Entrepreneurship in Economic Theory

Let us take a closer look at how the figure of the entrepreneur is treated in economic theory. We have a surprise in store. Astonishingly, in the literature of economics the entrepreneur has been largely left out. Entrepreneurship is an important and, until recently, sadly neglected subject, says Mark Casson (1990, p.XIII), who could be called the rediscoverer of the entrepreneurial figure.

In the past ten years, research has taken a new direction, bringing out the separate and distinct function of the entrepreneur in contrast to that of the manager. Why is so much emphasis placed on this difference? Because it is about a quality all of its own, something new. The essence of entrepreneurship is being different says Casson. What is so different here? The manager, one could argue, must operate under normal conditions and in routine business, while for successful entrepreneurship exactly the opposite qualities are needed.

The entrepreneur is not the capitalist, either, a distinction that goes back to J. B. Say and which was taken up by Joseph Schumpeter (quoted from the 1993 edition, p. 217), the classic economic reference for entrepreneurial behaviour. This distinction is significant, since the two functions have been repeatedly treated, in non-specialist literature but to some extent in the history of economics as well, as if they were one and the same. The difference can be otherwise expressed in a current bon mot: “The entrepreneur creates jobs, the capitalist opens them up. The entrepreneur has an idea, founds a business, employs people. The capitalist has money, buys into an enterprise and tries to increase the return on his capital. He rationalizes or closes unproductive parts of the business, thereby tending to make employees redundant.

Schumpeter, too, describes the entrepreneur as forsaking well-trodden paths to open up new territory and as turning (believe it or not!) dreams into reality (op. cit., p. 125 f.). Schumpeter puts the stress on innovation, not on the invention. The entrepreneurial function consists not of inventing things, but rather of bringing knowledge to life and into the market (op. cit., p. 128 f). Schumpeter himself assumes that with innovation existing structures are destroyed. He saw the markets, realistically viewed, as dominated by oligopolies. Competition, and with it a more efficient allocation of resources, arises only through the invasion of these markets by new entrepreneurs, who destroy the existing market equilibrium with their innovations. This mechanism has been taken into economic discourse and is termed creative destruction.

Hans Hinterhuber (1992) points out a special relationship between the entrepreneurial vision and the person: entrepreneurial ideas, he says, are an expression of one´s own life and professional experience. He even speaks of the feeling of a mission. This sense of mission must be present to set free the energies needed to market a product successfully. The author gives several examples of some entrepreneurial ideas that have marked our society more than others, because their originator had an idea in the Platonic sense and were imbued with a sense of mission: Gottlieb Duttweiler in Switzerland, with his idea of breaking down traditional commercial structures and offering products much cheaper, especially to poorer population groups, or Steven Jobs and Stephen Wozniak, with their vision of democratizing the computer. Interesting, too, the indication that entrepreneurial vision is an idea of sweeping, classic simplicity (op. cit., p. 44). Going along with this is a sense of reality: ideas by themselves do not yet constitute vision. A sense of reality means seeing things as they are, not as one wishes them to be.

And finally the ability to withdraw from reality: the highhande creation of new basic conditions which redefine the rules of the game. In the American literature, this latter is often described thus: The entrepreneur has to put the odds in his favour, even if and especially if founders of enterprises when first presenting their ideas often cannot make them comprehensible.(Faltin, 1998, p. 4)

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