The Routledge Companion to the Makers of Modern Entrepreneurship

David Audretsch, Erik Lehmann, David Audretsch, Erik Lehmann, David B. Audretsch, Erik E. Lehmann

• Publisher: Routledge
• Year: 2016
• eBook ISBN: 9781317561705
• Topic: Business
• Subtopic: Business General
• Index: Business

Once relegated to the dusty shelves of ancient muses, research and scholarship on entrepreneurship has exploded as a field of research, with impactful additions from a range of disciplines rendering the field a tricky one to traverse. The Routledge Companion to the Makers of Modern Entrepreneurship offers a comprehensive guide to entrepreneurship, providing an authoritative exploration of the key people and their ideas. This book tells the stories of the scholars who have set the standard and tone for thinking and analysing entrepreneurship.

Edited by two of the world's leading entrepreneurship scholars, this comprehensive volume offers a platform for understanding and future research that is both state-of-the-art and authoritative. It expands on how modern entrepreneurship has developed, with a focus on the key "makers" of the field – including theories, such as social psychology; concepts, such as neuroeconomics; and types, such as political entrepreneurship.

The contributions to the collection are grouped into three sections:

• Emergence of Entrepreneurship Research
• Theories in Modern Entrepreneurship
• Concepts and Makers in Modern Entrepreneurship

This companion is essential reading for students and academics interested in entrepreneurship, entrepreneurial management and business management.

1
Makers of modern entrepreneurship

David B. Audretsch and Erik E. Lehmann

Within the arc of a generation, entrepreneurship has come a remarkably long way. Business wants to harness it, policy wants to proliferate it, and students want to become it. The primacy of entrepreneurship has not escaped the attention of scholarship. Once relegated to the dusty shelves of ancient muses, research and scholarship on entrepreneurship have exploded into one of the most dynamic, lively fields of inquiry of our era.

This book is not about the phenomenon of entrepreneurship. By this point there is no paucity of analytical and critical works examining entrepreneurship from virtually every angle possible. Rather, this book is about the scholars who have studied entrepreneurship. Not just any scholars, but those who have set the standard and tone for thinking and analyzing entrepreneurship. It is a book, first and foremost, about people and their ideas.

The makers of entrepreneurship contributing to this volume may seem to be strikingly disparate. They span different scholarly disciplines, countries, cultural contexts, and modes of scholarship. Still, we find several salient themes and similarities uniting them. The first is that the makers of entrepreneurship typically did not study and were not trained in entrepreneurship research. Rather, they come from a myriad of academic backgrounds, disciplines, and fields, ranging from psychology to sociology, economics, geography, and political science.

The second observation is that, regardless of their starting point, their intellectual journey drew them off the path from known and familiar scholarly fields into the unknown terrain of what we today call entrepreneurship studies. A common feature of all of the authors and each of the chapters presented in this volume is that they resemble immigrants who have migrated to a new country and culture. Although they are now members of this new scholarly community, they still bear the traces and roots of the scholarly world of their intellectual origins. Each chapter reflects an author whose original research trajectory and scholarly methodologies, literature, and orientation were in some field other than entrepreneurship. Each one brings her or his own unique perspective, understanding, and academic and other experiences to the field, which in our view has richly embellished entrepreneurship studies.

A third common element among the authors and the chapters, which is impossible to miss when reading this book, is the high degree of passion and enthusiasm for their research topic, the overall field of entrepreneurship, and their own idiosyncratic journey that has taken them there. These scholars love what they do, how they do it, and the people with whom they do it. Our experience is that such passion and commitment are rare and exceptional in the academy.

Our last observation is that it is best to let each scholar speak for herself or himself. We have found a plethora of insightful gems, not just in these common features among the makers of entrepreneurship, but in what each scholar has to say for herself or himself. We hope that you, the reader, will share this joy and reflection in reading what the makers of entrepreneurship have to say for themselves.

2
The godfather of entrepreneurship

Zoltan J. Acs

Introduction

In 1952 I found myself on a ship from Bremen, Germany, to New York City. The ship, the USS General S. D. Sturgis, was a WWII troop carrier that was shuttling displaced persons from war-torn Europe to destinations around the world. Of the 15 million or so displaced persons living in refugee camps after the war, about a million were now being relocated to the United States, Canada, and Australia.

One of my first memories in the new world is of my mother taking me to a diner on 89th Street and Buckeye Road in Cleveland, Ohio, where she bought me a hamburger. I loved it! On our second visit I asked for a hamburger again, but not knowing any English, I ended up with a ham sandwich. This was just the start of my long struggle in a new land. We yearned for our homeland, which, of course, we believed we would never see again.

I struggled on through my years as a young boy. Like any other youngster, I enjoyed climbing trees, playing baseball, and just running around the neighborhood. I played with a lot of kids, both black and white, who fought over everything and nothing. When I finished high school, I got busy climbing out of the world I had found myself in – that of a war refugee. With some luck and a lot of hard work, I navigated my way through college, earning a BA from Cleveland State University. I did not learn that much, but it was enough to spark my curiosity about my fate, which was like a burr under my saddle.

