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Entrepreneurship, investment, and inequality

The field of political economy has always sought to analyse and understand the dynamics of the economy – largely, the capitalist economy; its laws of motion, what drives development, and what determines the division of the spoils. Originally, with Adam Smith’s Wealth of Nations (1776), David Ricardo’s On the Principles of Political Economy (1817) and Karl Marx’s Capital: Critique of Political Economy (1867), the division of the spoils was seen in class terms, of how the surplus in society was divided between the old feudal class and the rising capitalist and working classes; and this was linked to economic development through the need to mobilise resources for investment, and to seek to increase the extent of the market which enabled a greater division of labour and hence productivity. This ‘class’ analysis was replaced with the neoclassical focus on the individual, utility maximisation and marginalism – with decisions seen as being taken ‘at the margin’, rather than on the far broader scale on which these developments occur in reality. The papers in this issue are all focused in various ways on these related issues, of how entrepreneurship and investment drive growth, what the relation of this is to the division of rewards (income and wealth) and what role government can play to promote both economic development and the welfare of citizens, which after all should be the purpose of such development. Hanen Ragoubi and Sana El Harbi, ‘Entrepreneurship and income inequality: a spatial panel data analysis’, point out that in public discourse ‘entrepreneurship’ is often assumed to have positive connotations, with inequality having negative connotations, and they ask whether this is consistent, given that entrepreneurship might induce inequality? Their detailed statistical analysis suggestions that the picture is, as is usually the case, far more complex than that. The relation between entrepreneurship and inequality, and indeed the relationship between each of these and a variety of other factors – such as a country’s degree of economic development, per capita income, research and development, globalisation – are mixed, and contingent on each other and other factors. For example, whilst inequality implies that the wealthy will have resources that may be invested entrepreneurially, unequal possession of resources can hamper the ability of other groups to engage in entrepreneurial activity. Fundamentally, though they conclude that public policy can and does have important effects on all the above factors, so the key is that such policies that are aimed at promoting entrepreneurship, and those that are aimed at tackling excessive inequality, need to take proper account of the variety of possible intended and unintended consequences,