Part VIII: Summary and Conclusions

This is the final essay 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 and explains why I think it is important to obtain a better understanding of political entrepreneurship.

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The purpose of this series of essays has been to explore the contribution that political entrepreneurship makes to human flourishing. A central issue is whether political entrepreneurship has a role to play in promoting a political and legal order more conducive to human flourishing.  

Each essay in this series has sought to address a question relevant to assessing the impact of political entrepreneurship on freedom and flourishing. The main points that emerge from each essay are as follows:

1. This series of essays has focused on institutions related to liberty because those institutions are strongly linked to human flourishing. The links between freedom and flourishing are conceptual as well as empirical. Human flourishing is inherently individualized and self-directed. Liberty is necessary to enable individuals to flourish in different ways without the flourishing of some individuals or groups being given structural preference over that of others.
2. At a national level, prevailing culture offers only a partial explanation of differences in economic and personal freedom levels. In several countries, political entrepreneurs and their ideologies have played an obvious historical role in bringing about economic and personal freedom levels that are substantially lower than predicted by underlying cultural values.
3. Political entrepreneurship is similar in some ways to other forms of entrepreneurship. Don Lavoie’s suggestion that entrepreneurs play an interpretive role in complex systems is applicable to all kinds of entrepreneurship. Political entrepreneurs respond to public discourse by using it as a basis for policy innovation.
4. Political entrepreneurship is largely about obtaining and using political power. Political entrepreneurs face incentives to exploit the misconceptions and irrational preferences of voters by making deals with narrow interest groups at the expense of consumers and taxpayers. Innovators among them have incentives to focus on niches in the marketplace of ideas that established parties don’t satisfy. However, political entrepreneurs who engage overtly in interest group politics are not always able to overcome opposition from other politicians who see benefits in seeking to serve broader community interests.
5. Many political entrepreneurs are motivated by a desire to pursue economic, environmental and social objectives that are widely supported in the broader community. However, even modest attempts to steer the market system toward desired economic objectives often obstruct the price signals that convey information from consumers to producers about the most advantageous use of resources. Pursuit of social and environmental objectives is usually a matter of “muddling through” in the face of unintended consequences.
6. Historically, the path-dependence of social norms has played an important role in slowing the emergence of interest group politics in the long-standing democracies. People were once more reluctant to become dependent upon government or to use the political system to obtain benefits at the expense of others than they are today. The erosion of those norms has led to increasing constraints on economic freedom, a decline in dynamism, and rapid growth in public debt. Path-dependence of social norms now poses a difficult challenge for political entrepreneurs seeking to promote policies that are more conducive to freedom and flourishing.
7. The idea that autocrats have sometimes helped to promote greater economic freedom may not be entirely fanciful but empirical evidence certainly doesn’t support the idea that democracy, and the personal freedom associated with it, is incompatible with high levels of economic freedom. It is clear, nevertheless, that the long-standing democracies are experiencing difficulties in maintaining economic freedom in the face of interest group politics. Reform-minded political entrepreneurs in those countries have a great deal to learn from previous reform experiences. The problem of ensuring adoption of government policies that more consistently advance economic and personal freedom cannot be reduced to the question of how to elect better political entrepreneurs to national leadership positions. Institutional change is a complex process involving social movements, media organizations, and interactions between individual citizens, as well as local and national politics.

 In the preface I suggested that it is important to obtain a better understanding of political entrepreneurship at this time because 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. In this series of essays, I have attempted to shed some light on the ways authoritarian leaders seek to appeal to the public but have not attempted to assess the gravity of current threats to liberty.

My concluding message for those who perceive that liberty is under threat is that they should emphasize the potential for positive relationships between democracy and human flourishing. Perhaps the most important thing I have learned in writing these essays is that my previous tendency toward cynicism about democracy was not entirely appropriate. If we want institutions that are more supportive of freedom and flourishing to become entrenched, we will need more supportive citizens engaged in discursive processes at all levels of society – that means more democracy, not less. 

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 V: What information constraints confront political entrepreneurs?

 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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This essay considers the information constraints confronting central planners and those political entrepreneurs who have less ambitious aims to promote widely accepted economic and social objectives. It is appropriate to begin by considering the motives of political entrepreneurs.

