The Persistence of Entrepreneurship Myths

Reclaiming Enterprise

Simon Bridge

• Verlag: Routledge
• Jahr: 2021
• ISBN:
  9781000506624
• Auflage: 1
• Thema: Betriebswirtschaft
• Thema: Unternehmertum

Triggered largely by claims that small businesses were the main source of new jobs, an 'explosion' of interest in enterprise, entrepreneurs and small business has led to the establishment of a conventional wisdom about enterprise.

Mistaken theories can become influential and examining the conventional enterprise wisdom indicates that much of it is questionable. If that is the case, a reassessment is needed. While wilful blindness and continuing to do more of the same is a natural response, it will not lead to improvements in knowledge. A new paradigm requires a step change in thinking, which is not easy to initiate. Nevertheless, accepting the evidence for the errors in current understanding and practice is a necessary first step if enterprise and its benefits are to be better understood and promoted. This book examines the conventional wisdom around enterprise, entrepreneurs and small businesses and illustrates not only why and how this could have evolved, but also why it could be based on a set of mistaken assumptions.

Correcting the foundational knowledge on which enterprise and policy and practice rely and finding a new paradigm will result in better teaching and more effective policy. It will therefore be of interest to researchers, academics, students and policy makers in the fields of enterprise and entrepreneurship.

1 Introduction An evolving understanding of enterprise, but with problems

DOI: 10.4324/9781003226338-1

In many countries and for about 40 years, enterprise has been the focus of considerable attention. It has been identified as a means to increase employment and otherwise improve failing economies – and therefore efforts to increase it have been backed by significant government budgets. Consequently, to help those endeavours, information about it has been sought and an enterprise ‘industry’ has emerged. Enterprise has been researched, written about, and taught – and many policies have been launched to encourage and support it. However, although this may not have received wide recognition, some aspects of the accepted knowledge about it have been questioned and there seems to be no evidence that the policies to promote it have succeeded, which suggests that the ideas or suppositions guiding them might be questionable. Therefore, could it be that, instead of rigorously applying the scientific method to build a corpus of verified knowledge about enterprise, these now widely established enterprise endeavours have been built on poor foundations and that, in accumulating the received understanding about enterprise, too much reliance has been placed on untested suppositions and assumptions? This book seeks to examine the validity of that hypothesis and its implications.

Introducing Enterprise

The word enterprise can mean many things. However, as a crossword clue some 25 years ago, ‘Endeavour to be firm (10 letters)’¹ indicates, it is commonly associated with business and, in economic circles, it has often been used to refer to the area of endeavour which encompasses business start-ups and the subsequent growth of the resultant small firms – together with the entrepreneurs who are supposed to create them. Sometimes this is referred to as entrepreneurship (Box 1.1) but in this book ‘enterprise’ is the preferred term, especially because the use of the word ‘entrepreneurship’ with its different meanings can be very confusing,² although it is used here when quoting other usages.

Box 1.1 A note on vocabulary

It may be relevant to note some variations in vocabulary. Whereas ‘entrepreneurship’ may have been the term often used in the USA, it is clear that in the UK in the 1980s ‘enterprise’ was for many the preferred label – but subsequently ‘entrepreneurship’ has gained favour there also. One distinction on occasion applied in the policy area was that ‘entrepreneurship’ policies are policies for encouraging and facilitating more people to create their own businesses and ‘small business’ (or SME) policies are policies for stimulating growth of already established small businesses – with ‘enterprise’ then being the label for policies which encompass both entrepreneurship and small business policies and for policies for encouraging enterprise in its broad sense.³ However, that distinction is not universally followed and, while both enterprise and entrepreneurship can have a variety of meanings, they have often been applied more or less synonymously and interchangeably.

Today developing enterprise (and/or entrepreneurship) has become something of an industry. Many regions and countries have policies designed to encourage entrepreneurs and build small businesses and many academic institutions seek to support this by providing enterprise or entrepreneurship education courses. This widespread interest is recognised, for example, by the Global Entrepreneurship Monitor (GEM) initiative which, since 1999, has been carrying out survey-based research into entrepreneurship and entrepreneurship ecosystems around the world, and by the OECD which, for instance, in 2020 under its strapline ‘Better Policies for Better Lives’, published its International Compendium of Entrepreneurship Policies. The foreword to this publication starts with the declaration that ‘entrepreneurship is a key driver of job creation, economic growth and social cohesion’ and then, in the next paragraph, notes that ‘the contribution of entrepreneurship to job creation and productivity growth is well documented’. However, it goes on to say, ‘realising the benefits requires policy interventions that address the market, behavioural and institutional failures that hold entrepreneurship back’. Therefore, the publication ‘offers policy makers a brief overview of the main types of entrepreneurship policy being pursued internationally’ and the core of the compendium is a set of 16 summaries of policy examples.⁴

The Evolution of an Interest in Enterprise

But why has GEM been trying to measure entrepreneurship and why has OECD acquired a concern for ‘entrepreneurship’ policies – and what has that to do with enterprise? It was an Irishman, Richard Cantillon, who is credited with introducing the word entrepreneur to the economic lexicon in a book published posthumously in 1755.⁵ For much of his working life, he lived in France and in his book, written in French, he applied the French word ‘entrepreneur’ to someone working at risk with known costs but uncertain returns – like a farmer who rents land for an agreed fee but does not know what he will get for his crop until it is harvested. It took some time for the word to be adopted into English and in a 1930s translation it is rendered as ‘undertaker’.⁶ However, it was taken up and apparently in America in the early 1930s, the word entrepreneurship appears to have been invented by adding the suffix ‘-ship’ to ‘entrepreneur’ to produce a word apparently used to refer to the act of starting or building a business.

