The relativity of entrepreneurship types

Entrepreneurship takes three forms, these are productive, unproductive, and destructive. Some academics believe that the supply of entrepreneurs cannot be influenced by policy and the only thing that can be changed are the “rules of the game” which will change the mix of these three types of entrepreneurship, hopefully influencing entrepreneurs to be productive. Some of these types are fairly obvious whilst others might be surprising.

Productive entrepreneurship is fairly obvious, someone opening up a restaurant with fully vegetarian dishes is productive entrepreneurship. A good rule of thumb for identifying productive is if you can identify an unsaturated demand for it.

Unproductive entrepreneurship is entrepreneurship that doesn’t really benefit society but benefits individuals. An individual who trades with his own money through the stock market. Trading through the stock market doesn’t really add much value since for every dollar he makes, somebody else loses it, however price discovery and liquidity could be argued for but these are hardly productive activities. A clearer example is perhaps someone who buys a building and then rents the rooms, this literal rent seeking obviously doesn’t change much at all, it makes no difference who owns the property. The Law profession is also widely considered to be unproductive the majority of its activities result in mere transfers instead of value creation.

Destructive activities on the other hand could be for instance the selling of bad drugs(emphasis explained later) because people will die. Or a pyramid scheme, although it might seem that it’s just unproductive since the net result is a redistribution of money with people at the bottom losing their money, its unproductive because it could destroy confidence in the market and maybe hinder multi-level marketing companies.

This identification process can be tricky, for instance a libertarian might call a lawyer discovering a clause that allows a company to pay less taxes productive since he assumed the money is more productive in the company, whilst a communist might say that’s destructive since the state spends money for the benefit of all and this could affect the budget. Selling drugs would probably be considered by most to be a destructive form of entrepreneurship yet if the drugs don’t necessarily have violence or overdose associated with them, like in Amsterdam, its probably not destructive. This relativity puts a large emphasis on political parties representing the will of the people as to what productive is. This is especially important since evidence as to wether government can influence entrepreneurship is not very certain, however there is strong evidence that it can funnel it in the “right” direction.

Read more on these types here: Baumol_1990_