Monday, August 6, 2012

Is Democracy The Enemy Of Entrepreneurialism?

We all love democracy, right? It's the best way to organize a society, right? Everybody gets to vote? Well, maybe. Let's take a closer look. First of all, chances are you don't live in a democracy. If you live in the United States, you live in a participatory republic. This means you vote for people who make the rules. You don't make the rules yourself. But let's not split hairs.

How can democracy be in any way against people who want to build and thrive in private industry? After all, that's what entrepreneurs do, right? Think up stuff to make and sell to people? And isn't that the basis of all free market capitalism? People selling stuff to each other on the open market?

At first glance, it would seem that a democracy, or something close to it, is best for business to thrive. But is it really?

First of all, let's look at something called "time preference." This is the idea that people tend to postpone present satisfaction in exchange for future satisfaction. The lower your time preference, the more likely you are to put off pleasure now for more pleasure later. The higher your time preference, the more likely you'll just take the goods now and let the future bring whatever it's going to bring.

A low time preference is necessary for a robust capital structure. All capital comes from saved wealth. Companies can only grow bigger if they reinvest their profits. People can only start companies if they save their money. Both of these require a deferment of present pleasures in exchange for possible future pleasures.

As societies evolve, their collective time preference gets lower and lower. More and more, people plan for the future. This increases savings on both personal and business level. A self perpetuating cycle that creates more wealth and more goods.

But what about democracy? People imagine it's some system where people are left alone to pursue their interests. However, the powers that drive democracy are actually contrary to the powers that expand an economy.

How can that be?

First of all, who is in charge in a democracy? That's right, elected leaders. And how do leaders become elected? Right again. They promise things to the population. I'll give you this,if you vote for me. This is how all leaders obtain and retain their power.

Now, what kinds of things do they promise to the population? Think of them as promised goods. Are these promised goods more geared toward the present, or more geared toward the future? Considering that most public office terms are only for a few years, the goods have to be delivered relatively quickly, or else they won't get reelected.

So it's clear that politicians, or the elected leaders of a "free" democracy are promising short term goods in exchange for votes.

So on the one hand, you have society increasingly planning for the future by putting off consumption in exchange for a brighter future. And on the other hand, you've got politicians promising people goods right now, without concern for the future.

Business people, capitalists, and entrepreneurs are looking toward the future. Politicians are trying to get everybody to only think of the present. A tug of war.

Who will win?

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