This essay is one of a series exploring the topic: What
impact does political entrepreneurship have on freedom and flourishing? The
series commenced with a Preface which provides a synopsis of the series and explains
why I think it is important to obtain a better understanding of political
entrepreneurship.
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The most obvious difference between economic and
political entrepreneurship is that the former is largely about creating wealth
and the latter is largely about obtaining political power. It is possible, of
course, for individuals to seek political power to enhance their own wealth or
that of a nation, but I will leave to the following essay a discussion of the differing
motives that political entrepreneurs may have for obtaining power.
This essay focuses on the choices that political
entrepreneurs are faced with in considering how to obtain power, given the
peculiarities of politics as a form of business. I will briefly outline the
nature of these peculiarities before considering the incentives they create for
political entrepreneurship.
Peculiarities of political activities
The most important peculiarities of political activities
arise from differences between voting and other choices, differences between
triadic and dyadic relationships, and differences in deal-making in public and
private sectors.
Differences between voting and other
choices
It has often been observed that when people vote they have
less incentive to make well-informed choices than in the other decisions that
they make. Joseph Schumpeter argued that a typical citizen who makes rational
decisions in daily life at home and in business “drops down to a lower level of
mental performance as soon as he enters the political field” (Schumpeter 2011, pp.261-62). He argued that citizens
are prone to “irrational prejudice and impulse” in political matters and that
this makes them particularly vulnerable to influence by interest groups (Schumpeter 2011, pp.262-64). As I have noted
elsewhere, Schumpeter developed those views before the public choice literature
enabled concepts such as rational ignorance and rational irrationality to be
explored more fully (Bates 2021, pp.114-116).
Bryan Caplan
points out that for an individual voter, the cost of clinging to irrational
political beliefs is negligible because there is a miniscule probability that one
vote will be decisive in changing the result of an election. Caplan suggests
that although citizens often talk about voting options as if they were ordering
dinner from a menu, their actions tell a different tale: “They expect to be
served the same meal no matter what they order” (Caplan 2007, p. 132). Few
individuals take the trouble to assess relevant evidence before they form
strong opinions on political issues. They have no incentive to do so. If they
cling to irrational beliefs about items on a dinner menu they may experience adverse
consequences because of their choices, but when they vote there is no direct
connection between the individual elector’s choice and the outcome obtained.
The absence of a direct connection between individual
choice and outcome, Richard Wagner argues, is the reason sentiment tends to
play a larger role, relative to reason, in political competition (Wagner 2016,
p.158). He notes Vilfredo Pareto’s view that ideological articulation can even
induce people to support measures that they might have opposed in a market
setting. Voters generally embrace policies that enable them to feel good about
themselves (Wagner 2016, p.198).
Caplan has
assembled evidence that widely held beliefs among the public show a systematic
anti-market and anti-foreign bias (Caplan 2007, pp. 30-39, 146).
Competition for leadership
Joseph Schumpeter viewed democracy, as actually
practiced, as a competition for leadership. He ended up defining democracy as
“that institutional arrangement for arriving at political decisions in which
individuals acquire the power to decide by means of a competitive struggle for
the people’s vote” (Schumpeter 2011, p.269). That view of democracy has become
increasingly relevant as party leaders have come to dominate legislatures, and
decisions are increasingly made by executive order and other forms of regulation
that are primarily under executive control.
Triadic versus dyadic relationships
Wagner argues that the main difference between
political entrepreneurship and market entrepreneurship has to do with the
difference between dyadic and triadic relationships. Dyadic relationships
involve two people; triadic relationships involve three. Wagner observes that
market relationships can be reduced mostly to a set of dyadic relationships
where both parties benefit. Political catallactics “typically requires a set of
triadic relationships” where two people exchange mutual support and a third is forced
to provide financial support. (Wagner 2016, p. 122).
Use of the word “typically” is appropriate in the
context of government activities but is less appropriate in a broader context,
if political catallactics encompasses voluntary activity that doesn’t involve
government. For example, whenever a group of people band together to buy a
service that is of mutual benefit, it seems to me that they are engaging in a
dyadic political activity.
