Dear all,
I have a theory. I’ve been influenced by Ayn Rand’s and Joseph Schumpeter’s emphasis on entrepreneurship: that it’s not really the market (as the sum of the desires of the peope) is what causes prosperity, that’s rather just a resoruce like land or ore: it is those few extremely ambitious individuals who decide to take advantage of it. The reason behind this is technology. Perhaps if a medieval level agricultural economy, if it’s a free market, would not need and perhaps could not even make use of especially ambitious and talented individuals, what they would need is a large number of farmers and dealers with a good mediocre talent and drive.
But technology works as a leverage, and therefore the prosperity of modern society rests upon a few entrepreneurs of rare talent and ambition, who are willing and capable of taking advantage of it. People like Steve Jobs or Michael Dell make not only their business successful, but also they pull with themselves a legion of mediocre resellers, vendors, subcontractors. And these people are surprisingly rare - in a country of 100 million, if a madman would murder no more than 1000 such individuals, the economy would take a huuuge hit. (Of course, it would slowly recover later on.) Therefore it is of extreme importance that these people are not restrained or disincentived from producing. This is nothing new at this point, this is largely what Rand and Schumpeter wrote and it’s well-known and often agreed upon.
My theory is the following. It’s not enough not to restrain these people. This is only one half of the equation. You also have to make sure that producing value is the only route open to success for these extremely ambitious people, that the other routes, namely, crime and corruption are closed. That they should have no other choice to be successful but to produce things of value.
Crime is rarely a problem in this sense, these people are sensible enough to know that few mafia leaders live to see their grandchildren and see them not through bars. Corruption, Crony Capitalism is more often a problem.
Let’s say the state builds a new motorway and the market price - the price a private buyer would get - is 1$B. They agree with an entrepreneur to pay $2M and divide the other $1B equally. In a country of say 100M it means every taxpayer lots $10 - annoying, but perhaps not a big problem. What I think that it is actually a much bigger problem than it seems, because in a free market, assuming 20% profit the entrepreneur would have to build another $2.5B worth of motorways to realize the same profit.
Therefore a lot of jobs, subcontracts and that other motorway itself is lost to the economy. Therefore, if these rare people can make the majority of their profits through corruption, that means a big hit to the economy - much bigger hit than that per capita tax money which was lost. You lose much more than that $10.
Just like exceptional entrepreneurs have a kind of a multiplicator effect in a (technology-driven) free market, the loss of this multiplicator means that lost tax money through corruption works like a negative multiplicator: it does much more harm than as if those banknotes would simply be stolen from your pocket by a pickpocket. This explains why Eastern Europe and South America cannot seem to get on a road to prosperity: ambitious individuals do not produce, do not work as multiplicators because there are easier ways to get rich: corruption.
Does it make sense?