Institutions, Entrepreneurship and Economic Performance: Reinterpreting Rogernomics

Entrepreneurship has been a neglected issue in the teaching and research of mainstream economics. Baumol has likened entrepreneurship to a spectre that haunts the mainstream. He provides a model of entrepreneurship that draws on a variety of sources and which suggests that entrepreneurship, depending on the underlying incentives, can affect an economy for good or ill. This framework is applied to the long-run economic development of New Zealand and is used to explain why the free market reforms initiated in response to financial crisis in 1984, did not lead to sustained economic improvement in the manner consistent with that of Ireland’s ‘Celtic tiger’. It is suggested that New Zealand, because of the unique features of its historical experience, has inherited institutions that tend to reward unproductive and destructive entrepreneurship. It is shown empirically that the free market reforms did little to reverse this situation. Some policy conclusions for New Zealand are derived based on Baumol’s model and the Irish experience. Baumol’s model, with its important role for history and politics, provides an important framework for interdisciplinary economists seeking to study economic performance.