The decades before the Second World War had not been a period of steady economic conditions – with events like the hyperinflation in Germany in early 1920s, the Great Depression which began in 1929 and affected many countries, the New Deal in the USA, re-armament in the late 1939s and then the exertions of the global conflict that was World War II. However, once that conflict was over and recovery was underway, assisted in many counties by the Marshal Plan, things seemed to have changed. For nearly 30 years after the war, unemployment in many counties remained relatively low. This was an era apparently dominated by big businesses: Fordism, economies of scale and the wartime experience of large-scale organisation skills. And it seemed that economies could now be managed successfully and continuously.

Whyte in his book The Organization Man suggests that the American experience of the Depression followed by the military training of the Second World War created a belief in bureaucracies, or at least an obedience to them.⁷ America had thus become conditioned to believe in the large corporation as the major, and the preferred, source of employment. In 1967, John Kenneth Galbraith published The New Industrial State, in which he highlighted the benefit of economies of scale in production, as evidenced by Henry Ford’s assembly lines.⁸ As production organisations become larger, the theory went, greater specialisation of labour and machines was possible, which in turn reduced the unit cost of production. Large firms, therefore, have lower costs of production than small ones and, as there are no theoretical limits to their size, they will dominate society. Galbraith thus believed that large corporations would work with government and large unions and, based on a shared view of organisation life, they could in effect run the state.⁹

Nevertheless, there was academic interest in enterprise and/or entrepreneurship as early as the 1930s with the first course in it apparently delivered in 1938 in Kobe University in Japan.¹⁰ In the USA, where the word entrepreneurship seems to been coined, a paper by Arthur Cole of Harvard University entitled ‘Entrepreneurship as an Area of Research’ was published in 1942¹¹ and it was five years later in 1947, also in Harvard, that the first entrepreneurship course in the USA was said to have been delivered.¹² However, for some time, it remained a minority interest and, as one commentator put it, even in the 1970s entrepreneurship was ‘academically “flaky” and lacking in a scholarly body of knowledge’ and ‘little research in entrepreneurship [went] on and consequently the literature on it remained thin’.¹³ Nevertheless, interest in it grew and it was observed that, by the end of the 1970s, ‘an entrepreneurial “something” was in the air’, at least in the USA, exemplified by a growth in writing about ‘small business’ and ‘entrepreneurship’ along with associated stirrings in the policy/political arena.¹⁴

It was also in the 1970s that the economic climate began to change and in many countries unemployment started to rise as economies no longer seemed to respond to the accustomed control measures. By the end of the decade, it was clear that this was not just a blip but a substantial change in conditions in which the former triumvirate of large corporations with government and unions no longer seemed to be able to control economic affairs and maintain employment successfully. It was, therefore, very timely when, in 1979, David Birch revealed his finding that in the USA it was not big businesses but small businesses which were the creators of net new jobs.^* As he put it:

* In areas where jobs were created, big businesses created some jobs but lost as many as they created, whereas small businesses created more jobs than they lost – resulting in a net creation of new jobs.

Of all the net new jobs created in our sample of 5.6 million businesses between 1969 and 1976, two-thirds were created by firms with twenty or fewer employees and about 80 per cent were created by firms with 100 or fewer employees.¹⁵

The 1980s and 1990s – An ‘Enterprise Culture’ and an ‘Explosion’ of Research

In the alarming situation of apparently uncontrollable rising unemployment, governments were anxiously looking for new economic solutions and therefore there was a lot of interest in Birch’s findings – which appeared to provide an answer to their prayers. Although his results were disputed at the time, and are still debated (for instance, with some finding that it is new businesses, rather than all small ones, which create more jobs), nevertheless governments were not going to look an apparent gift horse in the mouth and extolled small businesses – along with the entrepreneurs who might start and grow them. As indicated previously, there had been interest in ‘entrepreneurship’ as early as the 1930s, but in the 1970s it was still something of a minority interest. However, in the 1980s, governments wanted more small businesses to create more jobs and, for example, in the UK, an ‘enterprise culture’ was sought:

Defined as the full set of conditions that promote high and rising levels of achievement in a country’s economic activity, politics and government, arts and sciences, and also the distinctive private lives of the inhabitants.¹⁶

Consequently, interest in enterprise took off and in the UK, for instance, the 1980s has been called the enterprise decade. Following the election in 1979...