Productivity, institutions, and market beliefs: three entrepreneurial interpretations
| Date | 21 August 2017 |
| Published date | 21 August 2017 |
| Pages | 164-180 |
| DOI | https://doi.org/10.1108/JEPP-10-2016-0041 |
| Author | Pál Czeglédi |
| Subject Matter | Strategy,Entrepreneurship,Business climate/policy |
Productivity, institutions, and
market beliefs: three
entrepreneurial interpretations
Pál Czeglédi
Institute of Economics, University of Debrecen, Debrecen, Hungary
Abstract
Purpose –Inspired by the debates among economists about the role of beliefs and informal institutions in
economic development, the purpose of this paper is to derive and test different hypotheses about the ways
beliefs about the market economy, institutions and policies, and productive entrepreneurship are intertwined.
Design/methodology/approach –The paper derives from the literature three hypotheses unified around
the idea of (political, cultural, and market) entrepreneurship. The paper then tests these hypotheses by
running various country-level regressions intended to check the relationships between formal institutions and
policies (measured by World Governance Indicators and by the Economic Freedom of the World index),
productive entrepreneurship (measured by total factor productivity form the Penn World Table), and
different kinds of market beliefs from the World Values Survey (WVS).
Findings –The sociological hypothesis says that more pro-market beliefs provide incentives for innovation
by recognizing entrepreneurship as a dignifying activity. The political hypothesis says that people with more
pro-market beliefs will demand, and therefore live with, more pro-market institutions and policies.
The “Schumpeterian”hypothesis says that it is market institutions that make it possible for entrepreneurs to
run against anti-market beliefs, and innovate. The results support the Schumpeterian hypothesis, mainly
because market beliefs predict institutions and policies as well as productivity very poorly, while formal
institutions and policies make a much better job of this.
Originality/value –The paper contrasts three different hypotheses concerned with the broader
consequences of political, cultural, and market entrepreneurship and tests them by making use of the time
structure of the observations found in the WVS.
Keywords Freedom, Entrepreneurial action, Institutions and policies, Pro-market beliefs
Paper type Research paper
1. Introduction: how are market beliefs linked to formal institutions?
Although economists devote much attention to analyzing how institutions and policies
influence macroeconomic performance, they care much less about the beliefs people hold
about these institutions and policies. This is even more surprising since the claim that
culture matters has recently received more and more support among economists. Beliefs
about the market economy are, however, not obviously included in what economists mean
by “culture,”which is usually understood as deep-seated rules constraining human action.
Not all economists are of the opinion that these non-constraining beliefs can be ignored
when looking for the roots of economic development. The most powerful recent work
arguing for the significance of beliefs is McCloskey’s (2006, 2010, 2016) monumental trilogy
which shows how a change in beliefs about entrepreneurship and bourgeois life in general
leads to the “great enrichment,”that is, modern economic growth. Can such beliefs matter
for contemporary economic development?
This paper is intended to deal with this question in two ways. First, from the economic
literature, it derives three hypotheses unified around the idea of entrepreneurship and
concerned with the relation of productive entrepreneurship to institutions and policies, and
Journal of Entrepreneurship and
Public Policy
Vol. 6 No. 2, 2017
pp. 164-180
© Emerald PublishingLimited
2045-2101
DOI 10.1108/JEPP-10-2016-0041
Received 23 October 2016
Revised 20 January 2017
30 January 2017
Accepted 30 January 2017
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
The author thanks two anonymous referees of this journal for their extremely helpful comments on
numerous points of the paper and for their suggestions, which substantially improved the paper, with
all the remaining errors being the author’s. This paper was supported by the Hungarian National
Research, Development, and Innovation Office (Project No. K-120686).
164
JEPP
6,2
market beliefs. Economists usually understand the role of beliefs through a political
hypothesis which proposes that ideologies matter inasmuch as they determine formal
institutions and policies through the political process. There seem to be two other
hypotheses, however. The sociological hypothesis says that beliefs have direct effects on
productivity because a change in them can make the productive, “bourgeois”way of
becoming rich a virtuous human endeavor. The Schumpeterian hypothesis says that
ideological change is rather the result of productive entrepreneurship provided that it is
made possible by market institutions and policies.
Entrepreneurship is the conceptual tool with the help of which these hypotheses can be
formulated as alternatives within a common framework. Even though they are logically not
mutually exclusive, attributing equal importance to all three would not mean much more than
saying that productive entrepreneurship, institutions and policies, and market beliefs are related
in some way. The question is not which hypothesis is true, butwhich one is the most important.
Second, I shall try to provide a test of these hypotheses by making use of the fact that all
three hypotheses have implications for the predictive nexus of productive entrepreneurship,
institutions and policies, and beliefs about the market economy. Accordingly, I shall run
various regressions intended to check the relationships between formal institutions and
policies, productive entrepreneurship, and different kinds of market beliefs using data from
the World Values Survey (1981-2014). The country measures of market beliefs are the
so-called CS-scores developed by Bjørnskov and Paldam (2012). I shall run country-level
regressions by making use of the time structure of the observations found in the World
Values Survey (1981-2014) which makes it possible to go a little beyond the cross-section
structure and allows us to run some very crude form of a Granger causality test. The results
support the Schumpeterian hypothesis.
2. Informal institutions, ideology, and economic development: a brief review
of the literature
The question of how culture shapes economic development is not new; recently, however, it has
received much attention among those economists who attempt to find the roots of economic
development in culture. In fact, more attention has been devoted to deep-seated factors; market
beliefs are defined away. As the widely used definition of Guiso et al. (2006, p. 36), for example,
states culture is a set of “those customary beliefs and values that ethnic, religious, and social
groups transmit fairly unchanged from generation to generation”(italics deleted).
Beliefs do not seem to fit this definition. Even if one looks at what economists actually do
when they say they analyze culture, it turns out that not much attention is paid to the
easy-to-change beliefs. Those elements of culture that are usually examined are deeper
(Alesina and Giuliano, 2015), such as norms of cooperation, individualism, religion, or family
ties. Preferences for the role of government in the economy and redistribution are also
included in some of the analyses, but preferences relating to the more fundamental elements
of the market economy, such as private property and competition, are not.
Beliefs do seem to fit the slightly more general definition of culture proposed by Mokyr
(2014, p. 153): “Culture is a set of beliefs, values, and preferences, capable of affecting
behavior, that are socially (not genetically) transmitted and that are shared by some subset
of society,”because this definition does not require those rules of thought that are defined as
culture necessarily be of a “fairly unchanged”nature. Beliefs are therefore “the superficial
part”(McCloskey, 2016, p. 499) of culture. This kind of belief, or ideology, says Higgs (2008,
pp. 548-550) is one that “propels the person to act in accordance with his or her cognitions
and moral assessments as a committed member of a political action group in pursuit of
definite social objectives,”even if “external material enticement”would suggest otherwise.
Following on –often implicitly –from what this definition suggests, many find support
for the claim that ideology matters for institutional change or for economic development.
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Productivity,
institutions,
and market
beliefs
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