14 - Entrepreneurs and Capitalists

Summary

This chapter analyzes the relationship between entrepreneurs and capitalists. It argues that the function of capitalists is to select entrepreneurs, and without capitalists there would be no entrepreneurs. The government can replace neither entrepreneurs nor capitalists. State-owned enterprises cannot produce entrepreneurs. The chapter also discusses corporate governance. Existing corporate governance theories focus exclusively on conflicts of interests between investors or shareholders and operators. In fact, there are two types of conflicts. One is the conflict of interests, and the other is the conflict of cognitions. Given that the future is uncertain and indeterminate, and that different people have different imagination and judgements, the conflict of cognitions is more challenging than the conflict of interests. The best corporate governance structure allows entrepreneurship to play the biggest role, as opposed to incentivizing and disciplining professional managers. The legal rules of corporate governance must be general, flexible, and entrepreneur friendly.