Staying Out of the Way of Entrepreneurs by William Poole President, Federal Reserve Bank of St. Louis

I have long had an interest in entrepreneurship. Every school boy and school girl learns of examples of great entrepreneurs such as Henry Ford. As I was growing up in Wilmington, Delaware, local lore emphasized the importance of the duPont family; evidence of the family’s business success over many generations was obvious to everyone who lived in northern Delaware. It is always risky to pick out names, because there are so many who will be left out, but here in Memphis I am sure that those who built FedEx naturally come to mind. Indeed, I think it accurate to say that every community in the United States can point to entrepreneurs who left at least a local mark and many communities can point to their home-grown entrepreneurs who have built firms of national and international importance. It is also noteworthy that great entrepreneurs have enriched the country not only by the businesses they have built but also by their contributions to universities, museums, libraries and many other cultural resources. That is certainly the case in Delaware, where many public schools bear the names of duPont family members who provided large gifts to establish and expand the schools.

As suggested by the title of my talk, my inclination is that the best way to encourage entrepreneurship is for the government to stay out of the way of entrepreneurs. After all, as the Kauffman Foundation says, entrepreneurship is:

… associated with individuals who create or seize business opportunities and pursue them without regard for resources under their control. … Words that describe entrepreneurship include innovative, creative, dynamic, risk-tolerant, flexible, and growth-oriented.(1)

Some will say that keeping government out of the way of entrepreneurs is a simple-minded approach, and it certainly is true that we can find examples of successful entrepreneurs within government. Nevertheless, words such as “innovative,” “creative,” “dynamic,” “risk-tolerant,” “flexible,” and “growth-oriented” are not used very often to describe government employees. And it is certainly true that countries that have relied on government enterprise rather than private enterprise have a poor record of achievement.

What Is an Entrepreneur? Entrepreneurs organize, manage, and assume the risks of a business or enterprise. They are willing to take on greater risks than other individuals and depend primarily on their individual initiative to achieve success. When an entrepreneur goes to work in the morning, his or her assets and economic future are on the line.

What kinds of government policies can help such a person to be successful? My basic theme is that government should concentrate on providing the fundamental legal and security infrastructure necessary for a democratic society to function, and should avoid detailed regulation of business practices and market structures. As much as possible, we should rely on competitive forces rather than government forces to constrain private power.

That’s not to say that governments should do nothing about entrepreneurship, but their role should be limited to creating a policy environment that allows entrepreneurs to make their own decisions with the absolute minimum involvement of government regulators. The Federal Reserve, for example, plays an important role in promoting entrepreneurship and general business growth. Businesses in general—and entrepreneurs in particular—benefit from price stability, a strong banking system and an efficient payments system. All three of these are central Federal Reserve responsibilities.

William Poole* President, Federal Reserve Bank of St. Louis

*I appreciate comments provided by my colleagues at the Federal Reserve Bank of St. Louis. Two Research Division colleagues, Thomas A. Garrett, Senior Economist, and Howard J. Wall, Assistant Vice President, provided special assistance. I take full responsibility for errors. The views expressed are mine and do not necessarily reflect official positions of the Federal Reserve System.

Full Speech: http://www.stlouisfed.org/news/speeches/2005/4_19_05.html