Economic freedom promotes entrepreneurship more than government programs do
Montreal, November 4, 2016 – While governments continue to focus on assistance programs and subsidies, it is economic freedom that is essential to business creation, as shown in a Research Paper published today by the MEI based on an extensive scientific literature.
Entrepreneurs invest, create jobs, and help increase the standard of living of all. Studies show that rules of the game which favour economic freedom facilitate the creation of businesses. Among these favourable policies are, for example: reducing government intervention and spending, eliminating barriers to interior and exterior trade, facilitating foreign investment, liberalizing the credit market for small businesses, and reducing the administrative formalities required to start a business.
This connection has been amply verified empirically by numerous international studies, but also by comparisons among the Canadian provinces. “All of the studies find a positive connection between economic freedom and the level of entrepreneurship in a given society,” points out Mathieu Bédard, Economist at the MEI and author of the publication. “No study finds a negative connection between economic freedom, or a component of economic freedom, and entrepreneurship.”
Many governments tend to do the opposite, namely intervene in various ways to stimulate entrepreneurship. But it is not clear that such interventions are effective. Some merely displace entrepreneurs, who start different kinds of businesses in order to qualify for programs or subsidies.
The situation in Canada provides a good illustration of the phenomenon. At one extreme, Alberta is characterized both by a very high economic liberty score and by a high rate of business creation; at the other extreme, Quebec has little business creation and the country’s worst economic freedom score.
“Government interventions are not uniformly bad, but before resorting to a policy for promoting entrepreneurship, there is a fundamental question that needs to be asked,” says Mathieu Bédard. “Does this measure place more responsibility on individuals or on the political process? The studies are clear: Entrepreneurship is about individuals. Letting them make their own choices can only be good for entrepreneurship.”
“Entrepreneurship is a bit like apple pie,” adds Michel Kelly-Gagnon, President and CEO of the MEI. “Everyone likes it and wants more of it. But for all the talk about this theme, and for all the attention it receives in classrooms, one rarely hears mention of a fundamental precondition to having more entrepreneurship in Quebec: more economic freedom. Yet they are inextricably linked.”
The Research Paper entitled Entrepreneurship and Economic Freedom: An Analysis of Empirical Studies was prepared by Mathieu Bédard, Economist at the MEI. This publication is available on our website.
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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.
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