As a displaced person in the United States, two questions tore at me. First, what enabled the United States to offer unlimited opportunity to people from a faraway land? And second, what had failed in the world my family left behind? I felt lost and confused, and I wanted to know why and how the world turned out the way it did. I knew only that capitalism, fascism, and socialism had played some role in all of it.

So I did what most people do when life comes to a dead end – I went to graduate school. By some miracle I ended up at the New School for Social Research in New York City. This was a most curious place, full of members of the New Left and European intellectuals who were trying to explain the chaos in the world around us – the Vietnam War, poverty, capitalism, racism, democracy.

Over the next several years I earned a master’s degree in political economy and, by the seat of my pants, managed to earn a PhD in economics. I accomplished this by working with Robert Heilbroner, Thomas Vietorisz, Edward Nell, Ross Thompson, and the late Stephen Hymer, who were the intellectual descendants of some of the greatest thinkers of our time: J. M. Keynes, John Hicks, Jürgen Habermas, Joseph Schumpeter, Paul Samuelson, Robert Solow, Hanna Arendt, and Levi Strauss.

The New School

My education at the New School taught me two things about the world. First, that industrial capitalism was about large firms and mass production on both sides of the Atlantic, and second, that the world was likely heading toward socialism, where state planning and nationalization would be the norm. It appeared that it was only a matter of time until capitalism would fail, as predicted by Marx (1867) and Schumpeter (1942). Put simply, overinvestment in industry would lead to a falling rate of profit, and without profit the capitalist world as we know it would cease to exist. However, my education included nothing about entrepreneurship or small firms.

And then fate stepped in. In my dissertation – by today’s standards probably not a very good one – there was a small but important discovery. I had attempted to understand the evolution of capitalism through price theory and the study of industry. My discovery, the “two steels,” showed that technical change can come from small firms, even in industries that have been dominated by large firms for a century or more. This curiosity was my first foray into the study of small firms and entrepreneurship, and it put me on the path to becoming a scholar of entrepreneurship.

I knew I had discovered something potentially significant, but was not sure what its relevance was at the time or what its full impact would be. However, I was not alone in my discovery: David Birch and Michael Piore, both at MIT, had independently and simultaneously found the same thing: that the capitalist model we had been studying no longer fit the facts, at least not as well as it should. Birch (1979) found that large enterprises in almost all metropolitan areas in the United States were no longer the main engines of job creation. Michael Piore and Charles Sable (1984) suggested in their book, The Second Industrial Divide, that after 200 years the organization of industry was again changing, this time away from mass production to flexible production.

My contribution, in The Changing Structure of the U.S. Economy (Acs, 1984), centered on technology, markets, and democracy, such as how small firms were both able to and allowed to innovate in industry after industry. And then, with the election of President Ronald Reagan in 1980, a set of institutional and social changes was unleashed upon the economy.

What did I know in 1980? Well, I put several issues on the table that would stand the test of time: If Schumpeter was wrong about the future of capitalism, who was right? If this new capitalism prevails, what might it look like? I also knew that economic growth had to be a piece of the puzzle, that we had to measure what was happening at the industry level, and that it had to be done in the tradition of existing studies on industrial organization.

At the policy level, I knew Keynesian economics was finished. As I wrote:

Keynesian anticyclical policies cannot restore growth and eliminate unemployment. Planning would only make it worse. The conservative programs relying on small firms and markets, while going through a learning curve, appear to be moving in the “right” direction. The conclusion of this book is that the market today is a guiding light through the maze of economic uncertainty created by technological evolution.

(Acs, 1984 p. 223)

These discoveries occurred from about 1976 to 1982. To understand what was happening, one only needed to read “The Coming Entrepreneurial Revolution: A Survey,” an article by Norman Macrae that appeared in The Economist (1976, p. 41). The Economist had understood already that the world was going to change and that it was not moving toward more top-down management, central planning, and state ownership. The magazine’s view was that we were approaching the end of big business, that state capitalism would not prevail, that it was the end of the “organization man,” and that educated people would become more entrepreneurial. If any of this did prove true, then the field of small business and entrepreneurship was surely born out of a crisis in economics and the economic crisis of the 1970s.

Calling on a bit of economic theory at this point will be helpful in understanding a world in transition. For one thing, there are no entrepreneurs in general equilibrium theory. This means that, in a static world where all markets clear, the quantity supplied equals the quantity demanded – there is no role for the entrepreneur. General equilibrium theory had thus put the brakes on our understanding of the economy and on the development of economic theory in general.

One of the greatest developments in the field of economics was the Solow residual (Solow, 1957). Appearing in 1957, the concept had been years in the making. It shed light on where economic growth comes from and what causes it – that is, technical change. Solow pointed out that technical change was a term used for any kind of shift in the production function, and this calculation of his data was seen as an indication of where we needed to concentrate our attention – which was not on capital accumulated or hours worked. In fact, much economic growth (87%) remained unexplained, so it was now the turn of the explainers. What was in the residual?