Motives of political entrepreneurs

Many assumptions that economists make about motives of political entrepreneurs are clearly wrong. Political entrepreneurs cannot maximize social welfare functions, even when they seek to promote the well-being of citizens.  They rarely set out to maximize the number of votes they obtain, even though they seek to obtain sufficient votes to win elections. They don’t necessarily set out to maximize the perks of office, or to use their positions to maximize personal wealth, even though such behaviour is common when the institutional context is conducive to it. The claims that many politicians make to be motivated by concerns for the well-being of the population they represent are not always deceitful.

Bryan Caplan suggests that to get ahead in politics, “leaders need a blend of naïve populism and realistic cynicism.” One reason why many politicians have legal training is because “the electoral process selects people who are professionally trained to plead cases persuasively and sincerely regardless of their merits” (Caplan 2007, p.169).

The easiest way to give the appearance of sincerity is to believe in the merits of the case you are pleading. Leon Festinger’s cognitive dissonance theory predicts that when people publicly advocate a position - especially if doing so requires effort or commitment - they tend to adjust their private attitudes to align with their advocacy to reduce internal psychological tension (Festinger, 1957).

Institutional context has important implications for the character of people who are attracted to a career in politics. Unscrupulous opportunists are likely to be attracted to political and bureaucratic positions in which they can obtain personal benefit by using discretionary powers corruptly. F. A. Hayek observed that “the worst get on top” in totalitarian systems because “while there is little that is likely to induce men who are good by our standards to aspire to leading positions in the totalitarian machine, and much to deter them, there will be special opportunities for the ruthless and unscrupulous” (Hayek 1994, pp.166-67).

However, an institutional context that is attractive to unscrupulous opportunists may also attract potential political entrepreneurs who see opportunities for institutional reform. More generally, reform-minded individuals may be motivated to enter politics when they perceive that current practices are resulting in adverse economic and social consequences.

Unfortunately, reform-minded political entrepreneurs are not a panacea. As discussed below, those who advocate further restrictions on individual liberty in their efforts to promote economic and social objectives may make matters worse. And, as discussed in subsequent essays, even when reform-minded political entrepreneurs who advocate greater economic and personal freedom succeed in attaining high office, they face substantial obstacles to achieving their institutional change objectives.

The perils of central planning

In a famous article, F. A. Hayek explained that the data a national planning agency would require to engage in rational economic planning exists only in a dispersed form in the separate minds of millions of people. Hayek observed that individuals possess unique knowledge of “the particular circumstances of time and place”, which they can use for their own benefit, and that of others, only if the decisions depending on it are left to them or made with their active cooperation (Hayek 1945, pp.521-2). Hayek suggested that we should look at the price system as a “mechanism for communicating information” because prices act to coordinate the separate actions of different people (Hayek 1945, p.526).

In The Road to Serfdom, Hayek noted:

“The question raised by economic planning is … not merely whether we shall be able to satisfy what we regard as our more or less important needs in the way we prefer. It is whether we shall be able to decide what is more, and what is less, important for us, or whether this is to be decided by the planner” (Hayek 1944, p.100).

In later writings, Hayek noted that as the adverse consequences of central planning became apparent, it came to have fewer defenders in the liberal democracies. However, arguments were still being advanced in favor of the state’s taking sole charge of providing various services that can be provided privately. He suggested that this also entailed the risk that people would be prevented from using their unique knowledge for their own benefit and would be denied the benefits of competitive experimentation:

“If, instead of administering limited resources under its control for a specific service, government uses its coercive powers to insure that men are given what some expert thinks they need; if people thus can no longer exercise any choice in some of the most important matters of their lives, such as health, employment, housing, and provision for old age, but must accept the decisions made for them by appointed authority on the basis of its evaluation of their need; if certain services become the exclusive domain of the state, and whole professions – be it medicine, education, or insurance - come to exist only as unitary bureaucratic hierarchies, it will no longer be competitive experimentation but solely the decisions of authority that will determine what men get” (Hayek 1960, p.261).  

