Part VI: What are the consequences of path dependence?

 This essay is one of a series exploring the topic: What impact does political entrepreneurship have on freedom and flourishing? The series commenced with a Preface which provides a synopsis of the series and explains why I think it is important to obtain a better understanding of political entrepreneurship.

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In 1848, Frédéric Bastiat famously wrote:

“The state is the great fiction by which everyone tries to live at the expense of everyone else” (Bastiat 2012, p. 171).

 A couple of years later he noted that now participation in the making of law has become universal, “equilibrium is being sought in universal plunder” (Bastiat 2012, p.189).

He predicted social unrest: “people will be beating on the door of the legislative palace. The conflict will be no less bitter within it" (Bastiat 2012, p.194).

How can we explain why “universal plunder” has taken so long to become a major problem in the long-standing democracies? Part of the explanation lies in the existence of formal institutions that place constraints on legislatures. As noted in an earlier essay in this series, part of the explanation also lies in two-party systems of government in which power is usually exercised by encompassing interest groups which have an interest in promoting widespread opportunities for individuals to flourish.

However, the existence of formal rules and encompassing political parties doesn’t offer a complete explanation. What is it that has hitherto prevented governing parties from being displaced or taken over by political entrepreneurs seeking to modify the rules of the game to advantage favored interest groups?

I think the answer lies in the “path dependence” of social norms. Please recall at this point that (as noted in Part I) institutions include codes of conduct, norms of behavior, conventions, and customs as well as formal rules. As Douglass North explains:

“Path dependence means that history matters. We cannot understand today’s choices … without tracing the incremental evolution of institutions” (North 1990, p.100).

There was a time when social norms caused people in the long-established democracies to exercise greater restraint in using their democratic “rights” to obtain benefits for themselves at the expense of others. One reason was that inequality under a constitutional order in which the rules of the game were seen as fair didn’t generate tension but was seen as ipso facto also fair. Vincent Geloso and Alex Tabarrok note that James M. Buchanan held that view (Geloso and Tabarrok, 2025).

Buchanan also identified two norms which underpin liberal democracy: that a sufficient proportion of the population can make their own choices and prefer to be autonomous rather than dependent on others; and that a sufficient proportion of the population enter relationships with others based on reciprocity, fair dealing, and mutual respect. (Buchanan 2005, p. 26).

Buchanan asserted:

“Generalized or widespread failure of persons to adhere to these norms, along with widespread recognition that others also disregard the standards, will insure that the liberal order itself must fail, quite independently from any institutional safeguards” (Buchanan 2005, p.28).

The autonomy norm has eroded as more people have become heavily dependent on government for retirement incomes and for services such as health and education. Business and community organisations have also become increasingly willing to forgo their autonomy to pursue social and environmental objectives favored by whatever government happens to be in power and to obtain a more favourable regulatory environment for their activities.

The norm of reciprocity has also eroded considerably in recent decades. Political parties increasingly base their appeal to voters on the supposed benefits a policy might deliver to groups with specific demographic characteristics, rather than pursuing broad community interests. When voters see others declaring their support for political parties which promise additional spending or regulation to benefit specific groups, they are likely to be less inhibited in behaving similarly. As more voters engage in the struggle to obtain benefits, political parties have a greater incentive to compete for the support of narrow interest groups, rather than seeking to appeal to the broader interests of voters in their roles as taxpayers and consumers.

Increasing entanglement of government, industry and community organisations has been associated with inter-related problems of increasing constraints on economic freedom, changes in business culture leading to a decline in dynamism, and rapid growth in public debt levels. Economic freedom levels in countries such as France, Britain and USA are now substantially lower than they were at the turn of the century. Much of this slippage occurred prior to restrictions on freedom imposed during the coronavirus epidemic (Fraser Institute data). Edmund Phelps has noted a decline in economic dynamism associated with corporatism (Phelps 2013, pp. 159-69). Growth of public debt is a predictable consequence of the triadic political relationships discussed earlier. To avoid disappointing current generations by constraining government spending or raising taxes, governments tend to increase public debt, thus transferring the burden to future generations.

My consideration of these matters has led me to expect fiscal crises to become more common in the liberal democracies in the years ahead and that this will lead to consideration of rule changes to raise productivity growth and require governments to live within their means (Bates 2021, pp.117-18).

However, changing the rules of the game to reduce the adverse impact of interest group politics poses a large challenge for reform-minded political entrepreneurs. The problem arises from path dependency. The culture of preferment-seeking and plunder associated with interest group politics took a long time to reach its current state, but it is now entrenched and will be difficult to overcome.

North recognized the role that political entrepreneurs play in institutional change (North 1990, pp. 86-87, 103-4). His analysis implies that their role is to reduce transactions costs associated with institutional change. (North 1990, p.138). The transactions costs of institutional change are high because of the path dependence of institutions. As institutions evolve, ideologies tend to evolve to support them. Organizations and interest groups that have grown up under existing institutions often have a stake in maintaining them (North 1990, pp.91,99). 

In his Nobel lecture, North emphasized that because of path dependence, a change in formal rules may not change economic performance in the manner expected:

“It is the admixture of formal rules, informal norms, and enforcement characteristics that shapes economic performance. While the rules may be changed overnight, the informal norms usually change only gradually. Since it is the norms that provide “legitimacy” to a set of rules, revolutionary change is never as revolutionary as its supporters desire and performance will be different than anticipated. And economies that adopt the formal rules of another economy will have very different performance characteristics than the first economy because of different informal norms and enforcement.” (North 1993).

The implications of path dependence have been further explored by Peter Boettke, Christopher Coyne, and Peter Leeson. These authors contend that the ability of a new institutional arrangement to take hold when it has been transplanted depends on that institution’s status in relations to indigenous agents in the previous time period. They suggest that institutional transplants are unlikely to stick if they are inconsistent with indigenously introduced endogenous institutions (Boettke et al. 2015).

The analytical framework used by Boettke et al. suggests that endogenous political entrepreneurs might be more successful than international agencies in bringing about institutional change. Boettke and Coyne have noted elsewhere that political entrepreneurship entails alertness to the potential for new forms of governance to overcome political and bureaucratic constraints (Boettke and Coyne 2007, pp.130-31).

