RALEIGH – In the liberal imagination, conservatives oppose excessive government taxes and regulations on business because of their unwarranted faith in the competence, nobility, and perfect knowledge of business executives.
As with so many other figments of the liberal imagination, this image may tell you something about how liberals think but it tells you nothing about how conservatives think. In reality, conservatives oppose excessive government taxes and regulations because we know full well that many business executives are incompetent, ignoble, and ignorant – and that politicians and regulators, being fellow human beings, are equally likely to be incompetent, ignoble, and ignorant.
That is, modern-day conservatives don’t believe that free markets produce perfection. We believe that human perfection is impossible, and that attempts by very-human central planners to engineer such perfection are likely to produce worse results than free markets do.
In the timely case of North Carolina’s economic woes, for example, it would be wise for state policymakers not to imagine themselves to be more competent, more noble, and more knowledgeable than are the entrepreneurs, investors, and business executives they may seek to order around. Such political hubris is unjustified, given the recent failures of crony capitalism at home and abroad, and will only sow the seeds of future economic-development fiascos.
State leaders can certainly do many things to make North Carolina a more attractive place to live, work, invest, and start businesses. But they shouldn’t try to determine where people will live, how they will work, what they will invest in, and which businesses they will start.
This is not some abstract economic theory. This is basic economic reality. It is virtually impossible to forecast with accuracy which individuals, firms, or industries will prosper in 10 or 20 years. Many forecasters have embarrassed themselves over the years trying to do just that, and many investors have lost big betting on their feckless forecasts. But at least they were risking their own money, not the taxpayers’ money.
When it comes to creating jobs, it’s not so much big businesses or small businesses that do most of the hiring – it’s high-growth businesses, big or small, most recently created. By definition, it would be impossible for would-be government “investors” to know ahead of time which businesses will grow rapidly. To attempt to do so is to pan for fool’s gold.
The willingness to start new ventures – to risk time, money, and reputation on an enterprise with an uncertain future – seems to be a strong predicator of the success or failure of state economies. Several recent studies have shown that entrepreneurship is highly correlated with economic growth. Southern Illinois University economist R.W. Hafer, for example, used a state-by-state index produced by the Kauffman Foundation to explore the relationship between entrepreneurship and economic performance. The higher a state’s index rating, Hafer wrote in a September 2011 paper, the better the state’s economy performed in job creation and growth rate.
Unfortunately, North Carolina isn’t exactly a standout when it comes to attracting entrepreneurs and investors. While the Kauffman Foundation rated our state about average in entrepreneurial activity during 1997-99 period, North Carolina ranked below average during the more recent 2007-09 period the Foundation studied.
What would make our state more hospitable to job-creating entrepreneurs? A 2005 study by Indiana University professor Steven Kreft and University of West Virginia professor Russell Sobel concluded that measures of economic freedom exhibit a strong relationship to entrepreneurship. “Put simply,” they wrote, “an environment of low taxes, low regulations, and secure private property rights is what is necessary to encourage the entrepreneurial activity that is vital to produce economic growth.”
That’s not to say the other factors don’t matter. Skilled workers and good infrastructure are valuable to many firms, though the level of government expenditure is not necessarily correlated with the quality of either human or physical capital. Other factors largely or wholly outside of the control of policymakers, such as climate and demography, are also important.
But the bottom line is that if politicians want to make North Carolina more congenial to job creation, they will have to make North Carolina more congenial to job creators – whose names politicians will rarely know ahead of time.
Hood is president of the John Locke Foundation.