Does an entrepreneur need to know the economy?

The level of economic education does not prevent people from successfully maintaining this economy, developing it, providing their customers with quality service, and essentially being the builders of the economy without knowing how it works. I was one of these entrepreneurs 10 years ago at the head of a large company (Nova Poshta), and I didn't even realize what contribution I was making to Ukraine's economy. Entrepreneurs often don't even realize that they are the economy itself, that it is they who create and develop it.

While in-depth knowledge of economics is not always necessary for individual success, it is critical for building a prosperous economy at the national level. Why is that? Because the economy is a system of exchanges of goods and services between entrepreneurs, the state, investors, consumers, and other players. But if we want to live in the richest country in the world, if we want to be richer than Switzerland and the United States, if we want Ukraine to be a country of billionaires and millionaires, if we want to live in a society with a high average income, walk clean, beautiful streets and feel safe in a broad sense - from personal to national, if we want to be respected in the world (and respected for our achievements), then, of course, there is a need to acquire economic knowledge.

The choice is simple - either we apply our knowledge of economics directly, or we watch officials kill our economy, prospects, and well-being. Commonly, the bureaucrats use indirect methods for this, the most common being regulatory restrictions that hinder economic growth. When we hear about tax increases, when the state doesn’t reduce its ownership but instead expands its presence in the market through monopolistic enterprises, when the number of licenses or permits increases — for example, for the extraction of natural resources — entrepreneurs must first of all understand how all of this impairs the development of the economy.

Economic theory (e.g., the Austrian school of economics or Milton Friedman's ideas) emphasizes that excessive government intervention in the economy reduces efficiency and stifles initiative.

Understanding the laws of economics allows us to predict what the actions taken by officials today will lead to in the future, and what consequences we will get at the micro and macro levels, and in a few years. They are increasing budget revenues, but the economy is not growing? There will be inflation and next money printing. They are tightening regulations; this means that economic growth will be slowed. Or vice versa - if we see that the country is headed by a person who will deregulate and reduce taxes, with a worldview and program like Javier Milei in Argentina, it sends a signal that you can invest and get a good return in a few years due to economic growth.

Understanding the basic principles of economic science allows not only to survive in different conditions but also to advocate for change: to support deregulation or tax cuts, to support ideas that will not give a temporary financial result to the beneficiary (regulatory restrictions in favor of certain favorites of the authorities), but will work to improve the overall well-being of consumers. To see the benefits of such a long-term strategy is to form a special worldview. Without a basic understanding of the economy, citizens and entrepreneurs cannot effectively oppose such government decisions or demand better conditions.

If you understand how the economy works, it begins to help you in business. How? For example, the justification and understanding of economic roles, which I found extremely useful.

Do you know what the role of the state is, and what the role of an official is? Of course, it's a negative and inhibiting role - there is no other. The reason lies in the bureaucrat's motivation, which you begin to understand when you study economics.

What is the role of the entrepreneur? They combine the factors. A person with commercial talent doesn’t always need money; he will find it if necessary. An entrepreneur finds resources, combines them, creates products, and makes a profit. And this means that they benefit people. Or it could incur a loss, thus causing a decrease in value for people. Who is a manager, who is an investor, and who is a capitalist? These are all roles of a human being who acts (homo agens). More about this can be found in the brilliant book of our countryman, the great economist Ludwig von Mises, "Human Action", which is the economic Bible. The circumstances of the exchange determine one or another role, in which the basic analysis and logic indicate the variability of actions that can lead to the most successful outcome in the opinion of the role holder. We act from a position of rationality. When I started to understand the basic tasks of the roles, it began to help me make decisions. Every entrepreneur often plays many roles at the same time. When I put on my entrepreneur's hat, I act like an entrepreneur, that is, I combine factors, and know that I have to create some value. If I am a capitalist and an investor, I put on the hat of a capitalist, which means that I have certain resources and assets, I can use them, lease them, or invest in one direction or another. You should admit there is a difference between what an entrepreneur does when he has no resources and a manager-executive who needs to know the psychology of people, understand the hierarchy, and how finance or marketing works to manage the company. All these are different competencies.