It also seems inappropriate to label much of the
political entrepreneurship that occurs at the local government level as
triadic. The group of people who are using the service in that context may not
differ much from the group who are paying for it. As discussed by Paul Aligica
and Peter Boettke, in a context where people can exercise both voice and exit,
“public” entrepreneurship can lead not only to better services at lower cost
but also new and better forms of organization (Aligica and Boettke 2009, p.48).
Wagner illustrates the nature of triadic relationships
by reference to decisions that are made about which roads to repair and which
channels to dredge when roads and harbours are publicly owned. In that
situation a triadic relationship is involved because the agencies responsible
for road repair and dredging do not receive revenues directly from sales to the
public. Those who benefit from the activities concerned have an incentive to
undertake costly action, e.g., making donations to political parties to improve
their positions in the queues (Wagner 2016,pp. 214-30).
Making deals
Wagner argues that little substantive work is
accomplished through elections and political campaigns. He observes that while
puffery is an understandable part of market competition, “electoral competition
is mostly about puffery” (Wagner 2016, p.197).
The substantive work of policy choice takes place
“outside electoral politics and entails the interactive elements necessary for
constructing and maintaining deals” (Wagner 2016, p.198). He suggests a
parliamentary assembly can be viewed as an “investment bank” because it is “a
hub for making deals” involving selection and funding of projects (Wagner 2016,
p.232). Wagner observes:
“Entrepreneurs are thus competing among themselves to
seize the future. Successful entrepreneurship offers both fame and fortune”
(Wagner 2016, p.279).
One important
difference between the deal-making of political entrepreneurs and economic
entrepreneurs is that the success of the latter can be measured by profit,
which is usually a reliable indicator that the product meets consumers’
expectations. There is no similar indicator to enable political entrepreneurs
to be held to account for the failure of policies to meet their purported
objectives, let alone for any broader negative impacts on opportunities for human
flourishing.
Implications for entrepreneurial choices
Power-seeking
political entrepreneurs have an obvious incentive to pander to the
misconceptions and irrational preferences of voters by offering
populist policies that are more closely aligned to those preferences. In my opinion, the response of some political
entrepreneurs (from both conservative and progressive sides of politics) to
reinforce false narratives is posing an increasing threat to economic freedom
and prosperity in democracies. For example, a myth about the “hollowing out of
American manufacturing” is currently supporting restrictions on economic
freedom in the United States through imposition of higher import barriers. Phil
Gramm and Donald Boudreaux have thoroughly debunked that false narrative (Gramm
and Boudreaux 2025, pp.81-117).
There is also an incentive
for political entrepreneurs to advance policies which increase the extent to
which economic activity becomes subject to triadic relationships. The aim of
such policies is to deliver benefits to politically powerful interest groups at
the expense of consumers and taxpayers.
Observations about the prevalence of triadic
relationships in politics bring to mind the definition of democracy as “two
wolves and a lamb voting on what to have for lunch” (sometimes attributed to
Benjamin Franklin without any supporting citation).
It is sometimes possible for political entrepreneurs
to take advantage of triadic relationships and the willingness of voters to
cling to irrational beliefs to pursue objectives that voters would not
otherwise support. Wagner provides an outline of the process in his description
of electoral competition:
“Within the triadic relationships associated with
electoral competition … a political entrepreneur can construct a supporting
coalition by crafting a transactional structure that entails gainers and
losers, while at the same time generating a supporting ideological cover that
softens and conceals the redistributive character of the transaction” (Wagner
2016, p.196).
The conceptual framework developed by Sharun Mukand
and Dani Rodrik illustrates how such deceptive conduct can occur. Within that
framework, political entrepreneurs discover identity and policy ‘memes’
(narratives, cues, framing) that shift beliefs about how the world works or a
person’s beliefs about their identity and interests. Worldview politics and
identity politics can complement and reinforce each other. In some instances,
political entrepreneurs may induce a lobby group to push a particular policy
because it has shaped their understanding of where their interests lie, rather
than because the group has a vested interest in that policy (Mukand and Rodrik
2018).
