On Regime Uncertainty and Legal Entrepreneurship
Wisniewski, Jakub Bozydar, Independent Review
According to economic historian Robert Higgs (1997), an important reason why the Great Depression lasted as long as it did was the prevalence of what he terms "regime uncertainty"--that is, the kind of uncertainty that businesspeople, investors, and entrepreneurs feel in a political and legal environment that threatens to tax and regulate their wealth-generating activities to the extent that they can in many cases no longer expect these activities to be profitable. In other words, the problem is not the uncertainty produced by unpredictable consumer behavior or natural phenomena, but the uncertainty that politicians and bureaucrats create.
However, insofar as the ability to forecast uncertain future accurately can be seen as the main source of entrepreneurial profits (Shackle 1958, 1968; Mises  1966; Salerno 2008), (1) we may wonder why the emergence of regime uncertainty should be viewed as an especially destructive deterrent to entrepreneurship rather than as an obstacle that entrepreneurs should be uniquely suited to deal with.
The only satisfactory response to this question is one that makes a meaningful distinction between regime uncertainty and its "standard" market counterpart. (2) It would be difficult to think of the former as simply a particularly intense and overwhelming degree of the latter because doing so would suggest that the conditions of regime uncertainty simply make the standards of successful entrepreneurship more exacting, which is inconsistent with the fact that such conditions adversely affect the activities of all entrepreneurs, not only the supposedly insufficiently competent ones. It would likewise be difficult to regard regime uncertainty as qualitatively different from its more familiar counterpart in the sense that it cannot be successfully borne by even the most acute entrepreneur because then the emergence of the phenomenon in question would completely eradicate rather than severely reduce the scale and scope of business activities.
Hence, the most promising answer in this context seems to be that regime uncertainty is not qualitatively different from "ordinary" market uncertainty, but it operates on a different level, which is normally removed from the ambit of entrepreneurial decision making. In order to illustrate this claim, I refer to the hierarchy of levels of social analysis proposed by Oliver Williamson (2000). In this hierarchy, the first level is occupied by soft institutions--customs, traditions, norms, and religions-which emerge largely spontaneously and develop in an evolutionary manner, thus changing very slowly and allowing comparatively little scope for everyday uncertainty understood in the way discussed earlier. On the second level are hard institutions, whose purpose is to specify "the formal rules of the game" (Williamson 2000, 597), such as property rights, contract law, and so forth. The third level relates to the "play of the game," especially to "aligning governance structures with transactions" (Williamson 2000, 597)--that is, to the ways in which entrepreneurs give their firms and projects an appropriate organizational structure. Finally, the fourth level deals with the strict essence of entrepreneurial activity, aligning the existing and future supply of consumer and producer goods of various orders as well as the existing and future technological possibilities with ever-changing consumer preferences.
The crucial point here is that entrepreneurship operates on levels three and four, which are composed almost exclusively of variables, but not on levels one and two, which are supposed to provide the underlying framework of constants. In other words, the content of particular contracts that any given entrepreneur concludes and the types of property that he purchases or sells during his daily activities can be--and usually are--in constant flux, but the nature of the underlying contract law and property rights has to be sufficiently fixed or at least predictable if the entrepreneur is to have any chance to conduct such activities profitably. …