In a book first published in 1985 Don Lavoie further explained the fundamental knowledge problem that political entrepreneurs are confronted with when they seek to plan economic activities. The most obvious implication is that it is impossible for markets to be replaced by comprehensive economic planning. However, more modest attempts to steer the market towards outcomes which planners consider to be desirable also obstruct the source of knowledge which is essential to rational decision-making (Lavoie 2016, p.56-7).

Lavoie points out that the only way we can know whether we are squandering resources by over- or under-investing in microprocessors or steel, for example, is via “the messages contained in the relative profitability of rival firms in these industries”. He adds:

“But this is precisely the information we garble when we channel money toward one or another of the contenders. Deprived of its elimination process, the market would no longer be able to serve its function as a method for discovering better and eliminating worse production techniques. Without the necessity of responding to consumers’ wants or needs, businesses would never withdraw from unprofitable avenues of production” (p.181).

Lavoie notes that advocates of industry policy disagree on the directions in which the market should be steered. For example, Felix Rohatyn wanted to funnel aid to sunset industries while Robert Reich wanted to funnel it to sunrise industries. He sums up:

“It is the main conclusion of the argument that I have called the knowledge problem … that there are no rational grounds on which Reich could ever convince Rohatyn or vice versa on such matters as are involved in economic change. As a result, such battles are sure to be fought with weapons other than carefully reasoned argument” (p. 200-201).

Lavoie notes that Rohatyn and Reich both argued that it is the responsibility of a strong leader to coordinate the actions of the rest of us (p.190). The coordination they had in mind seems to be more akin to the coordination that military leaders impose by giving orders to subordinates than the coordination among individuals that occurs voluntarily and spontaneously in a free market.

Lavoie argues that economic planning is inherently militaristic: “The practice of planning is nothing but the militarization of the economy”. In making that point he notes that the theory of economic planning was from its inception modeled after feudalistic and militaristic organizations (p. 230).

Some would argue that a degree of militarization is a price worth paying, or even desirable, to achieve a range of national objectives. Indeed, the conventional theory of democracy seems to entail top-down direction. Prior to elections, political leaders tell voters about their plans for education, health, social security etc. and are expected to implement those plans after they are elected. That view seems to imply the existence of some kind of necessary tension between democracy and markets. I will discuss that view later in this essay.

Knowledge required for governance

Gerry Gaus’s final book discusses, among other things, the question of whether the Open Society has evolved beyond “our” governance. Gaus seems to adopt F. A. Hayek’s view of the Open Society (or Great Society) as a society in which coercion of some by others has been reduced as far as possible and individuals are free to use their own knowledge for their own purposes.

Gaus alludes to the knowledge problem when he observes that “we seek to devise policies to improve” the functioning of the Open Society. However, “we do not have the knowledge and competency to do so, hence we are constantly disappointed by the last round of interventions and we blame the last government for its failures and broken promises” (Gaus 2021, p.13).

Gaus points out that when people do not endorse a policy imposed by planners, some tend to evade it. In commenting on the “passive population model”, he writes:

“Unfortunately, this view has been resurrected by those elites who continue to believe that the public is too ignorant to make its own decisions, and so should submit to “epistocracy,” or rule by those who know (aka, them). Not only, however, is such expertise essentially nonexistent in complex systems, but most actual agents in the Open Society are anything but passive materials to be guided by the elite: they are active, reflexive agents who make their own choices. When citizens do not endorse a policy, many will employ their resources to evade it” (Gaus 2021, p.244).

Gaus considers three levels of governance – macro, meso, and micro- and three dimensions of governance – goal directed, strategic, and rules-focused. A goal-directed governor identifies preferred states and seeks to move society toward them. A strategic governor seeks to solve strategic dilemmas to assist citizens to secure outcomes they all want. A rules-focused governor seeks to structure some of the rules of self-organization.

Gaus’s analysis leads to the following conclusions:

• There is little prospect for a governor to successfully pursue macro-level goals in a complex society. For example, efforts to promote development in particular societies are often unsuccessful because institutions cannot readily be transferred from on society to another.
• Attempts to structure the “rules of the game” at a macro level are more promising. In cooperation with the self-organized normative framework of society a governor may effectively shape the rules of self-organization e.g. via civil rights legislation.
• Goal pursuit at the meso level is a dubious enterprise. Pursuit of environmental, economic and welfare-targeted variables is a hit-and-miss affair because our social world is a complex system. It is not linear and determinate, as is often assumed. Successful goal pursuit in a complex world is usually a matter of “muddling through” (sometimes described as learning-based governance).
• Polycentric governance studies show that a focus on problem-solving tends to facilitate effective governance when publics share pressing strategic dilemmas.
• There may be grounds for more optimism about the prospect for micro governance than governance at other levels.

