The Age of Entrepreneurship

Business Proprietors, Self-employment and Corporations Since 1851

Robert Bennett, Harry Smith, Carry van Lieshout, Piero Montebruno, Gill Newton, Robert J. Bennett

• Publisher: Routledge
• Year: 2019
• Print ISBN: 9781138064430
• eBook ISBN: 9781351662307
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This landmark research volume provides the first detailed history of entrepreneurship in Britain from the nineteenth century to the present. Using a remarkable new database of more than nine million entrepreneurs, it gives new understanding to the development of Britain as the world's 'first industrial nation'.

Based on the first long-term whole-population analysis of British small business, it uses novel methods to identify from the 10-yearly population census the two to four million people per year who operated businesses in the period 1851–1911. Using big data analytics, it reveals how British businesses evolved over time, supplementing the census-derived data on individuals with other sources on companies and business histories. By comparing to modern data, it reveals how the late-Victorian period was a 'golden age' for smaller and medium-sized business, driven by family firms, the accelerating participation of women and the increasing use of incorporation as significant vehicles for development.

A unique resource and citation for future research on entrepreneurship, of crucial significance to economic development policies for small business around the world, and above all the key entry point for researchers to the database which is deposited at the UK Data Archive, this major publication will change our understanding of the scale and economic significance of small businesses in the nineteenth century.

Part 1
New methods to interpret historical trends

1
Entrepreneurship over time

1.1 Introduction

This book provides the first large-scale, long-term and whole-population assessment of the history of entrepreneurship in Britain in detail from the nineteenth century to 1911, and in lesser detail up to the present. It develops and uses a remarkable new database of more than nine million persons identified as employers and self-employed over the period 1851–1911 that allows whole-population analysis of ‘all’ entrepreneurs, and then links them to modern trends. In lesser detail we also examine proprietors of limited companies. This gives a capacity for a new understanding of the development of British entrepreneur-ship as the world’s ‘first industrial nation’ through ‘big data’. As British economic history is often used to interpret international development and policies for small businesses, the book also provides new material for comparative analysis.

The analysis uses the England and Wales population census on business proprietors and own-account self-employed as its main source. This provides a surrogate ‘British Business Census of Entrepreneurs 1851–1911’ (referred to throughout as the BBCE database). The database itself is a major resource for economists and business historians that has been deposited at the UK Data Archive, for which this book provides an entry point; supplementary material is provided in working papers (referred to as WPs, listed in the references). While Scotland’s data unfortunately was not ready for inclusion and analysis in this volume, it has since been added to this database.

We term the 1851–1911 period the ‘age of entrepreneurship’. This is for two main reasons. First, it was associated with a general rise in the number of businesses of all sizes. Despite the setbacks of the agricultural depression in 1873–96, and the trade depression in the 1880s to early 1890s, this was a period of rapid population and economic growth. To a significant extent population growth was a key driver of demand, acting like a rising tide that raised all ships so that most businesses had potential to prosper. But, second, the end of the period of our detailed study marked a turning point. By 1911 many industries were consolidating; the limited company was becoming a compelling form of industrial organisation; transport developments allowed the economy to become more integrated regionally and nationally so that large firms could expand into almost all local areas through brand development, branches and attempts to exert monopoly control; individual sole traders and small businesses were experiencing more intense competition; market entry was becoming more difficult as capital requirements in many sectors increased; and the expansion of large firms, public bodies and civil administration, often offering higher and more stable wages, increasingly attracted many of the most able and reduced the attractions of entrepreneurship with its inevitable uncertainties and risks. Moreover, if there had been any doubt about future evolution, this was buried by the cataclysm of World War I. The loss of many of the young adult population, the needs of the war effort, the interrelated development of large-scale government and business management techniques (such as Taylorism and Fordism) and the turn of government policy mainly to support industrial consolidation all pointed towards subsequent developments where small-scale proprietors faced greater challenges, unless they were in niche or technologically protected markets or prepared to take decreasing returns. Over the long term, the peak of entrepreneurship over 1901–11 was not to be approached again until the late 1990s.

The book fills two major intellectual and data gaps at the most basic level. First, for entrepreneurs it provides the first historical large-scale data and analysis of the characteristics of entrepreneurs at the scale of the whole population and how they compared with non-entrepreneurs and how they changed during rapid industrialisation. Second, for businesses the book allows assessment of evolution developed by sector, firm size (measured by employee numbers), corporate and non-corporate forms and geographic location. This provides new assessments of entrepreneurship rates and their evolution, the location of entrepreneurial ‘hot spots’, changes of business concentration by firm size, variation between sectors and the speed of changes. It also allows understanding of how entrepreneurial decision makers were influenced by their personal characteristics such as age, gender, family and household structure and how individual characteristics interacted with business sectors, geographical environments and changing transport access. Our results challenge tropes of late-Victorian entrepreneurial decline and the limited extent of female entrepreneurship.