That raises the question, considered in the following essay, of what other qualities reform-minded political entrepreneurs might require to bring about desirable institutional change.

References

Bastiat, Frédéric, “The Law,” “The State,” and Other Political Writings 1843-1850, ed. Jacques de Guenin (Liberty Fund, 2012).

Bates, Winton, Freedom, Progress, and Human Flourishing (Hamilton Books, 2021).

Boettke, Peter J., Christopher Coyne and Peter Leeson, “Institutional Stickiness and the New Development Economics”, Chapter 6 in Culture of Economic Action, ed. Laura E. Grube and Virgil Henry Storr (Edward Elgar, 2015).  

Boettke, Peter J. and Christopher J. Coyne, “Entrepreneurial Behavior and Institutions” in Entrepreneurship: The Engine of Growth, ed. Maria Minniti (Praeger, 2007).

Buchanan, James M. Why I, Too, Am Not a Conservative, The normative vision of classical liberalism (Edward Elgar, 2005).

Geloso, Vincent and Alex Tabarrok. “Two Peas in a Pod: Democracy and Capitalism”, in Scott C. Miller and Sidney M. Milkis (eds.) Can Democracy and Capitalism be Reconciled (Oxford University Press, 2025).

North, Douglass C., Institutions, Institutional Change and Economic Performance (New York: Cambridge University Press, 1990).

North, Douglass C., ‘Economic Performance through Time,’ Nobel Prize Lecture (December 9, 1993) https://www.nobelprize.org/prizes/economic-sciences/1993/north/lecture/

Phelps, Edmund. Mass Flourishing: How grassroots innovation created jobs, challenge and change (Princeton University Press, 2013).

Part VII: What kind of political entrepreneurship is required?

 This essay is one of a series exploring the topic: What impact does political entrepreneurship have on freedom and flourishing? The series commenced with a Preface which provides a synopsis of the series and explains why I think it is important to obtain a better understanding of political entrepreneurship.

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Can strong political leadership bring about institutional change leading to greater economic and personal freedom?  That idea is easy to challenge. It recalls the oft quoted passage by Lord Acton:

“Power tends to corrupt and absolute power corrupts absolutely. Great men are almost always bad men, even when they exercise influence and not authority: still more when you superadd the tendency or the certainty of corruption by authority” (Acton 1887). 

Yet, powerful leadership has attractions to many citizens. I don’t think the question of whether strong political leadership could be consistent with greater economic and personal freedom should be dismissed out of hand.

Restoring order

The attraction of strong leadership is most understandable in chaotic situations where social order has broken down and lives, liberty and property are threatened by groups that have resorted to violence to pursue nefarious ends. Under such circumstances there may be grounds to hope that a strong leader will be able to restore order and protect the rights of individuals.

As Vincent Ostrom pointed out, the ubiquity of coercion means that order and organization in human societies depends upon a Faustian bargain involving use of organized force (Ostrom 1997, p.121). As explained by Paul Aligica and Peter Boettke:

“The implication is that social order and its institutional dynamics are perceived as shaped by and operating under the shadow of the ongoing tension between the threat of chaos and the threat of tyranny” (Aligica and Boettke 2009, p.61).

Benevolent despotism

Some of the best advice for despots who wish to promote freedom and flourishing was provided by Lao Tzu:

“Govern the state by being straight forward; wage war by being crafty; but win the empire by not being meddlesome” (Tzu 1963, LVII p.64).

Aristotle’s politics is somewhat more challenging to libertarians, but Fred D. Miller makes a strong case that it is not anachronistic to attribute to Aristotle a concept of individual rights and support for a moderate degree of liberalism. (Miller 1995, pp.373-378).

Robert Faulkner observes that Aristotle ranks greatness of soul as the "crown" needed to perfect all the virtues, including justice. He writes:

 “Aristotle calls greatness of soul a kosmos. It is an ornament of good character that is also an exalting order: an ordering heightened by an awareness of the grand activities such a soul calls for and is owed” (Faulkner 2007, loc. 250/3375). 

According to Faulkner:

“Aristotle's diagnosis comes to this: the great-souled man is at once drawn above humanity and drawn to humanity. He exhibits his superiority by aiding his fellows, and yet his wish is less to aid them than to avoid being or appearing dependent on them” (Faulkner 2007, loc. 565/3375).

Faulkner suggests that while Nicomachean Ethics seems to imply that greatness of the soul is a desirable attribute of political leaders, Aristotle moderates that view elsewhere in his writings. In Ethics, Aristotle suggests that greatness, especially great power, is overrated: “it is possible for one who is not a ruler of land and sea to perform noble action” (Faulkner 2007, loc. 692/3375).

In more recent times, Max Weber’s argument that effective leaders must have charisma may be relevant in considering the potential role of leaders in restoring liberty. Weber argued that effective leaders must have a charismatic form of authority because that is the only form of authority capable of overcoming the constraints of organisation, legality and tradition:

“Devotion to the charisma of the prophet, or the leader in war, or to the great demagogue in the ecclesia or in parliament, means that the leader is personally recognized as the innerly 'called' leader of men. Men do not obey him by virtue of tradition or statute, but because they believe in him” (Weber 1946, p.79).

Weber argued that charismatic authority is required for leaders to be effective in their struggle against the impersonal forces of bureaucratization. It tends to appear in moments of crisis, when the leader performs a ‘miracle’ for a group that feels otherwise impotent and deeply threatened. Xavier Márquez suggests that Weber's conception of charismatic authority allows some demagogues to play a genuinely democratic role in modern societies when viewed through contemporary theories of representation (Márquez 2024).

Thus far, the discussion suggests that it is not possible to rule out the possibility that a benevolent despot could promote freedom and flourishing if he or she wished to establish supportive institutions and had appropriate leadership qualities. However, that seems unlikely to be a frequent occurrence.

 Does autocracy support economic freedom?

The point was made earlier in this series (Part II) that it is easier to identify individual political leaders who have contributed to low or falling freedom ratings than those who have contributed to high or rising freedom levels. That is because political entrepreneurship tends to be less focused on individual leaders in countries where governments have greater regard for individual liberty. 