In writing about micro governance, Gaus makes a favourable reference to the work of Abhijit Banerjee and Esther Duflo. Gaus justifies his optimism about micro governance as follows:

 “When changes come up from the more micro levels, not only are they apt to garner the moral endorsement of actual citizens, but the Open Society will possess a diversity of normative networks. Because what works today may be dysfunctional tomorrow, a diversity of approaches is always critical. This itself upsets the moralist, who believes she speaks for the truth about justice, and sees most deviations from her plan as shades of immorality. But many of the diverse publics will not take up her solutions—many citizens will see different problems and possibilities, and their normative beliefs will lead them to different solutions” (Gaus 2021, p.240).

Can democracy be consistent with freedom?

Gaus and Lavoie offer similar views on the compatibility between democracy and freedom. Gaus suggests that “so far from being opposed or in tension, democracy and freedom need each other to thrive.” He suggests that a critical task of the democratic order is to ensure the equality and fairness on which large-scale human cooperation depends. However, unless it is “animated by a spirit of public justification, democracy itself becomes a mechanism by which some seek to impose their valued goals on others in the name of the people” (Gaus 2021, p. 245).

In his discussion of the view that there is some kind of necessary tension between democracy and free markets. Lavoie notes that we tend to think that “taking democracy too far undermines markets and that taking markets too far undermines democracy”. He attributes that view to “liberalism’s gradual drift into compromises with conservatism and socialism” (Lavoie 1993). He suggests that liberalism needs to reinterpret its notions of markets and democracy so that they are seen to be essentially complementary. Our economics needs to take account of the cultural underpinnings of markets and our politics “needs to move beyond the model of the exercise of some kind of unified, conscious democratic will and understand democratic processes as distributed throughout the political culture”. The force of public opinion is best perceived as the distributed influence of political discourses throughout society rather than as “a concentrated will”.

Lavoie argues that what we should mean by democracy is a distinctive kind of openness in society rather than a theory about how to elect the personnel of government:

“Democracy is not a quality of the conscious will of a representative organization that has been legitimated by the public, but a quality of the discursive process of the distributed wills of the public itself” (Lavoie 1993, p.111).

It seems to me that those who see merit in the view of democracy presented by Lavoie and Gaus have good reasons to be skeptical about the worth of top-down planning to achieve national objectives. Individuals have different priorities and objectives that deserve to be recognized. Top-down planning cannot give appropriate recognition to those individual differences. Moreover, given the peculiarities of the business of politics, as discussed in the preceding essay, well-meaning attempts to pursue economic and social objectives that are widely supported within communities are prone to diverted to serve narrow interest groups.

In the following essay I consider the consequences of institutional path dependence, first in slowing the emergence of interest group politics, and second in making it more difficult for reform-minded political entrepreneurs to restore freedom and enhance opportunities for human flourishing.

 

References

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

Festinger, Leon., A Theory of Cognitive Dissonance (Stanford University Press, 1957).

Gaus, Gerald., The Open Society and its Complexities (Oxford University Press, 2021).

Hayek, F. A., The Road to Serfdom (University of Chicago Press, 1994).

Hayek, F.A., “The Use of Knowledge in Society”, The American Economic Review, XXXV, 4 (1945).

Hayek, F.A., The Constitution of Liberty (The University of Chicago Press, 1960).

Lavoie, Don., National Economic Planning: What Is Left? (Mercatus Center, 2016).

Lavoie, Don., “Democracy, Markets, and the Legal Order: Notes on the Nature of Politics in a Radically Liberal Society” in Ellen Frankel Paul, Fred D. Miller, Jr., and Jeffrey Paul (Eds.) Liberalism and the Economic Order (Cambridge University Press, 1993).