The present chapter introduces the definitions and data used and the main themes of entrepreneurship analysis over time. The other chapters comprising Part 1 review previous understandings and theories of entrepreneurship that inform the long-term analyses (Chapter 2) and summarise how the data used in this analysis were constructed and enriched (Chapter 3). Part 2 of the book gives an overview of the main trends in business numbers by type and the sector changes that the new data reveal (Chapter 4). Chapter 5 develops new insights into the evolution by business size and different institutional forms (as self-employed, employers, partnerships and corporations).

Part 3 of the book then presents different dimensions of micro-entrepreneurial change that led to different aggregate outcomes. Chapter 6 introduces a statistical method for understanding the influences on entrepreneurial choice of different personal characteristics, such as age, gender, family and household structure. These are assessed along with the effects of different sector market opportunities, geographical location and the role of changing locational opportunity in a period of rapidly developing transport infrastructure. This leads to some important new insights into questions that have previously been difficult to examine for this period, such as ‘What makes an entrepreneur’ and ‘What contributes to opportunities for entrepreneurship and growth’. The following chapters then engage in more detail with specific dimensions: demography and the family firm (Chapter 7), gender (Chapter 8), geographical locations (Chapter 9), migration (Chapter 10) and diversification through development of portfolios of business activity (Chapter 11).

1.2 Defining the entrepreneur and entrepreneurship

The information now available in the BBCE allows ‘entrepreneur’ to be defined in this book as the proprietor who is responsible for the business at a given point of time. Their businesses are also defined broadly to include all those run by individual sole proprietors, both those who employed others and the self-employed ‘working on own account’ who employed only themselves; those run by individuals working in partnership or joint enterprises as ‘firms’; and those run by directors of incorporated entities. The book focuses on all individuals who ran all businesses, covering the full size range from the smallest to the largest. The definition is as broad-ranging as possible so that it can be applied to understanding the whole population, can be integrated with modern definitions and is supported by data collected now and in the past.

More precisely we define ‘entrepreneurship’, enlarged in Chapter 2, as the process of decision making to draw together resources to produce an economic output of goods or services; and we define ‘entrepreneurs’ as those responsible for undertaking business activity who responded to business opportunities by trying to meet or anticipate demand and organise supply. They assembled factor inputs, achieving a return for their skills by successfully doing so, and bearing the risk if they failed.

This book focuses on entrepreneurship in business development. However, it is accepted that entrepreneurship can be applied to many, perhaps any, field: ranging from business to government administration, social organisations, charities or the arts. It can also be applied at the level of chief executive, senior and middle managers and by artisans and basic workers. All types of activity at all levels are amenable to the application of the wide concept of ‘entrepreneurial action’ that pursues opportunities to improve current processes. Indeed modern business schools and other centres attempt to train people to be more entrepreneurial in all fields of endeavour (Shane and Venkataraman, 2000). But the focus here is on business development and the business proprietor: those who are actually in business to trade goods and services, have a level of meaningful discretion over price setting, make the key strategic decisions and take on the responsibility for the risks involved.

This definition, even with its restriction to business proprietors, is much broader than many modern studies of business entrepreneurship which use different approaches in different contexts and disciplines. For example Hébert and Link (2009: 100–1) recognise that even among economists there are competing views on the role of the entrepreneur. They define entrepreneurs as performing at least 12 different, though overlapping, roles as economic agents: the person who assumes risk, who supplies financial capital, innovator, decision maker, industrial leader, manager or superintendent, organiser and coordinator, business owner, employer of factors of production, contractor, arbitrageur and allocator of resources. But this does not exhaust the possibilities. Mayer et al. (2018: 534) argue that there has been a failure to define entrepreneurship sufficiently precisely; Kitching and Rouse (2017: 568–9) conclude that context and research question are all-important: it is impossible to create a synthesis.

Much modern economic literature defines business entrepreneurs purely as those who innovate. Other literature focuses on those who assemble and coordinate factors of production chiefly through their organisation of the labour of others as employers. Yet others restrict attention to non-farmers. However, many modern studies widen the definitions to include entrepreneurship as an attitude of mind and psychological traits. Within these, there is an important field focusing on the development of entrepreneurial thinking among those who might consider business initiatives but have not yet started (nascent entrepreneurs). These are all valuable approaches, but for our purposes they are less relevant to whole-population study, and mostly inapplicable to what can be assessed for the historical period from the data available; furthermore, the distinction between innovative entrepreneurs and simple ‘owners’ has proved difficult to implement on any scale in modern research (Aldrich and Waldinger, 1990: 112–13). It is particularly problematic to exclude farm businesses since, for our period, they were about half of all business numbers and the interaction between farming and other enterprises affected all sectors. Indeed, we show they are an important element of nineteenth-century business development.

Given our aim of whole-population analysis, and given the historical data available, we limit the focus to those currently operating a business at a specific point in time. This does not, of course, restrict future analysis of our database to extract from it innovators, those who might be nascent entrepreneurs or who have specific traits, if sufficient information can be assembled to identify such sub-sets. The advantage of the whole-population database that has been assembled is that sub-sets can be extracted, but also when they are used it is possible to determine how special they are, and how they differ from, or are representative of, wider groups. This was impossible before the large-scale data now made available.

