Baumol’s productive and unproductive entrepreneurship after 25 years
| DOI | https://doi.org/10.1108/JEPP-12-2015-0041 |
| Date | 15 August 2016 |
| Published date | 15 August 2016 |
| Pages | 130-144 |
| Author | Peter J. Boettke,Ennio Piano |
| Subject Matter | Strategy,Entrepreneurship,Business climate/policy |
Baumol’s productive and
unproductive entrepreneurship
after 25 years
Peter J. Boettke and Ennio Piano
Department of Economics, George Mason University, Fairfax, Virginia, USA
Abstract
Purpose –The purpose of this paper is to consider the impact of Baumol’s work on entrepreneurship
has had on framing the economic development puzzle.
Design/methodology/approach –In many ways, the intuition behind the paper is straightforward.
Entrepreneurs allocate their time and attention based on the relative payoffs they face in any given
social setting. If the institutional environment rewards productive entrepreneurship, then the time and
attention of entrepreneurial actors in the economy will be directed toward realizing the gains from
trade and the gains from innovation. If, on the other hand, there are greater returns from the allocation
of that time and attention toward rent-seeking and even criminal activity, alert individuals will respond
to those incentives accordingly. The simplicity of the point being made is part of the brilliance in
Baumol’s article. As with other classics in economics, once stated the proposition seems to be so basic it
is amazing that others did not put it that way beforehand.
Findings –It has been 25 years since Baumol published his paper in the Journal of Political
Economy, and as pointed out, it has had a significant scientific impact. But to put things in
perspective, James Buchanan’s“An economic theory of clubs”published in 1965 has accumulated
roughly 3,500 citations, F.A. Hayek’s“Theuseofknowledgeinsociety,”published in 1945 has over
12,000, and Ronald C oase’s“The problem of social cost”published in 1960 has over 28,000 citations.
So Baumol’s paper would put him in rather elite compan y. The great strength of the pap er is to focus
the attention on the relative payoffs of productive, unproductive and destructive entrepreneurial
activity. But one of the most significant disappointments of the subsequent history of this paper is a
methodological one. The comparative case study approach that Baumol employed did not result in a
renewed appreciation for narrative forms of empirical research in political economy. It could
legitimately be arg ued that the sort of quest ions about the funda mental institutio nal causes of
economic growth and development can only be captured with these more historical methods.
Attempts to force fit this analysis into a set of methodological tools which have already revealed
themselves to be in adequate to do justi ce of the role of institutions and disregard the underlying
cultural norms and beliefs that characterize human sociability.
Originality/value –In this paper, the authors will focus on the contribution made by Baumol’s 1990
paper on the field of comparative political economy, and in particular on the literature on transitional
political economy. Section 2 places Baumol’s argument in the context of the failure of neoclassical
growth theory. Section 3, the authors argue that although the Baumol framing was an improvement
over the old comparative economic systems literature, contemporary transitional political
economists have fai led to fully realize th e implications of the in stitutional revol ution. They have
therefore been unable to understand the causes of the heterogeneity of outcomes among
those countries th at transitioned from communis m to the market economy in the 1990s. In Section 4,
the authors argue that the political economy of transition will gain from a more sophisticated
view of the economic process of the market economy, an appreciation of the entrepreneurial
function, and a deeper understanding of the role of formal and informal institutions and their effect
on entrepreneurship. The authors will illustrate the point with some examples from the recent
history of the Russ ian political and e conomic transit ion. Credible comm itment problem s and
the deficiencies o f the institution al reforms of the ear ly 1990s were respon sible for the failu re
of reallocating th e entrepreneurial talent that existe d in the Soviet econom y to productive
economic activities. The framework can therefore be used to solve the puzzle of why the announced
liberalization o f Russian markets an d privatization of previously state-owned resou rces led to
Journal of Entrepreneurship and
Public Policy
Vol. 5 No. 2, 2016
pp. 130-144
©Emerald Group Publishing Limited
2045-2101
DOI 10.1108/JEPP-12-2015-0041
Received 31 December 2015
Revised 19 February 2016
Accepted 19 February 2016
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
130
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