Although the Solow story was interesting, an even more compelling story is that of Martin Weitzman (1970). In the Soviet Union, where technology was abundant, particularly in the military and space spheres, the Solow residual was only about 20%. In other words, capital accumulation and labor inputs explained the bulk of Soviet economic growth. However, the Soviet Union did not allow the substitution of capital and labor to create a new production function – in short, there was no economic freedom in the Soviet Union. Therefore, according to Weitzman (1970), the nation’s economic growth would inevitably come to an end – which it did with the collapse of communism in 1989.

A second discovery that shed light on a world torn apart appeared in an essay by Harvey Leibenstein (1968). Leibenstein argued that entrepreneurs were needed to shift the production function and suggested that there are two kinds of entrepreneurs. The first is the replicative entrepreneur, who practices a kind of management that does not shift the production function but instead replicates an existing one, such as by opening another restaurant. The other is the novel or innovative entrepreneur, who shifts to a new production function, such as the cell phone. This creative destruction is what propels the capitalist system forward.

We now have the background for understanding the rebirth of entrepreneurship. The simultaneous discoveries made by Acs, Birch, and Piore and Sabel all revealed an empirical observation that did not fit with existing views of capitalism. In fact, their analyses predicted the entrepreneurial revolution, the fall of communism, and the rebirth of capitalism.

Now let’s put some meat on the bones of this analytical skeleton. It was easy to study capitalism and socialism from an industrial perspective, as both systems had relatively few firms active in each industry. The West had more diversity in firm size, but not much more, than the Soviets in terms of what counts – innovative small firms. In the industrial organization literature, economists have at best studied a few hundred industries and the Fortune 500 firms. Small firms have long been thought to play a minimal role in job creation, innovation, and technical progress. Moreover, there was no perceived need for new firms, as the existing ones could do whatever was needed – even get man to the moon!

So this raises an obvious question: Why study small business? It may be helpful to start this discussion about the evolution of entrepreneurship with a story about small business. Small firms, which are smaller than big businesses no matter how measured, are at a disadvantage relative to larger firms – they have less money, less talent, etc. – which is common knowledge. However, we know very little about the history of small firms and, without an understanding of them vis-à-vis industry dynamics, it is almost impossible to understand entrepreneurship.

WZB and Small Business Economics

Over the decades, I have been part of five major research projects that have untangled the secrets of capitalist society and its evolution. After my discovery of innovative small firms in the steel industry, I started to examine industries in general, working with David Audretsch at the Wissenschaftszentrum Berlin fur Sozialforschung (WZB) in West Berlin. We looked at innovation in large and small firms in 247 industries and published the results in the American Economic Review (Acs and Audretsch, 1988). This was exciting work, and it had a major impact on the field of entrepreneurship, small business, innovation, and capitalist development. As Leonard W. Weiss wrote about our MIT Press book, Innovation and Small Firms (Acs and Audretsch, 1990):

First, Acs and Audretsch establish quite convincingly the appropriateness of two data sets, one on small firms, industries, employment and output, and the other on thousands of innovations introduced in 1982 by firms of all sizes. Then they shake the earth. Every chapter knocks down many old beliefs and does so with a definitiveness that is uncommon in this line of study.

This piece of research changed the way people thought about the importance of small firms. To fully exploit our efforts in this emerging field, we started a new journal to disseminate our findings, which we called Small Business Economics.

The geography of innovation

After my stay in West Berlin I returned to the United States and took a job as an associate professor of economics at the University of Baltimore in Maryland. These were exciting times. Cities were in pursuit of high technology development, and Baltimore was no exception. I thereafter met Richard Florida, and my interests shifted from industries to cities.

The geography of innovation becam...

Table of contents

• Cover
• Title
• Copyright
• Contents
• 1 Makers of modern entrepreneurship
• 2 The godfather of entrepreneurship
• 3 Fifty years in the making: my career as a scholar of organizations and entrepreneurship
• 4 Roots and wings
• 5 The effects of business ownership on people’s lives
• 6 Back to the roots
• 7 A research journey into entrepreneurial finance
• 8 What an opportunity!
• 9 Finding myself staring at the future
• 10 Judgement, the theory of the firm, and the economics of institutions: my contributions to the entrepreneurship field
• 11 Entrepreneurship and growth: a personal story
• 12 Anecdotes of destiny
• 13 An Austrian perspective on firms and markets: my contributions to entrepreneurship theory
• 14 Corporate entrepreneurship: a research journey
• 15 From integrating functions to integrating ideas
• 16 Location matters
• 17 Visions of the past: wish you had been there
• 18 A place for entrepreneurship
• 19 Wandering between contexts
• 20 Re-search = me-search
• 21 The conquest of interestingness: entrepreneurial ownership mobility
• 22 Researching entrepreneurship at the intersection: reflections on three decades of research
• Index