Nevertheless, the idea that autocrats have sometimes helped produce better outcomes may not be entirely fanciful. There may be some substance lying behind folklore that attributes improvements in economic freedom to autocrats such as Lee Kuan Yew in Singapore, Park Chung Hee in South Korea, Chiang Kai-shek in Taiwan and Augusto Pinochet in Chile.

However, even if it can be shown that in some instances autocrats have fostered greater economic freedom, and that this has been followed by improvements in personal freedom, it does not necessarily follow that a period of autocracy was necessary or justified. People in the countries concerned are better placed than foreign observers to make judgements about the use of force by autocrats in particular circumstances, but the idea that autocrats are more likely to make positive contributions to economic growth than democratic leaders does not stand up to scrutiny. William Easterly tested the proposition by relating economic growth outcomes to the periods during which autocratic and other leaders were in office. He found that “leaders matter very little” (Easterly 2013, pp. 308-26).

There is also strong empirical evidence that democracy, and the personal freedom associated with it, is compatible with high levels of economic freedom.

Which democracies are supporting economic freedom?

Vincent Geloso and Alex Tabarrok have assembled evidence that democracy and economic freedom are highly correlated. Except for Singapore and Hong Kong there are no jurisdictions with high levels of economic freedom that are not also democracies (Geloso and Tabarrok 2025, p.116). Countries which have experienced the greatest democratization (Peru, Taiwan, Portugal, Spain, and Greece) have also experienced improvements in economic freedom. There have also been substantial improvements in economic freedom in the countries of Eastern Europe which experienced democratization following the collapse of communism in 1989 (Geloso and Tabarrok 2025, pp. 125-8). Geloso and Tabarrok provide some strong arguments to explain the correlation between democracy and economic freedom that they observe.

It seems to me, however, that none of the explanations offered for the observed correlation between democracy and economic freedom provide grounds to allay concerns, discussed in the preceding essay, about the future of economic freedom in the long-standing democracies.

Economic freedom levels are beginning to slip in some of the long-standing democracies. While many of the newer democracies have been experiencing increased dynamism, the increasing entanglement of government, industry and community organisations in the long-standing democracies has been associated with a decline in dynamism.

There is not much evidence that either the progressive or conservative sides of politics in the long-standing democracies are currently offering policies to advance economic freedom. The progressive side of politics is tending to pursue social and environmental agendas without regard for their impact on economic freedom, or growth in productivity or incomes. The conservative side of politics is tending to pursue economic nationalist agendas without regard for their impact on economic freedom, or growth in productivity of incomes.

Experience suggests that substantial political support for economic freedom will return only after economic crises threaten to cause widespread misery. That raises the issue of what kind of political entrepreneurship might help to make economic freedom more secure in the long-established democracies.

Learning from previous reform experience

Some prominent political leaders in democracies have been able to pursue reforms directed toward expansion of economic freedom. During the 1980s, Ronald Reagan pursued such reforms in the USA, as Margaret Thatcher did in Britain. The reforms currently being pursued by Javier Milei in Argentina seem to be similarly motivated, but at the time of writing it is too soon to judge how highly Milei’s reforms will rate in terms of broad libertarian criteria. The economic problems confronting the United States and Britain in the 1970s and 80s provided the context in which political leaders could initiate substantial changes in the direction of economic and social policies. That is even more true of the economic circumstances in Argentina prior to Milei’s election.

The reform efforts by Reagan and Thatcher can be viewed as examples of heroic leadership which increased economic freedom. However, heroic leadership of that kind is not solely the prerogative of presidents and prime ministers. Similar reform efforts in New Zealand and Australia were led by government ministers responsible for economic policy, Roger Douglas and Paul Keating respectively, with prime ministers adopting a facilitating role.

Political leaders can rarely claim to be the authors of their reform strategies. Policy development that has led to greater economic freedom has drawn heavily on the ideas of prominent academics including Milton Friedman and Friedrich Hayek, on policy analysis in think tanks and on contributions of a few journalists who understand the issues.

In some instances, advisers within government bureaucracies have also played an important role in policy development. Roger Kerr, who held the position of Executive Director of the New Zealand Business Roundtable following a career in the New Zealand Treasury, provided a highly relevant comment about the need for advisors to focus their advice on their fields of expertise rather than on politics:

“Economists of all people should be conscious that the performance of bureaucrats in trying to pick winners and losers in the policy-advice market is likely to be as unimpressive as in the industrial domain – and for much the same reasons, namely lack of information and incentives. Perceived policy constraints are not always immutable. They can be shifted by reasoned analysis and well-constructed strategies for policy change, developed by interaction between political managers and technical advisers. Second-guessing political reactions can lead to narrowing of policy options and does less than justice, in recent New Zealand circumstances at least, to the intelligence of a number of politicians, on both sides of the political fence, who have been more aware of the gravity of New Zealand’s economic problems and prepared to tell the story like it is than many of their advising bureaucrats” (Kerr 1987, pp. 144-45).

Alf Rattigan is a prime example of a public servant who played a major innovative role in driving economic reforms in Australia.  Rattigan was chairman of Australia’s Tariff Board from 1963 to 1974 when it was replaced by the Industries Assistance Commission (IAC). He stayed on as chairman of the IAC until 1976, when he retired with ill health. Rattigan used his influence in those positions to play a pivotal role in terminating Australia’s long history of industry protection, which in turn, helped open Australia to the global forces that drove further market-based economic reforms. In a lecture presented in 2016, Paul Kelly, Editor-at-Large for The Australian and Australia’s most scholarly journalist, outlined the main elements that contributed to the success of Rattigan’s reform efforts (Kelly 2016). One element of Rattigan’s success was his integrity in taking seriously his legal responsibility as chairman of an independent statutory authority, in the face of opposition from the government of the day which believed that he should “accept the overall tariff policy of the government as given” and work within that framework. Another element was the ability of his professional staff to draw upon the methodology for measurement of effective rates of protection developed by Professor Max Corden. A small group of economically literate journalists played a crucial role in giving publicity to analyses demonstrating the costs of protection. Some groups, including farmers and miners, recognized that their members were disadvantaged by high levels of protection provided to the manufacturing sector and formed a free trade lobby. David Trebeck, an influential figure in the National Farmers Federation, said: “We fired the ‘bullets’ made by the IAC.” More politicians because advocates of free trade and political leaders eventually showed leadership by recognizing that “good policy is good politics”.