The framework
developed by Valentina Ausserladscheider also
emphasizes that the strategies of political entrepreneurs are not determined
solely by voters’ ideological positions. Innovative political entrepreneurs
don’t offer the same policies as their competitors. They advance their
political ambitions by focusing on niches in the marketplace of ideas that
established parties do not satisfy, and on winning support by emphasizing the
problem-solving capacities of their ideas. For example, the entrepreneurial
strategy of “far-right parties” is linked to their “nationalist and nativist
core ideology”, leading to policies such as immigration restrictions that are
claimed to solve a range of problems. (Ausserladscheider 2022).
Ausserladscheider
uses that framework to consider reasons for the political success of Jörg
Haider, the leader of the Austrian Freedom Party, during the 1990s. Haider’s
approach, based on a mix of authoritarian policies and policies to promote
greater economic freedom, was particularly successful during a time of economic
turmoil and uncertainty.
Political entrepreneurs seeking fame and fortune seem
to be particularly attracted to deal making which expands public funding and
regulation of infrastructure provision. The lack of clear measures of success in deal making in
the political arena also makes also makes it easier for shysters and purveyors
of inferior products to operate successfully in that arena.
This discussion of the incentives of political
entrepreneurs to exploit voter misconceptions, promote triadic relationships, engage
in deceptive conduct and participate in uneconomic deal making might cause some
readers to wonder why democratic political systems have been as resilient as
they have been. How is it that economic and political catastrophes have so far
been largely averted in liberal democracies, given that political entrepreneurs
have obvious incentives to engage in behaviour that could be expected to “kill the
goose that lays the golden eggs”?
An obvious answer to that question is that political
entrepreneurs often meet resistance when they seek to exploit the peculiarities
of politics discussed above. Caplan
has noted that established political leaders and parties have an incentive to
think twice before caving in to popular misconceptions about the desirability
of policies such as tariff protection because this poses the risk that they may
become scapegoats for poor economic performance (Caplan
2007, pp.159-60). When voters have faith in political leaders, that allows
leaders who are somewhat well-intentioned and less irrational some slack to
circumvent their supporter’s misconceptions (Caplan 2007, p.181).
Mancur Olson provided an explanation by reference to
the importance of encompassing political groups in a two-party system of
government. He asserts that the leader of a party “whose clients comprise half
or more of the society naturally is concerned about the efficiency and welfare
of the society as a whole, particularly in comparison with lobbies for
special-interest groups and congressmen accountable only to small districts”
(Olson 1982, p.51). Party leaders certainly have an incentive to constrain
deal-making that they consider is likely to have adverse impacts the party’s
electoral prospects.
The next essay in this series, focuses on political
entrepreneurship that occurs in liberal democracies in pursuit of economic and
social objectives that have broad community support. It suggests that
information constraints pose a challenge to successful pursuit of such
objectives.
The adverse
economic consequences of political entrepreneurship that seeks to exploit the
peculiarities of politics as a form of business can also lead eventually to emergence
of political entrepreneurs who propose reforms which aim to restore free
markets. The scope for that to happen is explored in later essays in this
series.
References
Aligica, Paul Dragos and Peter J. Boettke, Challenging Institutional
Analysis and Development: The Bloomington School (Routledge, 2009).
Ausserladscheider, Valentina, “The Haider Phenomenon and the Rise of
Austrian Neoliberalism,” in Culture, Sociality, and Morality : New
Applications of Mainline Political Economy edited by Paul Dragos Aligica,
Ginny Seung Choi, and Virgil Henry Storr (Rowman & Littlefield, 2022).
Bates, Winton, Freedom,
Progress, and Human Flourishing (Hamilton Books, 2021).
Caplan, Bryan. The Myth of the Rational Voter (Princeton University Press, 2007).
Gramm, Phil, and Donald J. Boudreaux, The Triumph of Economic
Freedom: Debunking the Seven Great Myths of American Capitalism (Rowman
& Littlefield, 2025).
Mukand, Sharun and Dani
Rodrik, “The Political Economy of Ideas: On Ideas Versus Interests in
Policymaking” NBER Working Paper No. 24467 (2018).
Olson, Mancur, The
Rise and Decline of Nations (Yale University Press: 1982).
Schumpeter, Joseph. Capitalism, Socialism and
Democracy, Second Edition (Martino Publishing, 2011).
Wagner, Richard E., Politics as a Peculiar Business: Insights from a Theory of Entangled Political Economy (Edward Elgar, 2016).
