Wednesday, October 9, 2013

Foundations of Entrepreneurship Research - Part 1

By: Frederic Sautet, Visiting Associate Professor of Economics, Catholic University

Dr. Frederic Sautet is an economist who specializes in market process and entrepreneurship research. 

"Entrepreneurship” has become a buzzword in recent decades. It is not only an important field of research but it is also a major instrument in economic policy, and politicians of all stripes see small businesses and entrepreneurship as a cornerstone of American success. 

The hype around entrepreneurship was not always the case. In fact for a long time between the 1920s and the 1980s, hardly anyone in economics and policy would discuss entrepreneurship. While entrepreneurship was a fundamental function of the market system (the system of “free enterprise”) for economists of the 19th century, this notion disappeared completely with the mathematization of the discipline in the following century. As P. Kilby stated, most authors “whether explicitly or simply by virtue of omission, consider[ed] entrepreneurial supply to have played a passive part in the drama whose major themes were invention, changing factor prices, and new market opportunities.” Indeed, instead of considering the entrepreneur as having the central role in a country’s economic performance, post-WWII economics came to consider structural conditions and other macroeconomic factors as key to growth and development.

This has changed. Today there is plethora of research that indicates the overwhelming importance of entrepreneurship in economic performance. Although some of the largely shared views are sometimes not true (e.g. empirical analysis shows that small businesses are not a major source of new jobs), it is still the case that entrepreneurship is the driving force of the market, to paraphrase Israel Kirzner.

In order to understand why entrepreneurship has become so important in economics, policy, and politics, it is important to go back to the root of the discipline and look at its theoretical foundations. One distinction that is important here is the one between entrepreneurship in the behavioral sense (i.e. what entrepreneurs do) and entrepreneurship in the cognitive sense (i.e. what entrepreneurs are, or what the function of entrepreneurship consists of). Grasping this difference is vital because without it, one does not understand why many authors use the same word (“entrepreneurship”) but seem to talk about different things. In my next post, I’ll develop the ideas behind this distinction.

Contributed by Dr. Frederic Sautet
Visiting Associate Professor of Economics
The Catholic University of America, School of Business and Economics 

1 comment:

  1. I really enjoyed reading this post about entrepreneurship! Immersing myself in this program for the past few months has helped me to realize what an entrepreneurial spirit I possess (I believe in the behavioral sense). I plan to develop my own business after graduation, and it is exciting to learn that I may be part of the driving force of the market! I look forward to learning more fully the distinction between the cognitive and behavioral forms of entrepreneurship.

    --Julie Larkin