We have previously discussed ideological indoctrination in public schools (Yanovsky, Zhavoronkov, 2022; Yanovsky, Zhavoronkov, Cherny, Zatkovetsky, 2018, Chapter 8). In public schools and publicly funded universities, youth are taught that the State and Government are indispensable in private life. Young people, often ignorant of human history, are told about the “moral dubiousness” of entrepreneurial success. Frédéric Bastiat warned about the danger of such indoctrination in the mid-19th century in his work “Higher Education and Socialism” (Bastiat, 1848, pp. 186, 212). One consequence of this indoctrination is the diminished prestige of entrepreneurship as a profession in modern society.
Max Weber demonstrated that capitalism and its institutions became possible and achieved unprecedented success only after entrepreneurial success received moral and religious sanction and ceased to be considered reprehensible. Only then did sufficiently reliable protection emerge for two potentially unpopular characters to earn huge amounts of money and calmly pass them on as inheritance. The first is the owner of capital, the “means of production” (resources that generate profit). The second is essentially a specialist in acquiring cheap resources and selling significantly more expensive products created with their help – goods and services.
Without the first, there is no modern capitalism and, accordingly, no mass entrepreneurship that potentially generates economic growth (Mises, 1949/2005, p. 640). The second is a “speculator,” and according to I. Kirzner’s definition (Kirzner, 1978), is actually (in the narrow sense of the word) an entrepreneur. It is his “vigilance” to business opportunities that is the direct driver of the modern economy.”
The role of prestige as an important (and sometimes the most significant) element of reward for work done was shown in great detail and with numerous examples by Adam Smith in his “Inquiry into the Nature and Causes of the Wealth of Nations” (1776) [1]. The lack of public respect, honor, and prestige for business and the profession of entrepreneurs can lead to a decrease in the quality of novice entrepreneurs. The low prestige of business undermines incentives to choose risky, innovative strategies for business development, as respect and public recognition are standard compensation for the riskiest occupations (e.g., military, firefighters, rescuers). [2]
The indoctrination of children in modern state educational institutions leads to a shift in public opinion and public choice towards parties that support compulsory state care (“left” parties). More votes for such parties eventually lead to a heavier regulatory burden and a weakening of competition. Voting for ideologically “anti-capitalist” parties signals to potential entrepreneurs that they cannot count on public respect and honor for their achievements. It should be emphasized that the feeling of prestige in being an entrepreneur is an important factor in choosing self-employment (Segal et al., 2005).
Murphy, Shleifer, and Vishny, in their seminal article (Murphy, Shleifer, and Vishny, 1991), analyze the factors that determine career choices. The most talented market “agents” can, under certain conditions, achieve success in business by satisfying market demand through organizing the production of goods and services for consumers, thus leveraging their abilities on the largest possible scale if the return on their human capital (talents, abilities) seems fair. Under different conditions, they might use their abilities to seek rent, redistributing wealth and thereby slowing economic growth. Society’s attitude towards business and success noticeably signals whether business rules will be friendly or hostile.
In summary, the hardships of doing business, humiliating inspections based on the presumption of entrepreneurial dishonesty, and lack of respect for business success lead to a decrease in the influx of new innovative firms to the market. Even when the government’s “care” extends to business, it distorts incentives, attracting those who are more likely to find common ground with officials rather than those gifted with the talent to best please consumers. Such individuals use their connections to limit competition and extract rent. In this scenario, the likelihood of mass expansion in the production and supply of new goods and services resulting from the discovery of new technical capabilities is significantly reduced.
If state education becomes almost the only option (Yanovsky, Zhavoronkov, 2022), the alternative to prolonged unemployment becomes mainly the forced transition to unskilled and low-paid work, even for the most educated and qualified specialists from “old” industries. This situation creates a temptation (both for the ruling bureaucracy and politicians and for workers in difficult situations) to sharply expand the layer of benefit recipients dependent on the state.
Bastiat Frédéric, Selected Essays on Political Economy [1848], trans. Seymour Cain, ed. George B. de Huszar, introduction by F.A. Hayek (Irvington-on-Hudson: Foundation for Economic Education, 1995).
Kirzner I. M. (1978). Competition and Entrepreneurship. Chicago: University of Chicago Press.
Mises L. (1949). Human Action. A Treatise on Economics. Yale University Press, 1949.
Murphy K., Shleifer A., Vishny R. (1991) The Allocation of Talent: Implications for Growth Quarterly Journal of Economics Vol. 106, Issue 2 pp. 503-530 https://doi.org/10.2307/2937945.
Segal, G., Borgia, D. and Schoenfeld, J. (2005), “The motivation to become an entrepreneur”, International Journal of Entrepreneurial Behavior & Research, Vol. 11 No. 1, pp. 42-57. https://doi.org/10.1108/13552550510580834.
Weber Max. (1905 / 1930). The Protestant ethic and the spirit of capitalism. New York: Scribner.
Yanovskiy Konstantin (M.), Zhavoronkov Sergei. (2022). Universal and compulsory: what has happened to Education and is it possible to restart the motor of Economic Growth? (Vseobschee prinuditel’noe: chto sluchilos s obrazovaniem I mozhno li perezapustit motor ekonomicheskogo rosta?) Voprosy Teoreticheskoy Ekonomiki (Issues of Economic Theory, in Russian) Vol. 6 Issue 4, pp. 57-76. https://doi.org/10.52342/2587-7666VTE_2022_4_57_76. Yanovskiy K., Zhavoronkov S., Zatcovetsky I., Cherny D. (2018). Strategya dolgosrochnogo procvetania: v poiskah rastayavshego orientira (The Strategy of Lasting Prosperity: In Search for the Lost Constellation, in Russian) Moscow: Delo, 2018. https://www.researchgate.net/publication/366977534
[1] “First, The wages of labour vary with the ease or hardship, the cleanliness or dirtiness, the honourableness or dishonourableness of the employment…. Honour makes a great part of the reward of all honourable professions. … Disgrace has the contrary effect”. See Chapter 10.
[2] See Adam Smith’s observation of young peoples’ readiness to volunteer during the war (chapter 10).