Unfortunately, looking back today on the economic reform efforts of the 1980s and 90s, it is apparent that the important reforms in the rules of the game made at that time have not become deeply entrenched. Political leaders obtained sufficient electoral support to implement market-friendly policies, but there does not seem to be much evidence that members of the public improved their understanding of the benefits of free markets in any of the countries in which reforms were undertaken.

Mass movements

The problem of ensuring adoption of government policies that more consistently advance economic and personal freedom is not merely a question of how to elect political entrepreneurs with their hearts in the right place to national leadership positions. Experience has shown that the longevity of reforms cannot be guaranteed even when they are supported by a strong coalition of interest groups and result in more favourable economic opportunities for a large majority of the population.

In recent years, centre-left and centre-right governments which have followed policies that are broadly consistent with relatively high levels of economic and personal freedom have become vulnerable to competition from populist political entrepreneurs who prophesy catastrophic environmental and social consequences if their radical policy proposals are not followed. Populist policy innovators on the left and right sides of politics tend to promote vastly different fears, and to offer vastly different policies. However, one common feature of those populist policy innovators is their attempt to exploit a systematic anti-market bias among electors.

The pertinent question is how the anti-market bias of public opinion can be reduced. History suggests that this has occurred to some extent in the past via complex processes involving, among other things, political entrepreneurship in social movements. For example, Joel Mokyr notes that the move toward free trade in Britain in the first half of the 19^th century involved the influence of post-Smithian political economy, the growing political power of the new industrial elite, and debates about income distribution and food supply. He writes:

“The careers of Victorian free-traders such as Richard Cobden and John Bright and the liberal Tories of the post-1815 era represent the kind of mixture of economic interests and liberal ideology that eventually secured victory for free trade” (Mokyr 2009, p. 153).

Mikayla Novak has noted the importance of entrepreneurship in propelling social movements to extend the effective domain of freedom. In that context she notes that “people such as William Lloyd Garrison, Emmeline Pankhurst, Mohandas Gandhi, Martin Luther King Jr., Lech Walesa, and Nelson Mandela” played an important role in “opposing unsatisfactory institutions and situations” although they, themselves, were not necessarily classical liberals by orientation” (Novak 2021, p. 45).

Is it possible that at some time in the future a broad social movement promoting classical liberal views could become sufficiently influential to ensure that children are offered as much tuition about the spontaneous order of the free market as they are currently offered about the workings of ecological systems in the natural environment? If that ever happens it will occur because of the actions of individuals.  As Edward W. Younkins has suggested, the task of building a free society depends on individual advocates of liberty who are “dedicated to preserving and strengthening the ideological and moral foundations of a free society”. Younkins notes that it is especially through the “numerous interactions with individuals” during their everyday lives that advocates of liberty can “transmit the freedom philosophy to the general public” (Younkins 2011, pp. 168-69).

Please see the final part of this series: Summary and Conclusions

References

Acton, Lord (John Emerich Edward Dalberg-Acton) Acton-Creighton Correspondence (1887) Acton-Creighton Correspondence | Online Library of Liberty

Aligica, Paul Dragos and Peter J. Boettke, Challenging Institutional Analysis and Development: The Bloomington School (Routledge, 2009).

Easterly, William, The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor (Basic Books, 2013).

Faulkner, Robert, The Case for Greatness: Honorable Ambition and Its Critics (Yale University Press, 2007).

Geloso, Vincent and Alex Tabarrok. “Two Peas in a Pod: Democracy and Capitalism”, in Scott C. Miller and Sidney M. Milkis (eds.) Can Democracy and Capitalism be Reconciled (Oxford University Press, 2025).

Kelly, Paul., “Economic Reform: A lost cause or merely in eclipse”, Alf Rattigan Lecture (The Australian and New Zealand School of Government, 2016).

Kerr, Roger, “Ideas, Interests, Experience and the Economic Adviser”, World Economy, 10, no. 2 (1987) pp. 131-54.

Márquez, Xavier, “Max Weber, demagogy and charismatic representation”, European Journal of Political Theory (2024).

Miller, Fred D., Nature, Justice, and Rights in Aristotle’s Politics (Clarendon Press, 1995).

Mokyr, Joel, The Enlightened Economy: An Economic History of Britain 1700 – 1850 (Yale University Press, 2009).

Novak, Mikayla, Freedom in Contention: Social Movements and Liberal Political Economy (Lexington Books, 2021).

Ostrom, Vincent., The Meaning of Democracy and the Vulnerability of Democracies (The University of Michigan Press, 1997).

Tzu, Lao., Tao Te Ching, D.C. Lau translation (Penguin Books, 1963).

Weber, Max, “Politics as a Vocation”, in From Max Weber: Essays in Sociology, edited and translated by H.H. Gerth and C. Wright Mills (New York: Oxford University Press, 1946).

Younkins, Edward W. Flourishing and Happiness in a Free Society, Towards a synthesis of Aristotelianism, Austrian Economics, and Ayn Rand’s Objectivism (University Press of America, 2011).

Part IV: What incentives are political entrepreneurs faced with?

This essay is one of a series exploring the topic: What impact does political entrepreneurship have on freedom and flourishing? The series commenced with a Preface which provides a synopsis of the series and explains why I think it is important to obtain a better understanding of political entrepreneurship.

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The most obvious difference between economic and political entrepreneurship is that the former is largely about creating wealth and the latter is largely about obtaining political power. It is possible, of course, for individuals to seek political power to enhance their own wealth or that of a nation, but I will leave to the following essay a discussion of the differing motives that political entrepreneurs may have for obtaining power.

This essay focuses on the choices that political entrepreneurs are faced with in considering how to obtain power, given the peculiarities of politics as a form of business. I will briefly outline the nature of these peculiarities before considering the incentives they create for political entrepreneurship.

Peculiarities of political activities

The most important peculiarities of political activities arise from differences between voting and other choices, differences between triadic and dyadic relationships, and differences in deal-making in public and private sectors.

