“Political entrepreneur” is one of those terms with too many definitions to be useful — the oldest being someone who profits by shaping rules rather than by creating value. A new NBER working paper, Political Entrepreneurs, proposes a more flattering one.
Across 26 US states between 2009 and 2023, the paper reveals that more than 40% of state legislators both owned and actively managed a firm. Britain has no comparable figure. The nearest thing is the LGA’s councillor census, which in 2022 found 15.8% of English councillors describing themselves as self-employed or freelance, against 8% of the adult population. Twice the national rate, but nowhere near 40%.
These US “political entrepreneurs” don’t sponsor more bills overall, but they initiate a greater share as first or sole primary sponsor. Nor are they any more likely than colleagues with other business ties to sponsor pro-business bills, or bills endorsed by state Chambers of Commerce:
“Instead, they selectively advance pro-entry legislation, especially bills related to deregulation and innovation rather than antitrust or access to capital.”
In other words, entrepreneurs with political power in the US are more focused on levelling the playing field than on tilting it.
In our Operation Innovation essay collection, David Stallibrass and John Fingleton CBE quote John Kay:
“You can become wealthy by creating wealth or by appropriating wealth created by other people. When the appropriation of the wealth of others is illegal it is called theft or fraud. When it is legal, economists call it rent-seeking.”
As Kevin Murphy, Andrei Shleifer and Robert Vishny argue in Why Is Rent-Seeking So Costly to Growth?, rent-seeking is self-reinforcing. The more of it there is, the more attractive it becomes relative to producing. It also falls hardest on innovators, because new firms need the permits and licences that incumbents have already bought, and the people best placed to extract rents prefer dealing with insiders they know to outsiders trying to get in.
Not that all lobbying is duplicitous. Much of it helps regulators understand what they are regulating, as Stallibrass and Fingleton are careful to say. The trouble is that the same channel serves both purposes, and incumbents have far more practice using it.
Writing on the paper in Network Effects, Eamonn Ives set out three responses: “Political parties could do more to encourage founders to stand for office; governments could make it easier for them to spend periods inside agencies and departments through appointments, fellowships or advisory roles; and policymakers could be more deliberate about bringing entrepreneurs into the room before rules are written, rather than consulting them as an afterthought.”
The third is the one we spend most of our time on. But if you want to be a political entrepreneur in the model of Baroness Lane-Fox, Alex Depledge, Matt Clifford, Emma Jones or Lord Bilimoria, the evidence suggests you would push for market entry rather than for protection.