Are entrepreneurs and criminals cut from the same cloth? Some evidence suggests that the answer is yes.
In a paper entitled “Drug dealing and legitimate self-employment“, economist Rob Fairlie shows a statistical relationship between being a teen-aged drug dealer and being self-employed as an adult that can’t be explained by incarceration, education, capital or other structural factors that might drive those who dealt drugs out of the labor force. Fairlie’s argument is that the same characteristics of people that lead them to become self-employed as adults also lead them to deal drugs as teenagers.
A sizable psychological and sociological literature also shows that attributes like a desire for independence and autonomy and a willingness to disregard rules and conventions lead people to both engage in criminal activity and to start businesses.
And much evidence shows that people often go into business for themselves when what they can earn from wage employment is low. Some researchers have found that people in low wage jobs see starting their own legal businesses as a good alternative to those jobs. Other researchers have found that people in low wage jobs see starting their own illegal businesses as a good alternative to those jobs.
Almost 20 years ago, William Baumol, an economist at NYU, wrote a very provocative article called “Entrepreneurship: productive, unproductive and destructive” in which he argued that a certain portion of the population has the skills and preferences to become entrepreneurs. The number of people starting productive companies depends a lot on the incentives society creates for entrepreneurship to be productive. In places where the incentives aren’t very good for productive entrepreneurship, people with the desire and talent to become entrepreneurs often turn to crime.
If Professor Baumol is right, then policy makers need to think hard about how they encourage more entrepreneurship. Increasing the number of productive entrepreneurs may depend a lot on creating better incentives for those with entrepreneurial preferences and talent to become productive entrepreneurs instead of turning to a life of crime.
This makes me wonder how many gang leaders, drug dealers, and mafia kingpins in prison could have been entrepreneurs doing the next new, new thing if they had been exposed to the right incentives.