Differences between voting and other choices

It has often been observed that when people vote they have less incentive to make well-informed choices than in the other decisions that they make. Joseph Schumpeter argued that a typical citizen who makes rational decisions in daily life at home and in business “drops down to a lower level of mental performance as soon as he enters the political field” (Schumpeter 2011, pp.261-62). He argued that citizens are prone to “irrational prejudice and impulse” in political matters and that this makes them particularly vulnerable to influence by interest groups (Schumpeter 2011, pp.262-64). As I have noted elsewhere, Schumpeter developed those views before the public choice literature enabled concepts such as rational ignorance and rational irrationality to be explored more fully (Bates 2021, pp.114-116). 

Bryan Caplan points out that for an individual voter, the cost of clinging to irrational political beliefs is negligible because there is a miniscule probability that one vote will be decisive in changing the result of an election. Caplan suggests that although citizens often talk about voting options as if they were ordering dinner from a menu, their actions tell a different tale: “They expect to be served the same meal no matter what they order” (Caplan 2007, p. 132). Few individuals take the trouble to assess relevant evidence before they form strong opinions on political issues. They have no incentive to do so. If they cling to irrational beliefs about items on a dinner menu they may experience adverse consequences because of their choices, but when they vote there is no direct connection between the individual elector’s choice and the outcome obtained.

The absence of a direct connection between individual choice and outcome, Richard Wagner argues, is the reason sentiment tends to play a larger role, relative to reason, in political competition (Wagner 2016, p.158). He notes Vilfredo Pareto’s view that ideological articulation can even induce people to support measures that they might have opposed in a market setting. Voters generally embrace policies that enable them to feel good about themselves (Wagner 2016, p.198).

Caplan has assembled evidence that widely held beliefs among the public show a systematic anti-market and anti-foreign bias (Caplan 2007, pp. 30-39, 146).

Competition for leadership

Joseph Schumpeter viewed democracy, as actually practiced, as a competition for leadership. He ended up defining democracy as “that institutional arrangement for arriving at political decisions in which individuals acquire the power to decide by means of a competitive struggle for the people’s vote” (Schumpeter 2011, p.269). That view of democracy has become increasingly relevant as party leaders have come to dominate legislatures, and decisions are increasingly made by executive order and other forms of regulation that are primarily under executive control.

Triadic versus dyadic relationships

Wagner argues that the main difference between political entrepreneurship and market entrepreneurship has to do with the difference between dyadic and triadic relationships. Dyadic relationships involve two people; triadic relationships involve three. Wagner observes that market relationships can be reduced mostly to a set of dyadic relationships where both parties benefit. Political catallactics “typically requires a set of triadic relationships” where two people exchange mutual support and a third is forced to provide financial support. (Wagner 2016, p. 122).

Use of the word “typically” is appropriate in the context of government activities but is less appropriate in a broader context, if political catallactics encompasses voluntary activity that doesn’t involve government. For example, whenever a group of people band together to buy a service that is of mutual benefit, it seems to me that they are engaging in a dyadic political activity.

It also seems inappropriate to label much of the political entrepreneurship that occurs at the local government level as triadic. The group of people who are using the service in that context may not differ much from the group who are paying for it. As discussed by Paul Aligica and Peter Boettke, in a context where people can exercise both voice and exit, “public” entrepreneurship can lead not only to better services at lower cost but also new and better forms of organization (Aligica and Boettke 2009, p.48).

Wagner illustrates the nature of triadic relationships by reference to decisions that are made about which roads to repair and which channels to dredge when roads and harbours are publicly owned. In that situation a triadic relationship is involved because the agencies responsible for road repair and dredging do not receive revenues directly from sales to the public. Those who benefit from the activities concerned have an incentive to undertake costly action, e.g., making donations to political parties to improve their positions in the queues (Wagner 2016,pp. 214-30).

Making deals

Wagner argues that little substantive work is accomplished through elections and political campaigns. He observes that while puffery is an understandable part of market competition, “electoral competition is mostly about puffery” (Wagner 2016, p.197).

The substantive work of policy choice takes place “outside electoral politics and entails the interactive elements necessary for constructing and maintaining deals” (Wagner 2016, p.198). He suggests a parliamentary assembly can be viewed as an “investment bank” because it is “a hub for making deals” involving selection and funding of projects (Wagner 2016, p.232). Wagner observes:

“Entrepreneurs are thus competing among themselves to seize the future. Successful entrepreneurship offers both fame and fortune” (Wagner 2016, p.279).

One important difference between the deal-making of political entrepreneurs and economic entrepreneurs is that the success of the latter can be measured by profit, which is usually a reliable indicator that the product meets consumers’ expectations. There is no similar indicator to enable political entrepreneurs to be held to account for the failure of policies to meet their purported objectives, let alone for any broader negative impacts on opportunities for human flourishing.

 Implications for entrepreneurial choices

Power-seeking political entrepreneurs have an obvious incentive to pander to the misconceptions and irrational preferences of voters by offering populist policies that are more closely aligned to those preferences. In my opinion, the response of some political entrepreneurs (from both conservative and progressive sides of politics) to reinforce false narratives is posing an increasing threat to economic freedom and prosperity in democracies. For example, a myth about the “hollowing out of American manufacturing” is currently supporting restrictions on economic freedom in the United States through imposition of higher import barriers. Phil Gramm and Donald Boudreaux have thoroughly debunked that false narrative (Gramm and Boudreaux 2025, pp.81-117).

There is also an incentive for political entrepreneurs to advance policies which increase the extent to which economic activity becomes subject to triadic relationships. The aim of such policies is to deliver benefits to politically powerful interest groups at the expense of consumers and taxpayers.

Observations about the prevalence of triadic relationships in politics bring to mind the definition of democracy as “two wolves and a lamb voting on what to have for lunch” (sometimes attributed to Benjamin Franklin without any supporting citation).

It is sometimes possible for political entrepreneurs to take advantage of triadic relationships and the willingness of voters to cling to irrational beliefs to pursue objectives that voters would not otherwise support. Wagner provides an outline of the process in his description of electoral competition:

“Within the triadic relationships associated with electoral competition … a political entrepreneur can construct a supporting coalition by crafting a transactional structure that entails gainers and losers, while at the same time generating a supporting ideological cover that softens and conceals the redistributive character of the transaction” (Wagner 2016, p.196).

