Over at Cafe Hayek, Don Boudreaux has a great post on the virtues of entrepreneurship. His post is full of the good side of successful entrepreneurship (let’s call that positive entrepreneurship). But there is also good that comes from unsuccessful entrepreneurship (let’s call that negative entrepreneurship).
It’s weird to think of failure of having a good side. For those who fail, it certainly doesn’t seem good. For those who risked it all and lost, it can be hard to see the positive. But failure teaches us what not to do.
Why is knowing what not to do important? For the simple reason we do not live in Heaven. Ours is a world of scarce resources. There simply aren’t enough resources to satisfy every want out there. So, we need to allocate our resources to their most productive uses.
And that is where failure comes in. When schemes fail, it is a signal that the resources were not deployed in their most efficient manner. They were not employed serving others’ or their owners’ needs. Or their deployment was too costly, that there were other resources available that could meet the same need with less cost.
If failure is not allowed in an economy (say, firms are bailed out or protectionist tariffs are passed, or subsidies given), then the signals the failure provides are not properly transmitted. This encourages the continued misuse of resources, diverting them from more useful causes and can lead to shortages.
Positive entrepreneurship is important, if it weren’t for success our lives would be stagnant, but we should not discount the learning process negative entrepreneurship provides.