The Emergence of Entrepreneurial Economics: Volume 9

“If entrepreneurship remains as important to the economy as ever, then the continuing failure of mainstream economics to adequately account for entrepreneurship indicates that fundamental principles require re-evaluation” (Shook, 2003).

This chapter deals with aspects of technical change and entrepreneurship which have dominated the economics literature. Since we shall confine our attention to the economic aspects of technical change, our approach is one-sided. This is reinforced by the fact that we discuss only a part of the very large body of literature. The tension between wants and the means to satisfy these is directly influenced by technical change, both from a qualitative and a quantitative point of view. This relationship between scarcity and technical change has been studied in detail since the 1970s, although elements have always been part of economic debate (Heertje, 1977).

To amend a standard bon mot, entrepreneurship is known to play a critical role in reality, leaving economists concerned whether it fits into the theory. The answer, I will argue here, is that it not only fits prospectively, but that the theory already exists and does much of what is done for the other inputs of the production process via the theory of distribution and the theory of production.

Why should entrepreneurship matter for economic growth, employment creation and international competitiveness? The entrepreneurship literature has traditionally suggested that entrepreneurship matters to individuals and firms, but rarely for economic growth.

Many modern beliefs about entrepreneurship have their roots in Joseph Schumpeter's challenge to the traditional view that growth results from the accumulation of capital. According to the received wisdom of the time, thrifty ants prospered. Spendthrift grasshoppers starved.

We investigate regional differences in the level and the development of regional new business formation activity. There is a pronounced variance of start-up rates across the regions. The level of regional new firm formation is rather path-dependent resulting in relatively small changes. The main factors determining the level of regional start-ups are innovative activity and entrepreneurship. These factors are also responsible for changes in the level of regional new business formation. The growth of regional demand and regional unemployment do not play a significant role for the change of regional start-up activity. Steering innovation and creating an entrepreneurial atmosphere could be an appropriate starting point for policy measures that try to promote start-ups. Our empirical evidence strongly suggests that such measures may have significant effect only in the long run.

The importance of small enterprise to the economy is now widely recognized not only by the Western industrialized world, but also by many countries, which formally had socialistic forms of government. Former Communist countries as well as less developed countries that are working to fuel their economies are expending considerable effort to foster entrepreneurship (Kasadara, 1992).

The ICT sector in France is characterized by intense firm birth rates, but also by a high mortality. Five years after the start-up, only 38.7% of the firms survived, comparing to 51.0% in the middle high technology and 46.3% in non-innovative branches (Lasch, 2003a). The high growth potential of ICT firms is linked to specific problems, such as a higher risk of failure, a difficult financing, the lack of knowledge in firm management of new entrepreneurs, etc. (Pleschak, 1997). Mostly SMEs, young ICT firms are extremely fragile, so the present chapter proposes to discuss the crucial topic of survival and growth in innovation and knowledge-based sectors.

Social Entrepreneurial Enterprises (SEEs) are companies that are founded with the mission to change the world in a specific socially oriented way rather than to provide an (economic) ROI (Bornstein, 2004). The social mission is usually accomplished incrementally by convincing other members of society of their cause. The degree to which the social mission is accomplished is the function which an SEE tries to optimize while at the same time remaining economically viable and independent. As SEEs are entrepreneurial enterprises, they are associated with a high risk of failure, yet at the same time they empower their leaders through independence.

In today's competitive environment firms can seldom rely on their current products and services to secure their future success (Miller, 1983; Zahra, 1993; Lumpkin & Dess, 1996). Neither can they ignore their position in the market vis-à-vis their current and potential competitors (Barney, 2002). To win in the competitive global market, firms also have to continuously improve their internal processes in order to ensure that operations are efficiently performed (Carpinetti & Martins, 2001; Tompkins, 2001). These challenges may seem overwhelming and even threatening, but by generating more opportunities firms can increase the possibility of obtaining successful outcomes. This is based on the assumption that the discovery of new opportunities helps leverage a firm's value creation and ensures that the firm remains vital (Stevenson, 1983).

Despite the continuous rise in the establishment of technology-based start-ups (TSUs), the reported statistics indicate high failure rates for these ventures. This has led to a large body of research literature dealing with the identification and assessment of factors affecting TSU performance. Most studies have focused on various business variables or other business areas, including financial aspects, marketing issues, strategic planning, the technological development process, operational and quality management issues, timing of entry, lack of individual knowledge and ability during the founding process (Gartner, Starr, & Bhat, 1999), difficulties in managing the legal aspects, failure to establish and develop the relevant networks with key customers and suppliers (Roure & Maidique, 1986; Roure & Keeley, 1990; Littunen, 2000) and the failure to invest in learning (Schilling, 1998).

Creative destruction “revolutionises the economic structure from within”, Joseph Schumpeter famously said, “incessantly destroying the old one, incessantly creating a new one”. Innovation in business – bringing new goods, new markets, new methods of production, new ways of organising firms – is the “fundamental impulse that sets and keeps the capitalist engine in motion” (Schumpeter, 1975, p. 83). Does the economy have enough flexibility? Are there barriers in the way of entrepreneurship? This paper develops a framework for quantifying creative destruction.

How can we foster entrepreneurship? This was one of the basic questions to ask when we, like many others, started to consider different approaches concerning how to motivate students to become interested in entrepreneurship. We soon became puzzled by the theoretical approaches to entrepreneurship. Something seemed to be lacking, for example, the important question of how should one educate entrepreneurs? However, as noticed by Landström (2000) and Sundnäs, Kjellam and Eriksson (2002), it is through the expansion of the theoretical roots of entrepreneurship, i.e. from the economic, behavioural and business studies to multidisciplinary research, that the picture becomes more understandable, albeit more complex.