The conceptual framework developed by Sharun Mukand and Dani Rodrik illustrates how such deceptive conduct can occur. Within that framework, political entrepreneurs discover identity and policy ‘memes’ (narratives, cues, framing) that shift beliefs about how the world works or a person’s beliefs about their identity and interests. Worldview politics and identity politics can complement and reinforce each other. In some instances, political entrepreneurs may induce a lobby group to push a particular policy because it has shaped their understanding of where their interests lie, rather than because the group has a vested interest in that policy (Mukand and Rodrik 2018).

The framework developed by Valentina Ausserladscheider also emphasizes that the strategies of political entrepreneurs are not determined solely by voters’ ideological positions. Innovative political entrepreneurs don’t offer the same policies as their competitors. They advance their political ambitions by focusing on niches in the marketplace of ideas that established parties do not satisfy, and on winning support by emphasizing the problem-solving capacities of their ideas. For example, the entrepreneurial strategy of “far-right parties” is linked to their “nationalist and nativist core ideology”, leading to policies such as immigration restrictions that are claimed to solve a range of problems. (Ausserladscheider 2022).

Ausserladscheider uses that framework to consider reasons for the political success of Jörg Haider, the leader of the Austrian Freedom Party, during the 1990s. Haider’s approach, based on a mix of authoritarian policies and policies to promote greater economic freedom, was particularly successful during a time of economic turmoil and uncertainty.

Political entrepreneurs seeking fame and fortune seem to be particularly attracted to deal making which expands public funding and regulation of infrastructure provision. The lack of clear measures of success in deal making in the political arena also makes also makes it easier for shysters and purveyors of inferior products to operate successfully in that arena.

This discussion of the incentives of political entrepreneurs to exploit voter misconceptions, promote triadic relationships, engage in deceptive conduct and participate in uneconomic deal making might cause some readers to wonder why democratic political systems have been as resilient as they have been. How is it that economic and political catastrophes have so far been largely averted in liberal democracies, given that political entrepreneurs have obvious incentives to engage in behaviour that could be expected to “kill the goose that lays the golden eggs”?

An obvious answer to that question is that political entrepreneurs often meet resistance when they seek to exploit the peculiarities of politics discussed above. Caplan has noted that established political leaders and parties have an incentive to think twice before caving in to popular misconceptions about the desirability of policies such as tariff protection because this poses the risk that they may become scapegoats for poor economic performance (Caplan 2007, pp.159-60). When voters have faith in political leaders, that allows leaders who are somewhat well-intentioned and less irrational some slack to circumvent their supporter’s misconceptions (Caplan 2007, p.181).

Mancur Olson provided an explanation by reference to the importance of encompassing political groups in a two-party system of government. He asserts that the leader of a party “whose clients comprise half or more of the society naturally is concerned about the efficiency and welfare of the society as a whole, particularly in comparison with lobbies for special-interest groups and congressmen accountable only to small districts” (Olson 1982, p.51). Party leaders certainly have an incentive to constrain deal-making that they consider is likely to have adverse impacts the party’s electoral prospects.

The next essay in this series, focuses on political entrepreneurship that occurs in liberal democracies in pursuit of economic and social objectives that have broad community support. It suggests that information constraints pose a challenge to successful pursuit of such objectives.

The adverse economic consequences of political entrepreneurship that seeks to exploit the peculiarities of politics as a form of business can also lead eventually to emergence of political entrepreneurs who propose reforms which aim to restore free markets. The scope for that to happen is explored in later essays in this series.

References

Aligica, Paul Dragos and Peter J. Boettke, Challenging Institutional Analysis and Development: The Bloomington School (Routledge, 2009).

Ausserladscheider, Valentina, “The Haider Phenomenon and the Rise of Austrian Neoliberalism,” in Culture, Sociality, and Morality : New Applications of Mainline Political Economy edited by Paul Dragos Aligica, Ginny Seung Choi, and Virgil Henry Storr (Rowman & Littlefield, 2022).

Bates, Winton, Freedom, Progress, and Human Flourishing (Hamilton Books, 2021).

Caplan, Bryan. The Myth of the Rational Voter (Princeton University Press, 2007).

Gramm, Phil, and Donald J. Boudreaux, The Triumph of Economic Freedom: Debunking the Seven Great Myths of American Capitalism (Rowman & Littlefield, 2025).

Mukand, Sharun and Dani Rodrik, “The Political Economy of Ideas: On Ideas Versus Interests in Policymaking” NBER Working Paper No. 24467 (2018).

Olson, Mancur, The Rise and Decline of Nations (Yale University Press: 1982).

Schumpeter, Joseph. Capitalism, Socialism and Democracy, Second Edition (Martino Publishing, 2011).

Wagner, Richard E., Politics as a Peculiar Business: Insights from a Theory of Entangled Political Economy (Edward Elgar, 2016). 

Part II: Can cultural values explain freedom levels?

 This essay is one of a series exploring the topic: What impact does political entrepreneurship have on freedom and flourishing? The series commenced with a Preface which provides a synopsis of the series and explains why I think it is important to obtain a better understanding of political entrepreneurship.

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The aim of this essay is to consider the extent to which differences in economic and personal freedom in different countries can be attributed to differences in underlying cultural values rather than to other factors – most particularly, the influence of political entrepreneurship and the ideologies adopted by governments.

There are reasons to expect interactions between economic and personal freedom to be mediated by economic development, change in cultural values and democratization. As discussed in Part I, there are strong grounds to argue that changes in the rules of the game which expand economic freedom often enable countries to experience more rapid economic development. There is also evidence that economic development leads to greater demand for democratization and cultural values supporting personal freedom.

Research by Ronald Inglehart illustrates some steps in the process by which an increase in economic development may generate pressure for greater personal freedom. He writes:

“Economic development seems to bring gradual cultural changes that make mass publics increasingly likely to want democratic institutions and to be more supportive of them once they are in place. This transformation is not easy or automatic. Determined elites who control the army and police can resist pressure for democratization. But development tends to make mass publics more trusting and tolerant and leads them to place an increasingly high priority on autonomy and self-expression in all spheres of life, including politics, and it becomes difficult and costly to repress demands for political liberalization” (Inglehart 2000, p.95).

