In a recent article in National Affairs, University of Chicago finance and entrepreneurship professor Luigi Zingales maps out the following distinction between pro-business and pro-market and its relationship to entrepreneurship:
When the government is small and relatively weak, the way to make money is to start a successful private-sector business. But the larger the size and scope of government spending, the easier it is to make money by diverting public resources. Starting a business is difficult and involves a lot of risk — but getting a government favor or contract is easier, and a much safer bet. And so in nations with large and powerful governments, the state tends to find itself at the heart of the economic system, even if that system is relatively capitalist. This tends to confound politics and economics, both in practice and in public perceptions: The larger the share of capitalists who acquire their wealth thanks to their political connections, the greater the perception that capitalism is unfair and corrupt.
In other words, when the government is constrained, but with a pro-market orientation, entrepreneurship can flourish because there is some link having the right idea and the right initiative and market success, however tenuous. In contrast, with greater government involvement, market success is primarily facilitated by government support, thus giving greater weight to having the right connections, having the right financial support, etc.
In the United States, a system which Zingales calls highly pro-market without being pro-business until recently, 1 in 4 American billionaires were self-made in 1996. In contrast, in many other countries with a capitalism mix more pro-business than pro-market, “the wealthiest people tend to accumulate their fortunes in regulated businesses in which government connections are crucial to success… energy, real estate, telecommunications, mining. Success in these businesses often depends more on having the right connections than on having initiative and enterprise.”
As of late, I have been thinking a good bit about this idea of systems that enable or constrain entrepreneurship, and its application to specific social sector markets. Take health care as an example. Stripped down to the basics, health care quality is jointly a function of 1) access, and 2) quality of care. Debates on the merits of different systems center on the right or wrong mix of these two factors, with people seeing overall quality by differently weighing one factor over the other. “People can’t get care!” scream those calling for health care reform, to which the opposition says “but we have the highest quality services out there, and our innovation is off the charts.” Other countries are praised for their universal coverage, but criticized for lower quality of care, treatment, and services.
David Brooks recently framed the trade-off as such:
Reform would make us a more decent society, but also a less vibrant one. It would ease the anxiety of millions at the cost of future growth. It would heal a wound in the social fabric while piling another expensive and untouchable promise on top of the many such promises we’ve already made. America would be a less youthful, ragged and unforgiving nation, and a more middle-aged, civilized and sedate one.
Apart from the contrast in values, the question still remains how the system enables movement towards (or away) from each of these goals. Put simply, the question remains how each of these systems enables or constrains the emergence of innovation related to the goals of access and/or quality.* For an organization like Partners in Health, who works in Haiti, Peru, Russia, USA, Rwanda, Lesotho, and Malawi, are there specific aspects of certain markets that allow innovation to flourish over others, and if so, what are these, and towards what end do they allow growth?
Starting with Zingales’ guiding framework (pro-market, pro-business as related to ease of entrepreneurship), in the next post I will attempt to map out some thoughts on what such a framework might mean for entrepreneurship and innovation related to health care access and quality.
* By systems, I mean the mix of government, culture, incentive structure, etc that all might influence the ability of a system to improve in health care access or quality.



