Posts Tagged ‘ideology’

Zoltan Acs
by Zoltan Acs
Mon Dec 22nd 2008 at 1:28pm EST

The Incentive Structure

Monday, December 22nd, 2008

Few things are more important in capitalism, or any society for that matter, as the incentive structure. If the incentive structure is right, people will move into productive activities. If it is not they might become unproductive or, even worse, destructive. During 1980, the business community engaged in unproductive, or what we call rent-seeking activities. These take from Peter and give to Paul. During the 1990s, the U.S. was involved in one of the most productive periods in its history with large numbers of people engaged in productive activites (ICT revolution) that created new wealth. During the 2000s, a set of unfortunate events created an incentive structure that destroyed instead of creating wealth. This destructive entrepreneurship was caused by ideology, changes in the tax laws, and lax regulation. The outcome - trillions of dollars in wealth lost. This form of destructive entrepreneurship is the legacy of the past decade when investment did not flow into productive activities. In fact, it was destructive. How to change the incentive structure to get us back to a productive form of enterpreneurship is a million dollar question for which there are no easy answers.