Figure 1 suggests the existence of a weak positive relationship between economic freedom and an index of facilitating values developed by the author. The index of facilitating values reflects the priority that people in different countries place on autonomy, and the extent of interpersonal trust in different countries. Autonomy was allocated 75% of the weight and trust was allocated 25%. The index was constructed using values data derived from the latest round of the World Values Survey. Economic freedom is measured using recent data from the Fraser Institute. This index reflects many different indicators relating to size of government, legal systems and property rights, sound money, freedom of international trade and regulation. Further information relating to construction of Figure 1 is available elsewhere on this blog.

Figure 2 suggests the existence of a strong positive relationship between emancipative values and personal freedom levels. The concept of emancipate values was developed by Christian Welzel to measure the beliefs that people hold about such matters as the importance of personal autonomy, respect for the choices people make in their personal lives, having a say in community decisions, and equality of opportunity (Welzel 2013). Welzel’s research, using data from the World Values Survey, suggests that as economic development has proceeded, larger numbers of people have tended to adopt emancipative values in an increasing number of societies. The personal freedom component of the Fraser Institute’s Human Freedom Index incorporates indicators of rule of law, security and safety, freedom of movement, freedom of religion, freedom of association and civil society, freedom of expression and information, and relationship freedom (Vásquez et al. 2024). Further information relating to the construction of Figure 2 is also available elsewhere on this blog.

Economic freedom and personal freedom are strongly correlated (Vásquez et al. 2024, p.26). As discussed above, that can be partly explained by cultural intermediation. However, other processes may also be involved. For example, Milton Friedman suggested that economic freedom “promotes political freedom because it separates economic power from political power and in this way enables the one to offset the other” (Friedman 1982, p.9).

The outlier data points in Figures 1 and 2 have been labelled to draw attention to countries that have substantially different economic and personal freedom ratings than might be predicted from their underlying cultural values.

The historical role played by individual political leaders in bringing about some of those outcomes is obvious to anyone with a rudimentary knowledge of the political history of some of the labelled countries, e.g. Venezuela, Argentina, Iran and China. However, those are all countries with economic and/or personal freedom ratings substantially lower than might be predicted by underlying cultural values. It is more difficult to identify the contributions individual political leaders with institutional outcomes in countries with greater freedom than might be predicted from underlying cultural values. For the jurisdictions where that is possible, e.g. Chile and Singapore (for economic freedom) and Taiwan and South Korea (for personal freedom) the political leaders who come to mind are not libertarians – they are authoritarian figures who held power several decades ago. 

Similar conclusions about the influence of political entrepreneurship are obtained by identifying countries which have experienced greatest change in economic and personal freedom since 2000. It is generally much easier to identify individual political entrepreneurs who have contributed to institutional outcomes in jurisdictions that have experienced the greatest contraction of freedom than in jurisdictions that have experienced the greatest expansion of freedom (Bates 2025).

It should not be surprising that it is easier to identify individual political leaders who have contributed to low or declining freedom ratings. Political leadership in the countries concerned is, by definition, authoritarian, or becoming increasingly authoritarian. When governments have relatively high regard for individual liberty, political entrepreneurship tends to be more subtle, and less focused on national leaders.

The ideas reflected in underlying cultures, as represented in Figures1 and 2, clearly account for only a portion of the ideas (including ideologies) which influence institutional change. And the power of ideas is not the only factor involved. Interest groups also seek to change the rules of the game in their favour.

The issue of whether interests dominate ideas, or vice versa, has been discussed in the past. (See, for example, Barry 1985.) It is important to emphasize, however, that there are no automatic mechanisms to translate ideas and interests into institutional changes. Political entrepreneurs play a crucial role in determining which ideas and interests have greatest impact on the rules of the game.

The following essay considers similarities between political and economic entrepreneurship.

References

Barry, Norman. "Ideas Versus Interests: The Classical Liberal Dilemma” in Hayek's Serfdom Revisited." Essays by economists, philosophers, and political scientists on The Road to Serfdom after 40 years (The Centre for Independent Studies, 1985).

Bates, Winton, (2025) Freedom and Flourishing: What role has political entrepreneurship played in changes in human freedom this century?

Friedman, Milton, Capitalism and Freedom (University of Chicago Press, 1982).

Inglehart, Ronald, “Culture and Democracy”, in Culture Matters, edited by Laurence E. Harrison and Samuel P. Huntington (Basic Books, 2000).

Vásquez, Ian, Matthew D. Mitchell, Ryan Murphy, and Guillermina Sutter, The Human Freedom Index 2024 (Cato and Fraser Institute, 2024).

Welzel, Christian, Freedom Rising: Human Empowerment and the Quest for Emancipation (Cambridge University Press, 2013).

What impact does political entrepreneurship have on freedom and flourishing?

 

Preface to a Series of Essays

“Entrepreneurship necessarily takes place within culture, it is utterly shaped by culture, and it fundamentally consists in interpreting and influencing culture.”

-        Don Lavoie (Lavoie 2015, p. 50)

A few months ago, a kind person told me that “Freedom and Flourishing” had become more than just a blog. With that thought in mind, I have decided to try something new. I am proposing to present here a series of linked essays that can be read in much the same way as a journal article. Readers who wish to do so will be able to start at this Preface and read all the way through to the end, or alternatively, just read the essays that are of most interest to them. There will be links at the end of each essay to help readers to find their way to the next one and links at the beginning of each essay to help readers to find their way back to this Preface.

Some readers may notice that some of the material presented here has been published previously on this blog. The views presented in this series of essays have been more carefully considered but are still subject to revision.

As always, I welcome comments from readers.

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Some readers will come to this series with the prior belief that political entrepreneurship has a negative impact on freedom and flourishing. Those of us who believe that people tend to flourish most fully when governments refrain from interfering with their lives may hold that belief. We certainly have good reasons to be skeptical about the impact of political entrepreneurs on human flourishing.

Nevertheless, if we are serious about promoting libertarian ideals, we cannot avoid considering the possibility that political entrepreneurship might have a role to play in getting us from where we are now - or where we seem to be heading - to a political and legal order that is more conducive to human flourishing.