I believe that now is the best time for all entrepreneurs to realize their importance to the economy, and for business associations to finally understand that their real priority is systematically reducing the tax burden and deregulating. Instead, we see support for government initiatives that, on the one hand, reveal their adherence to false economic theories and the temptation of populism, and, on the other hand, complete ignorance of the business community and entrepreneurs who support it on the other side. Let's consider a simple example of how the lack of basic knowledge in economics harms everyone. Phrases like 'Made in Ukraine,' 'import substitution,' 'buy Ukrainian,' and 'localization' seem very relevant and timely because we are talking about the development of our economy. And this is what we see on the surface. But it's a small piece of the iceberg, so what do we not see?

There is no such thing as a "national producer" in its pure form, since it is impossible to create an airplane, computer, or pencil without using imported components, equipment, materials, and services. These slogans are very convenient for interference in the economy by officials who restrict, prohibit, regulate, impose duties, raise taxes, license fees, and provide subsidies and preferences to favored groups. In fact, as a result, everyone suffers, including the Ukrainian manufacturer, and for consumers (including entrepreneurs), this often leads to higher prices, emptying their wallets, and the inability to purchase the desired goods legally. But the laws of economics are inexorable - any restrictions ensure the prosperity of smuggling.

Another interesting example of the application of economic knowledge is exports and imports. Let’s imagine a situation in which we have the only window to the world—the border with Poland— and Poland has completely stopped exports from Ukraine. In response, our government lifted all restrictions on imports. We have a situation where exports are zero, while imports are free! The question is: what will happen to imports? Will it increase, decrease, or remain the same?? And here is the most interesting thing. If exports are zero and imports are free, then imports will also decline, as the country's foreign exchange reserves will decrease and there will be no foreign exchange inflows. Later, when the country has no currency, there will be nothing to buy imports. Thus, imports will stop. And now let's imagine the opposite picture — our government has completely banned imports, but the Polish government, on the contrary, has lifted all restrictions on our exports. So now we have zero imports and free exports. The question is: how will our exports change? Will it grow, fall, or change? In both cases, we assume that the currency movement is free, but only within the framework of trade transactions, and there are no credits or outflow of currency. If imports are zero and exports are free, then exports will also fall to zero. To produce goods for export, companies need to sell the foreign currency they receive from exports to buy the inputs they need for production with the hryvnia. But when imports are banned (imports are zero), selling the currency within the country becomes impossible because no one needs it. Therefore, export-oriented industries will be unable to purchase the necessary inputs for production and manufacturing goods, and they will not be motivated to sell their stocks for foreign currency. Exports will come to a complete standstill. The country will fall into chaos and poverty. Conclusion: Imports and exports are communicating vessels. If we restrict or ban imports under the slogan "protecting domestic producers," exports will automatically decrease. Conversely, if we stop fighting imports, abolish duties and restrictions, the demand for foreign currency within the country will increase, as will the interest of exporters in selling their goods for foreign currency. As a result, we will see an increase in production and exports. Is it a paradox? No, this is how the economy works.

Author of the book “What We See and What We Do Not See. Law. The State. Damned Money!” F. Bastiat aptly noted, “If goods do not cross international borders, soldiers will.” That is, it is important to understand how international trade is a means of counteracting wars and why any obstacles to it are a danger factor. Economic development depends on business, and no level of protectionism, tariffs, or regulations will ever become the basis of prosperity or strengthen the country. The only way to protect Ukrainian businesses and promote their competitiveness is to allow more production of goods and services, exports, and imports, including inputs and technologies. This is the only way to a prosperous society.

Fortunately, there are already books on economics in Ukrainian. The Wellbooks project, which we created a few years ago with like-minded people, aims to translate high-quality and interesting books for a wide range of people interested in economics, not only for adults but also for children. What would I advise you to start with?

The first two books are quite simple, but they will provide a basis for understanding the following. Soon, Mises' “Human Action” will appear on store shelves in Ukrainian, and we are very proud of this, as it has not been translated yet.

Finally, I would like to address entrepreneurs. I am convinced that we all dream of Ukraine as a prosperous country, but this path requires systemic changes, and it’s crucial to know precisely which ones.

Economically educated entrepreneurs can and should influence public opinion and policy by promoting ideas of market freedom, tax cuts, or simplified procedures. Yes, in-depth knowledge of economics is not always necessary for individual success, but it is critical for building a prosperous economy at the national level.