1. Entrepreneurial Behavior and Perspective
A. Defining and Measuring Entrepreneurship
(Summary) In spite of its popularity, the concept entrepreneurship has not had a single, coherent, agreed-upon definition. Throughout the years, a number of definitions have been given, each presenting an important characteristic of the entrepreneur. For Richard Cantillon, the essential characteristic that distinguishes the entrepreneur from the wage worker or the land owner is the uncertainty in profit he derives from buying and selling. In short, the emphasis is his risk-bearing and equilibrating role in trade. While for Jean-Baptiste Say, the entrepreneur is “the main agent of production” in the economy. He is the manager of a firm where he assesses economic opportunities for the benefit of the firm. Alfred Marshall introduced the innovating function of the entrepreneur. He thought of the entrepreneur as someone who continuously innovate i.e. seek opportunities to maximize profits. Joseph Schumpeter expounds on that view. He describe the entrepreneur as an agent of “creative destruction”, moving the economic system out of static equilibrium. Furthermore, Schumpeter opposes views of the entrepreneur as risk bearer and manager. For him, the entrepreneurial task is not to manage but “to identify new combinations and react to these by exercising the leadership to profit from them”. Being a business-owner does not automatically make one an entrepreneur. The entrepreneur is a someone who introduces new products and methods that render others obsolete. He is a disruptive force, a game-changer. Frank Knight shares a similar view with Schumpeter i.e. “that the entrepreneur initiates useful innovations.” He also shares the view (with Say) that the entrepreneur is a business owner. But for Knight the defining function of the entrepreneur is his role to “assume the consequences of uncertainly related to the company” and shield other stakeholders from it (i.e. an insurance agent). The mainstream economics after World War II, which is focused on equilibrium analysis, does not quite accommodate the views of Schumpeter and Knight on the entrepreneur. Against this backdrop, Kirzner and Schults would argue that “entrepreneurs deal with situations in which the economy is in disequilibrium”. Kirzner argues that the “economy is in a constant state disequilibrium” and the entrepreneur takes advantage of this state of affairs to discover and exploit opportunities for economic gain (and in so doing moves the economy towards equilibrium). Schultz argues similarly but believes that it is not only the entrepreneur that is aware of the businesses opportunities. However, it is the best entrepreneurs that have the ability to reallocate resources optimally to take advantage of the opportunities. In the face of this multiple but equally insightful definitions, it can be argued that it is best to treat entrepreneurship as a multifaceted concept i.e. there are many dimensions in entrepreneurship and therefore, many types of entrepreneur. In view this, it becomes clear that there is no one way of measuring entrepreneurship and therefore it is a must to be clear and precise about the context when measuring entrepreneurship. There are three main approaching to measuring entrepreneurship: 1. stock measures (e.g. self-employment rate); 2. flow measures (e.g. firm and self-employment entry and exits rates); 3. indirect indicators (e.g. innovation and performance measure). In general stock measures are most accurate at measuring Knightian entrepreneurship while flow measures capture more accurately the type of entrepreneurship theorized by Schumpeter and Kirzner. Though extremely helpful in determining the type and level of entrepreneurship, the different approaching all have their own limitations. For instance, self-employment rate may not include business owner but we know that Knightian entrepreneurship are business-owners. Similarly, since not all changes that lead to firms being counted in the entry and exits rate are innovate (they could just be purely administrative), firm entry and exits rates may misrepresent Schumpeterian entrepreneurship. Performance and outcome-based measures have their own limitations too in that there are numerous factors affecting them, not all of which relate to entrepreneurship.
(Reaction) In some ways, Schumpeter's ideas are ahead of his time. Not only were his ideas incompatible with his period's mainstream economic thought, they also could not be captured in the mathematics of his day (since the mathematical framework needed to formalize them had not been invented yet.) But even more compelling than how his ideas did not quite fit in his time, is how well they do today. His ideas on innovation and “creative destruction” are almost prophetic. They have become the norm today, the reality. We live in a world of constant innovation, where the process of creative destruction is continually at work, permeating all aspects of society. Therefore, the entrepreneur, as an agent of this process, shall play an increasingly important role in shaping today and tomorrow's society.
B. Entrepreneurs – Agent of Change
(Summary) The term entrepreneurship takes on different meaning in various cultures. In its western sense, an entrepreneur is an agent of change, innovator and risk-taker. He represents a beneficial disruptive force by introducing new products that lead other products to fail or become obsolete (“creative destruction”). As Schumpeter conceived it, entrepreneurship is totally incompatible with socialism or any form of “planned” economy. Schumpeter believes that the creation of a welfare state suppresses the entrepreneurial drive. In the world increasingly dominated by non-Western economies, this “definition” is no longer sufficient. The post-Soviet entrepreneurs are living proofs of how entrepreneurship can succeed and even benefit from a socialist legacy and a collectivist society. Soviet entrepreneurs relied heavily on “social capital” (i.e. network of friends and families) to initiate or stimulate business activities. Apart from “social capital”, Soviet entrepreneurs also relied on ”cultural capital”: societal habits and norms that can be translated to social resources like education, status and power; resources that help ensure success in entrepreneur activities. This diversity in meaning suggests that the term entrepreneurship should be considered more broadly as an activity that can be undertaken in many spheres. In this context, it can be said that hybridity, an ability to adapt global entrepreneurial practices to local conditions, is a defining character of an entrepreneur along with being an agent of change (ability to come up 1. with brilliant ideas and 2. the process to put those ideas to practice while being aware of his impact on the local and global community as well as environment.) ”Anyone who approaches his or her life, career, and social relationships in a creative and thoughtful fashion is an entrepreneur”. As individual agents, they are subject to structural forces of society but are also capable innovating within the structure and re-configuring it through their daily action.
(Reaction) The author deems the Schumpeter's definition as insufficient not because it no longer applies but because it has become too restrictive. The defining character that Schumpeter ascribes to the entrepreneur, that of being an innovator and an agent of change, is applicable now more than ever. The tools and resources, the most important of which is knowledge, that would enable an entrepreneur to more readily fulfill this role have become widely available and accessible. In other words, it is now a lot easier for individuals to become entrepreneurs. What the author finds insufficient is the aspect of Schumpeter's definition that constrained entrepreneurship in the context of a capitalist society. For the author, entrepreneurship is so ingrained in human nature that it finds expression in all aspects of human life, regardless of the type of economic system his/her society adheres to. On the contrary, rather than being a captive in particular societal structure, individuals, by embracing the entrepreneurial spirit, become the shaper of this structure. In today's world of increasing knowledge and interconnectedness, we will see the rate at which the entrepreneur shapes his/her society accelerate. What took decades in the past, will merely take years today and perhaps months tomorrow. The world will witness the collapse of old orders and antiquated ways of thinking and rise of new and better ones at an ever-increasing pace.
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