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How Bad Economic Policies Drive Out Good Entrepreneurs

Gresham’s law states that bad money drives out good money. Gresham’s law goes something like this: overvalued money that has less actual value circulates in a market economy, and the undervalued money with the same face value but whose metal has more value is hoarded and thus goes away. People move the good money out of an economy for future use in better markets, while the bad money is circulated and takes over as a common economic good.

What does Gresham’s law have to do with entrepreneurship, what we call the gig economy, and bad economic policy? Well, there have been recent changes in the classification of gig entrepreneurial contractors. Contractors are slowly losing their entrepreneurial independence in the freedom of what we call the gig economy. These changes and mandates are signs of an anti-gig, anti-free-market sentiment. So, if Gresham says that bad money drives out the good money, the same can be said of good entrepreneurs—they are driven out of gig economies by bad policies.

Unfortunately, recently, there has been an attempt to enact regulation on the gig economy that will drain its life force, making entrepreneurs and contractors full-time employees of the firms they service; this is absolutely unfavorable for real people seeking to be independent entrepreneurs. More importantly, these policies are chipping away at markets that are free to enter. The gig economy is the final free market. When free markets are hampered, entrepreneurs disappear. What drives them away? Bad economic policies.

In the past, gig work was a backstream platform for musicians who could not break into the mainstream, and the gig economy was a marketplace free of mainstream constraints, where they could break through and find an audience. Contractors and entrepreneurs engage in gigs to make money, supplement full-time earnings, try a new profession, or support a hobby. For example, many country and blues musicians started a name for themselves in the gig market and later became superstars on the music scene.

However, the gig market is not just for musicians; now, in its current form, it encompasses many other fields and industries. When you travel, do you take an Uber or stay in an Airbnb? When you order fast food, do you order food via an app with door delivery? For instance, the start of Airbnb in the gig economy has now become a service that has revolutionized how we travel and choose lodging. Also, in its early years on the gig circuit, Airbnb was an excellent disrupter and challenger to the conventional hotel and travel industry. We cannot use these services without giving thanks to the gig economy.

Unfortunately, some believe the gig economy is synonymous with a “sharing” economy. To say that a sharing economy and the gig economy are the same is false. Sharing implies no loss to the entrepreneur. Also, it does not help sound economic policymaking to marvel at the possibility of when consumers will one day stop spending and start sharing. The problem with the sharing economy is that it does not connote private property or ownership, which can lead one to error if left out of the equation.

What happens when bad policies drive out value-creating entrepreneurs? Advocates of free markets have been shouting from the rooftops that bad policies that restrict entrepreneurs from discovering new processes, products, and services that can build supply and enable technology to serve real people can only happen in an unhampered economy. The policy to scrap the gig economy and make everyone in it an employee of a firm will end up hurting the people the gig economy can help.

We know that good entrepreneurs flourish when they are free to use their intellect and personal resources. Moreover, it is not just the entrepreneurs who see the gig economy no longer working in their favor; so are businesses that partner with contractors and entrepreneurs. Fast Company states, “Major business groups have strongly opposed the new rule, arguing that it could lead to burdensome costs and job cuts.” These bad policies come at an inopportune time, considering rising prices and rises in the cost of the production of goods; real people need a side hustle to keep up with inflation.

As we can see, bad entrepreneurs will move in and benefit from bad policies, and good entrepreneurs will move out of the gig world. The entrepreneurs who create more value will disappear from the gig economy and go elsewhere. In real terms, stay-at-home parents, small community-based businesses, investors, technology start-ups, first-time entrepreneurs, and retirees seeking to participate in the economy who prefer not to be strapped down with full employment will disappear.

Despite what some say, we must remember that the gig economy does not operate effectively under less-free conditions. Without the legal freedom to contract and use personal property as such, the very essence of the person’s individuality is destroyed. This drives out entrepreneurs who would otherwise seek to use their intellect and property to do good for other people.

The economic costs of driving out the good entrepreneurs in the gig economy will spike prices for products, services, and production costs; decrease consumer value and satisfaction; and invariably produce offerings of lesser quality. Because of the anti-free market sentiment as well as stifling regulation and mandates, consumers unwillingly acquiesce to bad entrepreneurs in bad markets and everything that comes along with it. The consumers get accustomed to lackluster offerings, and the good entrepreneurs are driven away.

Driving good entrepreneurs out with bad economic policies creates a concentrated benefit for the few but creates costs for the many. So naturally you ask, well, who are the bad entrepreneurs? Bad entrepreneurs are those people who decide to no longer be entrepreneurs, who do not receive a profit or loss based on market conditions, and who do not have empathy or care for the consumer. These entrepreneurs will seek government favors and use the government to create monopoly conditions for themselves while saddling extra costs on potential competitors, thus driving out the good entrepreneurs.

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Raushan Gross
Raushan Gross is an Associate Professor of Business Management at Pfeiffer University
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