Entrepreneurship without the Economy
Contemporary entrepreneurship research analyzes the queen’s moves while ignoring the rest of the board.
Many of us, including yours truly, have appreciatingly quoted Bill Baumol (echoing Joseph Schumpeter) in his charge that contemporary economics, relying on formalized models in which no space is left for the entrepreneur, is like trying to understand “Hamlet without the Danish prince.” Indeed, in modern buzzing economies, whether or not they are “developed,” entrepreneurship has an obvious role - the main character, even - as the force behind change and progress. What could one possibly expect to understand about how economies work and evolve if one excludes entrepreneurship?
Entrepreneurship scholars certainly do not make this error: we study this very phenomenon that economists leave out. However, entrepreneurship research has over the past couple of decades increasingly adopted an approach that makes another error: studying the Danish prince without reference to the play. Perhaps a better analogy is that we study the queen in chess, the most powerful of pieces, and attempt to understand her moves and motivations without considering the rest of the board or the game itself.
No common denominator?
What I mean by this is that entrepreneurship studied in a vacuum doesn’t mean anything. As a result of studying entrepreneurship without its context, we even struggle to define the phenomenon or identify who is an entrepreneur. We can perhaps agree that Henry Ford and Elon Musk are entrepreneurs, but what about Andrew Carnegie or John D. Rockefeller? And how “entrepreneurial” is the person starting another independent dry-cleaner or Chinese food restaurant? What about a MacDonald’s franchisee? Is a handyman more entrepreneurial offering their services through an LLC than as a sole proprietor? How about an Uber or Lyft driver?
Entrepreneurship as a discipline has wandered into studying specific aspects of “the entrepreneur” - their traits, backgrounds, motivations, and perception - and “entrepreneurship” - social, cultural, institutional, political… But these studies tend to rely on vague definitions or do not offer one at all. So what are we studying? And without a definition of what makes someone an entrepreneur, what does studying “entrepreneurs’” motivations tell us?
A definition is never better than its demarcation criteria, what lies within the definition and what does not.
It is the lack of good definition(s) that has led us to the mess that is entrepreneurship research, where practically any rationalization of what could be conceived as “entrepreneurship” is accepted as sufficient basis for both theorizing and empirical analysis. This, again, raises the question of what our findings mean. If studies define entrepreneurship differently, their conclusions are about different phenomena that are all confusingly referred to as “entrepreneurship.”
What is it that political entrepreneurs, social entrepreneurs, cultural entrepreneurs, innovator-entrepreneurs, investor-entrepreneurs, and businessman-entrepreneurs have in common? Probably very little. The main thing might be that they are all studied by scholars in the entrepreneurship discipline!
The problem is that focusing on only the queen, and with it anything that seems to us queen-like, without considering what makes a queen, the context and framework for its behavior, what can we possibly learn about “her”?
A proud history - if we claim it
Entrepreneurship theorizing has a long and proud history. Going back through the history of thought, we find that entrepreneurship and the study of the economy were one and the same. Already Richard Cantillon, writing his Essai around 1730, famously identified entrepreneurship as the uncertainty-bearing function: entrepreneurs are defined by actions for which there are known costs but unknown outcomes. Whereas Adam Smith did not spend much time on the entrepreneur (or “undertaker,” in his words), entrepreneurship was core to understanding the dynamic, evolution, and mechanisms of the economy to many others. For example, the French economist Jean-Baptiste Say noted that entrepreneurs are those who undertake reallocating resources from valued uses to more valued uses.
In fact, the entrepreneur takes center stage in classical economics (economics before the 1870s). The Danish prince had its proper role in Hamlet; the queen was studied as one of (and the most important) pieces on the chess board.
But even after the marginalist revolution in economics (the 1870s discovery of subjective value and marginal analysis), the entrepreneur played a core role in how many highly influential economists sought to understand the economy. Schumpeter, writing in 1911, identified in the entrepreneur the force that breaks up the status quo and pushes the economy to a higher level of productivity. Frank Knight’s Risk, Uncertainty, and Profit (1921) attempts to explain why entrepreneurship, which cannot earn a market wage, needs to organize a firm for profit. Israel Kirzner explained how entrepreneurship as “alertness” generates a tendency toward general equilibrium.
We do, as a discipline, pay lip service to this history and habitually cite Schumpeter and Kirzner, whose work gave rise to the opportunity construct as originally discussed by Venkat and Shane. But we do not actually use the centuries of scholarship on our subject matter. Certainly, we do not want to be mistaken for economists. But we do not appear to have that problem regarding psychology, management, sociology. Why is that? If anything, our discipline should be better off if we did the exact opposite: adopt the long and proud tradition of entrepreneurship theorizing, albeit by economists, and only sparingly import theories from other disciplines.
It is not because economists, especially the classical or heterodox varieties, have given entrepreneurship more attention, but because entrepreneurship is an inherently economic phenomenon - whether or not it is for-profit actions in a market setting.
Economics-free entrepreneurship at our own risk
Whether we want to or not, our discipline suffers from not acknowledging that entrepreneurship is an embedded phenomenon. It is embedded in an economic context, which means it is subject to scarcity and thus a matter of trade-offs. This does not make entrepreneurship a free-market or for-profit phenomenon, but one that takes place in specific economic conditions and within an institutional framework. Black-market entrepreneurs are just as much entrepreneurs as those starting “legitimate” businesses.
This does not mean we should adopt economic models of general equilibrium or “perfect competition.” On the contrary, those models are based on assumptions that exclude (or expunge) the entrepreneur. But economics is not limited to those (often derided) models, which have only been around for the past several decades. Cantillon, Say, Schumpeter, Knight, and Kirzner were/are all economists, but they theorized on entrepreneurship as an economically embedded function for change and progress.
We should not adopt their theories just because they exist. But we need a framework for proper conceptualization and for developing good theory to explain what entrepreneurship is, what it does, how it does it, and what it implies for society and the world. At present, entrepreneurship does not have an alternative - we have instead, it seems, opted to study entrepreneurship in a vacuum, contextless and without a proper framework for understanding. As a result, entrepreneurship research appears ad hoc and the state of our science is a jumble of “contributions” that point in different directions, are based on vague and varying definitions, and study what seem to be different things. The field’s theoretical contributions are inconsistent and can at times even appear contradictory.
Certainly, entrepreneurship is a young scholarly discipline. But this does not mean it must also be immature. Given the 300-year history of entrepreneurship theorizing, we could claim to be one of the most mature and best-founded research traditions in the social sciences - and beyond. That we are not is a choice. And it is not a wise one.