What the Regime Uncertainty of the Pandemic Means for EntrepreneursAre you willing to take the plunge?

Major upheavals, such as an unexpected pandemic, cause shakeouts in markets. While virtually all businesses suffer, startups and small businesses are typically the ones to go under first. Because entrepreneurs have tight margins and small or no buffers, they suffer immediately and immensely when their cash flow is disrupted.

Entrepreneurship saves business

这是真的,你们t what makes businesses survive dramatic change is their entrepreneurial acumen. Big corporations may have the means to hold out longer but will be hopelessly out of sync with the market unless they adapt to the new situation. We have seen many examples of such entrepreneurialism lately, both in big business and opportunity-seeking entrepreneurial startups, from well-establishedalcohol producers shifting to producing hand sanitizerstooffering drive-through coronavirus testing.

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The best advice for entrepreneurs is to focus on what they do best -- entrepreneurship -- or figure out how to bestcreate valuefor consumers. Simply put, entrepreneurs arebearers of uncertainty因为他们are creators of tomorrow. When consumers change their behavior,good entrepreneursquickly adapt, adjust, and try to meet them where they will be.

Entrepreneurs can shoulder this fantastic responsibility because of reliable and supportive institutions, or what Nobel laureate Douglass North referred to as the "rules of the game." With the COVID-19 pandemic, however, things are different. It is an upheaval in the economy, which is a bad situation in itself, but what is worse is the regime uncertainty added on top.

政权的不确定性

When policymakers responded to the pandemic, they issuedemergency declarationsthat changed the rules practically overnight. From ordering "non-essential" businesses to close to regulating the operations of "essential," these decrees fundamentally changed the playing field. The legal interpretation is far from obvious for many businesses, thereby leaving entrepreneurs in the dark -- and with huge costs trying to figure out what this means.

While the$2 trillion stimulus packageis intended to offer relief, includingsupport for businesses, it also increases uncertainty. For example, loans come with strings attached and generous unemployment benefits make staffing unpredictable.

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This uncertainty is of a different kind than what entrepreneurs typically bear. Economist Robert Higgs calls thisregime uncertaintysince it arises from changing and unpredictable rules. When entrepreneurs cannot trust fundamental rules such as the enforcement of contracts and protection of property rights, they cannot run a business. Higgs argues that regime uncertainty was the main reasonthe Great Depression lasted so long-- entrepreneurs were unwilling to take the plunge because of the general anti-business sentiment expressed by New Dealers.

Dealing with the current situation

Entrepreneurs are experts in uncertainty-bearing. After all, they face uncertainty on a daily basis and even cause it by innovating new products, services, and business models -- and thereby disrupt markets. Entrepreneurs go with their gut feeling about what the future should look like, and they set out to create it. But they assume the rules will be relatively stable.

What makes regime uncertainty different is that it is an institutional (rules) rather than economic (action) unpredictability. This makes it harder to be an entrepreneur, and the risk of failure increases dramatically. But what they face is ultimately the same problem -- to figure out what the future will be like, if notcreateit.

With changing rules of the game, it is a mistake to focus only on solving problems within the business. It is prudent to act tosafeguard one's business, but entrepreneurs should consider what might come of this whole situation -- and what their role in it might be.

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Seeking advice from legal counsel is a good way of interpreting the new rules already in place. But it will not help with figuring out what effects they will have on the economy or how the rules themselves might change. When things are up in the air, there are no formulas, models, or blueprints that can help.

This is no news for entrepreneurs. They are used to trusting their gut and placing a bet on the future. This is still the case, but with more variables than is usually the case. The question is how best to deal with it. What does your gut say?