate that, and elevate them, I think that would go a long way toward, perhaps, discrediting these egregious acts of crony capitalism.