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 III: How is political entrepreneurship similar to economic entrepreneurship?

 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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As noted in the Preface, Don Lavoie held that entrepreneurship fundamentally consists of interpreting and influencing culture. From Lavoie’s perspective, “entrepreneurial acts are the readings of, and contributions to, different conversations”. He explains further:

“Most acts of entrepreneurship are not like an isolated individual finding things on beaches; they require effort of the imagination, skillful judgements of future costs and revenue possibilities, and an ability to read the significance of complex social situations” (Lavoie 2015, p.63).

It seems to me that political entrepreneurs listen to the discourse of potential supporters about existing policies to discover what they will be likely to find attractive. They use that information to innovate by producing new products and selling them persuasively. The new products are policy proposals. Success is measured, in the first instance, by whether proposed policy proposals are implemented.

Political entrepreneurs respond to public discourse, using it as a basis for policy innovation. However, their ideological agendas may not reflect a society’s underlying cultural values. In democracies, individuals may challenge entrenched interests by creating and participating in new political movements; under authoritarian regimes, such innovation is suppressed.

As I see it, Lavoie’s suggestion that entrepreneurs play an interpretive role in complex systems is applicable to all kinds of entrepreneurship. And Roger Koppl is correct to argue that “entrepreneurs are not a class of people distinct from other persons.” As Koppl says: “Entrepreneurship is an aspect of all human action. Entrepreneurship is a human universal” (Koppl 2006, pp.1-2).

Koppl built on the views of Israel Kirzner to propose a post-Kirznerian theory of entrepreneurial behavior. He suggested that alertness, discovery, and innovation are the key concepts required to understand what entrepreneurs do and what entrepreneurs are. Alertness refers to recognition of opportunities to revise plans and habits. Discovery is finding a profit opportunity, or some other opportunity to achieve a better outcome. Innovation occurs when the entrepreneur acts on the discovery that he or she has made (Koppl 2006, pp.6-7).

It is possible to identify different kinds of entrepreneurship with major contributors to the study of entrepreneurship. While Kirzner recognized the importance of discovery and innovation, he emphasized alertness to profit opportunities (Kirzner 1979). Joseph Schumpeter viewed the entrepreneur as an innovator who does new things, or does things in new ways (Schumpeter 1947).

Some political scientists have suggested a role for political entrepreneurs akin to the role played by Schumpeter’s innovators in the field of economics. Catherine De Vries and Sara Hobolt suggest that competition between political parties in European countries is like competition in economic markets. Long-standing dominant players have been challenged by disruptive new players. The central objective for both challengers and incumbents is the control of government and the delivery of public policies. Political entrepreneurs play a key role because a party that engages in successful political policy innovation can enjoy an effective monopoly on an issue and reap the consequent electoral benefits (De Vries and Hobolt 2020).

De Vries and Hobolt were writing about multi-party systems in which several political parties are competing for power. However, a similar form of competition occurs when an innovator challenges established leadership factions within a major political party by offering a product that is more appealing to a group of party members.

It often makes sense to view political and economic activities as belonging to separate realms. That perspective is helpful in considering the interactions between politics and business. Nevertheless, Richard Wagner makes an important point when he suggests that politics should be viewed as a peculiar form of business because it has many characteristics in common with business. Both attract investors to provide capital, entail competition, offer sources of livelihood for people, and are supported by administrative educational organisations. And both involve entrepreneurship, (Wagner 2016, p.11).

The next essay focuses on the peculiarities of politics as a form of business and discusses the incentives that political entrepreneurs are faced with in their efforts to attain power and introduce policy innovations.

References

De Vries, C.E. and S.B. Hobolt, “Challenger Parties and Populism”, LSE Public Policy Review 1, no.1 (2020), pp. 1–8.

Kirzner, Israel, Perception, Opportunity, and Profit, Studies in the Theory of Entrepreneurship (University of Chicago Press, 1979).

Koppl, Roger, “Entrepreneurial Behavior as a Human Universal” in Entrepreneurship: The Engine of Growth, ed. Maria Minniti (Praeger, 2007).

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).

Schumpeter, Joseph, “The Creative Response in Economic History”, The Journal of Economic History VII, no. 2 (1947), pp. 149-159.

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).