Historical origins and development of Entrepreneurship

Historical origins and development of Entrepreneurship

There are a number of discipline areas that have contributed to the development of entrepreneurship and the identification of entrepreneurs. Literature on entrepreneurship suggests that most ideas about entrepreneurs emerged from the field of economics, especially from economic development and political economy (Cole, 1959). Two major directions emerge from the economic literature: business behavior-oriented and economic growth-oriented views of entrepreneurship (Litt, 1973). However, current views on entrepreneurship have extended well beyond these original boundaries. Although entrepreneurship was originally explored and discussed by economists, in recent decades psychologists, sociologists and anthropologists have become interested in the topic and have introduced new concepts. In particular, we will emphasize: • the original meaning of entrepreneur as an ‘undertaker’

• Cantillon, Smith and Mill

• Say

• Schumpeter

• Drucker.

The ‘undertaker’ undertook to run projects like war campaigns.

The word ‘entrepreneur’ derives from the French verb ‘entreprendre’ meaning ‘to undertake’ and was translated from the German verb ‘unternehmen’ which also means ‘to undertake’ (Cunningham & Lischeron, 1991). As early as the sixteenth century, French entrepreneurs undertook to lead military expeditions and build roads, bridges and harbours for military activities.

Cantillon: Unite means of production

Cantillon is generally credited with the introduction of the word ‘entrepreneur’ in his essay ‘Essai sur la Nature du Commerce en General’ in 1755 (O’Neile, 1989). Cantillon described the entrepreneur as a rational decision maker who assumed the risk and provided management for the firm (Kilby, 1971).

Smith: Proprietary capitalist and employer

The thread of entrepreneurship can also be found in Adam Smith’s seminal work, The Wealth of Nations, in 1776. To Adam Smith, however, the entrepreneur was a ‘proprietary capitalist’ and ‘employer’ who determined the overall direction of the business, provided required capital, bore the risk, and allocated the resources of the business in day-to-day management (Haribson, 1956).

Say: Separated capitalist and entrepreneur and the latter is like Cantillon’s

A half century after Cantillon, Jean-Baptiste Say recognised the separation of the capitalist from the entrepreneur and wrote that the entrepreneur is the economic agent who ‘unites all means of production’ and must possess qualities of judgment, perseverance, and a knowledge of the world, as well as of business (O’Neile, 1989).

Mill: Emphasises risk and profits to capitalist

In 1848, Mill reverted back to the use of the word ‘undertaker’ to describe the entrepreneur and treats entrepreneurship in the context of profits to the owner for the supply of capital and remuneration to the undertaker for bearing risk (Ashley, 1976). Toward the end of the nineteenth century, Marshall (Kilby, 1971) uses the terms ‘business management’ and ‘undertaking’ interchangeably when referring to entrepreneurship, and attributes to the entrepreneur the three functions of risk bearing, innovation and management.

At the turn of the 20th century, with the rise of the neo-classical school of economics, entrepreneurship and entrepreneur had assumed the guise of a ‘fixed factor’ in the theory of the firm where entrepreneurial ability was analogous to a fixed endowment, because it set a limit to the efficient size of the firm (O’Neile, 1989). Thus, in modern growth theory, any contribution of entrepreneurship is typically contained in residual factors known as ‘coefficients of ignorance’ and includes, among other things, technology, education, institutional organisation and entrepreneurship (Kilby, 1971).

J.B. Say also used the term ‘entrepreneur’ around 1800 in his discussions of the person who shifts economic resources out of an area of lower productivity and into an area of higher productivity and higher yield (Zimmerer & Scarborough, 1996). Say postulated that the major role of the entrepreneur was to exploit change, not by doing things ‘better’ but by doing something ‘differently’ (Zimmerer & Scarborough, 1996).

Schumpeter: Change = disequilibrium

Joseph Schumpeter (1934), in his publication of The Theory of Economics Dynamics, was the first major economist to support Say’s concept in that dynamic disequilibrium (driven primarily by the innovating entrepreneur) was the norm of a healthy economy, not the equilibrium and optimisation being espoused by the majority of contemporary economists. This view of the entrepreneur, as a person who welcomes change, thrives on the seeming disorder in the economy. It exploits change as a generator of opportunity which creates value and is the overriding theme that research findings now tend to support (Stevenson & Gumpert, 1991; Timmons, Smollen & Dingee, 1990; Vesper, 1990).

Stevenson and Gumpert (1991) described the entrepreneurs as being innovative, flexible, dynamic, risk taking, creative, and growth oriented. This view is reinforced by Schumpeter (1934) who describes the entrepreneur as a person who ‘carries out new combinations’ and highlights that entrepreneurship can thrive in diverse settings and structures. For example, Taylor (1992) found Paul Cook, founder and chief executive officer of Raychem Corporation, who leads an organisation with 30 plants in 12 countries, which supplies technical products to industrial customers in fields ranging from aerospace to telecommunications. Whereas Gumpert (1991), in an interview with Fritz Maytag, found that the founder and president of Anchor Brewing Company works with only 14 full-time staff and 7 part-time employees to produce six varieties of premium quality beer in a purely traditional manner.

While Paul Cook demonstrates corporate entrepreneur-ship and offers lessons on innovation and creativity in a large organisation, Fritz Maytag fosters productivity and quality in a small, informal environment with few written rules. The contrast between these entrepreneurs and their organisations demonstrates the importance of entrepreneurship, which gives entrepreneurs a wide arena in which to develop and implement entrepreneurial ideas and ventures.

Drucker: The lasting importance of visionary business manager/ entrepreneurs

Drucker (1991) claims that the greatest achievements in business come from small ideas shaped by an entrepreneurial perspective that springs from the minds of visionaries. To justify this claim, Drucker (1991) believes that a very few philosophical ideas have become only footnotes in history books, whereas a great many small entrepreneurial ideas of individuals have become share market listings and were registered as entrepreneurial events. Through diverse examples, Drucker (1991) identified the distinctive features of entrepreneurship and its potential and capacity for producing wealth and prosperity. Drucker turns to history for evidence of some entrepreneurial ideas that had the potential to generate significant results and finds that due to the entrepreneurial ideas of Saint Simon in France, as an example, modern commercial banking was born. Although the modern chemical industry should have arisen in England with Perkin’s discovery of aniline dyes in 1856, leadership in the new industry passed to German entrepreneurs whose entrepreneurial ideas exceeded those in England. The Japanese House of Mitsui drove the entrepreneurial idea of developing modern merchandising, which gave rise to the world’s first department store in Tokyo during the mid-seventeenth century. Willard Garfield from Canada recognized the opportunity that there was no adequate distribution system to supply packaged and sliced fresh bread to English housewives and from this the largest food marketing organization in England was established based on the initial entrepreneurial idea of mass distribution (Drucker, 1991). Richard Sears and Julius Rosinweed created the discount house called Sears, Roebuck and Co. in the late 1940s, with the application of an idea that a person with few financial resources could be converted to the same purchasing power as the rich (Drucker, 1991). As a final illustration, Thomas Watson founded IBM during the 1920s, with the idea of data processing as a unifying concept on which to build a business.

This brief literature review shows that, historically, several disciplines have contributed to the development of entrepreneurship and have identified entrepreneurs as rational decision makers and/or capitalists willing to undertake risk by doing things ‘differently’.