A key comparison we use is between entrepreneurs and workers. Workers are those who are not (currently) operating as the proprietors of any business and receive their income as wages or salaries. Entrepreneurs are those who receive their income as the residual of the profits of their enterprise after deducting all costs; they support themselves by their own direct endeavour, receiving no wage or salary but the residual of profits. This is the usual definition of entrepreneurial income (though sometimes confusingly referred to as an ‘entrepreneurial wage’). This is the broadest definitional distinction used in the modern literature, which is also supported by historic data. The income distinction focuses on the different ways in which income is obtained: wages provide higher certainty but less control, because they rely on others to run the business; entrepreneurial income generally offers lower certainty but gives greater independence and potential for control of business decisions. We develop this distinction further in Chapter 2 where we confront alternative theories of business entrepreneur-ship and their historical applicability to whole-population analysis. This is then developed further in Chapter 6 where estimates are developed of alterative constrained discrete choices of entrepreneurial status between different forms of business organisation: as a waged employee, as an own-account sole proprietor, as an employer of others or as a director. We also give attention, as far as our data allow, to choices between partnership and sole proprietorship. In addition, within the discrete choice framework, we also investigate situations where entrepreneurship is applied to more than one business at the same time through portfolio diversification.

1.3 Re-positioning historical studies of entrepreneurship

The challenges of definitions of the ‘entrepreneur’ and scale of available data have been well recognised in the literature. A useful debate has emerged in business history on the need to develop larger-scale analyses and to move beyond case studies and small samples: Wardley (2001: 129) calls for greater ‘development of generally accessible machine-readable datasets’. However, development of such databases has chiefly focused on corporate and large businesses, with the most significant research mainly based on the 100 largest firms (Hannah, 1983, 2014; Jeremy, 1998); nothing of scale for Britain has emerged on non-corporate and smaller businesses. Many studies in the ‘new economic history’ tradition following Landes (1969) have sought to construct larger databases to examine characteristics of entrepreneurs over time (Gatrell, 1977; Godley, 2001; Kay, 2009; Nicholas, 1999a). A recent example is Mokyr (2010: 197), who takes a broad view of the definition of entrepreneurs. In practice these use definitions of the ‘great employers’ or the ‘economic elite’ of significant business leaders who were also politically well connected. Mokyr’s analysis of 1,249 British entrepreneurs is on a larger scale than many previous studies, and combines the information from Rubinstein (1977, 2006), Çrouzet (1985) and Honeyman (1983) and the Dictionary of Business Biography. But even this is a tiny sample of the whole population of entrepreneurs that existed over the period of analysis, and it is biased towards the successful and others large enough to gain attention, those with at least basic archival records and those whose health allowed them to live longer.

Nye (1991) and Mokyr (2010) have drawn attention to the important truncation effects in such studies. Any comparisons with the successful are constrained because we do not generally know who was surviving but struggling, who had failed, who were would-be entrepreneurs who had tried but gave up early and reverted to waged employment or became unemployed or those who never initiated action. Nye argues that if all the struggling, failed and would-be entrepreneurs were fully included the probability of success would be better understood, entrepreneurship rates would be lower and the rate of return to entrepreneurship would probably be negative. In other words, looking at the whole population, rather than at selected samples of the successful, radically changes the inferences that can be drawn about entrepreneurship. Ideally, we need better data on firm creation, longevity of firms, turnover rates, the extent of failures and their actual losses, as well as the opportunity costs of other activities in which they engaged. Such data are impossible to assemble in full for historical series, although the big data used in this book go some way in this direction. However, the alternative of focusing on samples of the successful or the ‘innovators’ has obvious selection bias and represents an unknown proportion of the total entrepreneurial population. Inferring from such samples to entrepreneurship rates, macro-economic effects and their role in economic growth can be entirely misleading.

Selection bias is a particular challenge to modern and historical accounts of the entrepreneur as innovator. Innovators usually can only be recognised by their success and prominence, or if they fail they are tracked only when they were previously successful or prominent; almost all the rest remain unknown and unstudied. For example, Baumol (2010) explicitly restricts his definition of entrepreneur to innovators. Casson (1982, 2010), a leading commentator on entrepreneurs in economic history, defines them as innovators who make the critical judgement decisions by entering or creating new markets in order to extract rents and obtain above-average returns. His review of nineteenth-century entrepreneurship (Casson and Godley, 2010: 225) takes the argument further, stating that defining entrepreneurs as we do, as the self-employed, ‘is too narrow to be of much use in analyzing the Victorian economy’ and is ‘misleading, as entrepreneurship reduced self-employment rather than increased it, and those that were self-employe...

Table of contents

• Cover
• Half Title
• Series Page
• Title
• Copyright
• Contents
• Foreword
• Acknowledgements
• PART 1 New methods to interpret historical trends
• PART 2 Overview of trends
• PART 3 Understanding entrepreneurship at the individual level
• References
• Index