Economic competition can often usefully be compared to sports. As many jaded sports fans know, economics plays a chief role in the decisions made by their favorite teams and athletes. But sports can teach us about economics as well: For example, how crony capitalism – or government favoritism toward preferred firms and industries – may be even more costly than commonly perceived.

Competition for NFL roster spots among thousands of players will ideally lead to the highest quality play possible in the upcoming season. Similarly, competition never ends in the business world. Financial rewards for success, including football contracts and business profits, incentivize effort.

But few would argue that certain athletes and entrepreneurs at the tops of their professions – think Michael Jordan or Steve Jobs in their primes – were in it strictly for the money. Each chased something harder to define: the challenge of competition, of striving for one's personal best and succeeding against the best efforts of others. We certainly found this to be true in our recent working paper, "Mastery vs. Profit as Motivation for the Entrepreneur." Yet society tends to associate this internal drive with sports, but not entrepreneurship.



Psychologists have found the intrinsic desire to master challenges, known as "mastery," to be an important human drive. Economics has emphasized the external or monetary rewards for business, typically to the exclusion of mastery.

The words of entrepreneurs provide evidence for mastery as a business motive. Tom Monaghan, founder of Domino's Pizza, has remarked, "To me, the real substance of life and work is the constant battle to excel." Cable television pioneer Ted Turner observed, "America is about competition and rising above that competition." Michael Bloomberg has said that, "Even today, after toiling for 30 years, I wake up looking forward to practicing my profession, creating something, competing against the best … receiving psychic compensation money can't buy."

And actions speak louder than words. Many members of the Forbes Richest Americans list work long hours, even though they already have more money than one could spend in several lifetimes. A 2013 profile noted that Bill Gates was looking forward to working more with product managers in the upcoming year. Serial entrepreneur Richard Branson has started over 200 businesses and never tires of the challenge of making a new venture succeed.



Why does it matter if entrepreneurs care about mastery instead of, or in addition to, money? Performance always has a relative element to it; we cannot evaluate a quarterback except in comparison with other quarterbacks. Mastery requires validation of one's achievements, and consumer choices validate business performance. An entrepreneur cannot know if she has succeeded in building a better mousetrap until customers actually buy it.

The economic case against crony capitalism is strong. But when we think of entrepreneurs as competitors with similar motivations as athletes, some unexpected effects come into focus.

Cronyism maintains the surface trappings of market competition even as the government picks winners and losers. The cornerstone policies of cronyism – targeted tax credits, low-interest or guaranteed loans and purchase mandates – certainly impose significant costs on our economy as a whole. But they disrupt the validation of business performance through consumer choices. For example, if drivers are mandated to purchase electric cars, then sales will not prove that an entrepreneur has built the equal of a gas-powered vehicle. This lessens the incentive for certain entrepreneurs to take on the challenge.



Cronyism can reward favored entrepreneurs with profits, but not necessarily mastery. Many top athletes would not care to compete in a contest rigged in their own favor. Similarly, some entrepreneurs or businesses, who may be well-positioned to take on a new challenge, do not seek government favoritism. And others may choose not to compete when it's clear that their performance doesn't necessarily equal results in a rigged marketplace.

The extension of cronyism in an economy over time can affect the types of individuals who choose business as a career. Profits for entrepreneurs who successfully court favor with politicians may not satisfy those with a true competitive streak. Imagine a track meet where the organizers rig the races so that their favorites, and not the best runners, win. Such a meet will likely fail to attract the world's best competitors.

The effects on the quality of entrepreneurship could be devastating in the long-term. After mastery-seekers choose other pursuits, the remaining profit-seekers will likely have no qualms about seeking or benefitting from government favors. A vicious cycle of cronyism could ensue, as more favoritism results in a group of business leaders more willing to lobby, leading in turn to more favors.