In my view, it is important to obtain a better understanding of political entrepreneurship at this time because many voters in liberal democracies seem to have become increasingly dissatisfied with conventional centre-left and centre-right political leaders. Unfortunately, there seems to be increasing support in liberal democracies for leaders who propose rule changes which are likely to have detrimental impacts on prospects for freedom and flourishing. That support seems evident on both the progressive and conservative sides of politics.

In that context, it is particularly important to understand the contribution that political entrepreneurship has made to the problems that voters perceive, and the likely consequences of the alternative approaches to political entrepreneurship that are currently on offer.

The analytical approach adopted here has been influenced by entangled political economy as explained by Richard E. Wagner. According to that approach, both “polity and economy are arenas of practical action that operate in similar but not identical fashion” (Wagner 2016, p. 64).

Wagner’s approach recognizes the importance of individual action:

“The framework of entangled political economy accommodates recognition that societies change only through individual action inside those societies, and with those actions spreading within the society according to the receptivity of other members of that society to those changes” (Wagner 2016, p. 138).

As Chris Matthew Sciabarra has suggested, to understand institutional change we need to recognize interactions between personal, cultural and structural (political-economic) considerations. Sciabarra has discussed the nature of those interactions using a Tri-Level Model which builds on Ayn Rand’s conceptual framework (Sciabarra 2000, pp. 379-83). He emphasizes that although the personal, the cultural, and the structural can be analyzed separately, they can never be “reified as wholes unto themselves” (Sciabarra 2000, pp. 379-80).

I believe that the concept of political entrepreneurship is necessary to an understanding of institutional change for much the same reason that the concept of economic entrepreneurship is necessary to an understanding of technological change. The focus of the series is on how political entrepreneurship shapes the formal rules that govern economic and personal freedom across jurisdictions.

These essays draw heavily upon the insights of Don Lavoie in considering the nature of political entrepreneurship. In the passage quoted in the epigraph, Lavoie was writing about economic entrepreneurship. He argued that the “seeing of profit opportunities is a matter of cultural interpretation” (Lavoie 2015, p. 51). However, the idea that entrepreneurship consists in “interpreting and influencing culture” seems particularly relevant to political entrepreneurship.

What Lavoie means by culture is “the language in which past events are interpreted, future circumstances are anticipated, and plans of action are formulated.” (Lavoie 2015, p. 49).

He explains that he views culture as a discourse. In that context: “entrepreneurship is the achievement not so much of the isolated maverick who finds objective profits others overlooked as of the culturally embedded participant who picks up the gist of a conversation” (Lavoie 2015, p. 51).

Essays in this series will discuss the implications of significant differences that exist between political and economic entrepreneurship. In politics, voter choices are weakly linked to individual outcomes, decision-making often involves triadic relationships, and political marketing allows greater scope for deception. Moreover, political deal-making lacks a clear success metric comparable to profit in markets, and institutional incentives may attract opportunists rather than principled leaders.

I acknowledge, however, that many political entrepreneurs are motivated by a desire to achieve economic and social objectives that are widely supported in the communities they live in. They are confronted by information constraints. It is often impossible for a central authority to possess and process all the knowledge needed to achieve social and economic objectives without producing adverse, unintended consequences. As new policy initiatives are implemented to reduce those adverse consequences, economic freedom is often further reduced, and adverse economic and social impacts tend to multiply.

Political leaders seeking to restore economic freedom face challenges including entrenched interests and institutional path dependence. Changing formal rules is insufficient without corresponding changes in norms and incentives. I maintain that institutional reform is not solely about electing better leaders at a national level.

In advocating that the social sciences should pay more attention to the role of political entrepreneurship, I am certainly not attempting to promote a “great man theory” of institutional change. Political entrepreneurs rarely act alone, and their influence is constrained by a range of factors that are present to varying degrees in the societies in which they function.

Crucially, libertarian political entrepreneurs are unlikely to have a lasting impact on freedom and flourishing if their influence is confined to national politics. A national leader may play a pivotal role in sweeping away accumulated regulation but a culture supporting liberty and individual flourishing cannot be established and maintained unless many individuals undertake frequent acts of political entrepreneurship in their day-to-day interactions with others.

The structure of the series is as follows:

Part I provides a brief discussion of the links between freedom and flourishing to explain my reasons for focusing on institutions relating to economic and personal freedom. It also explains the meaning of institutions, institutional change, and political entrepreneurship.

Part II considers the extent to which differences in economic and personal freedom in different countries can be attributed to differences in underlying cultural values. It concludes that prevailing culture at a national level offers only a partial explanation of differences in economic and personal freedom levels. There is much left to be explained by other factors, particularly the influence of political entrepreneurship on the ideologies adopted by governments.

Part III discusses similarities between political and economic entrepreneurship.

Part IV discusses the incentives that political entrepreneurs are faced with in the context of the characteristics of politics that make it a peculiar business.  

Part V discusses the motives of political entrepreneurs and the impact of information constraints on pursuit of economic and social objectives.

Part VI considers the consequences of institutional path dependence, first in slowing the emergence of interest group politics and associated detrimental impacts on economic dynamism, and second in making it more difficult for reform-minded political entrepreneurs to restore economic freedom.

Part VII considers whether heroic political entrepreneurship has potential to promote freedom and flourishing. It urges that political entrepreneurship be perceived more broadly than in terms of government leadership.

Part VIII summarizes the series and concludes.

Acknowledgement

I would like to thank Chris Matthew Sciabarra for helpful comments on earlier drafts of some of the material presented in this series. The usual caveat applies. Please do not assume that Chris endorses the views presented here.

References

Lavoie, Don, “The discovery and interpretation of profit opportunities: culture and the Kirznerian entrepreneur”, in Culture and Economic Action, edited by Laura E Grube and Virgil Henry Storr (Edward Elgar, 2015).

Sciabarra, Chris Matthew, Total Freedom: Toward a Dialectical Libertarianism (Pennsylvania State University Press: 2000).

Wagner, Richard E., Politics as a Peculiar Business: Insights from a Theory of Entangled Political Economy (Edward Elgar, 2016).