Does Welfare Actually Promote Entrepreneurship?

A recent article in The Atlantic challenges the oft-cited negative correlation between welfare programs and entrepreneurship by saying that welfare reduces the risks of starting a business, which would actually encourage entrepreneurship:

This argument is particularly important today for two reasons. First, despite the headlines coming out of Silicon Valley, America has actually become less entrepreneurial over the past few decades. The research described above suggests that reversing that decline need not include cuts to the welfare state. Second, entrepreneurship is central to the ongoing debate over stagnating economic growth. Just as mainstream institutions like the IMF and OECD have publicly questioned the assumption that growth requires tolerating income inequality, we must revisit the idea that an expanded welfare state comes at the expense of entrepreneurs and innovation.

It’s an interesting article, but there is one major flaw in its logic. Welfare might help ease the risks of starting a small business. And that may increase the number of small businesses that are created. But does that mean the welfare state actually promotes entrepreneurship? Not necessarily.

In some senses, entrepreneurship is all about taking risks. The people who are forced to take risks, and who succeed in an unfavorable environment, tend to develop businesses that actually provide a valuable product or service to their customers. It doesn’t really matter if more businesses are created if most of them are not delivering anything the public wants.

The very thing that is cited as a boon to entrepreneurship might actually be a destroyer of it: more businesses. I don’t want to know how many businesses welfare has helped produce. I want to know how many of those businesses survive, and how many of them are actually doing something for this country other than eating up taxpayer funds to keep a few people uselessly employed. How many of these businesses produce more for the public than they consume in “public” funds (i.e., taxes)? That’s an important question, and the article doesn’t even attempt to answer it.

Real growth in the business sector cannot depend on taxpayer money. Because you can’t borrow your way out of debt. You need real and actual gains in productivity based on real and actual growth. Government subsidies encourage all sorts of things. Real growth is not one of them.