A Definition and Model Based on Economic Activity and
the Pursuit of S e lf identity
by
Brian Bruce M cK enzie
B.A., U niversity o f British Colum bia, 1974 M .B.A., U niversity o f V ictoria, 1997
A D issertation Subm itted in Partial Fulfillm ent o f the Requirem ents for the D egree of;
D O C TO R OF PH ILOSO PHY In the Faculty o f G raduate Studies
W e accept this dissertation as conform ing to the required standard
Dr. Peter S te v e n s o n , Supervisor (Department o f Anthropology)
Dr. Brian Harvey, M em ber (Q epartm en^f Education Psychology & Leadership Studies)
Dr. Kin Li, M em ber (Department of Electrical and Computer Engineering)
Dr. Robin Ridington, M em ber (Department o f Anthropology)
Dr. U sher Fleising, External E x am ift^-^^partm ent of Anthropology, University of Calgary)
© Brian Bruce M cK enzie, 2002 U niversity o f V ictoria
All Rights reserved. This proposal m ay not be reproduced in w hole or in part, by photocopy or by other m eans, w ithout the perm ission o f the author.
Supervisor: Dr. Peter Stephenson
A BSTRA CT
Entrepreneurship is a grow ing and im portant field o f practice. Research in the field o f entrepreneurship has been ham pered by the lack o f a clear paradigm o f research and a com m on definition o f the topic. This study reports the collection and analysis o f 25 oral histories o f self-identified entrepreneurs. The study describes the use o f oral
narrative by entrepreneurs to exchange im portant inform ation and induces a new definition o f entrepreneurship. The definition is sim ply stated as: “Entrepreneurship describes the econom ic activity undertaken by social individuals in their pursuit o f self- identity.” The definition is developed into a m odel, w hich reconciles the roles o f successful founder, serial entrepreneur, small business m anager and charter-bolder as forms o f entrepreneurship. Prelim inary testing o f the m odel has show n it to successfully predict the entrepreneurial roles associated w ith the 55 ventures described by the
entrepreneurs w ho participated in this study.
Examiners
Dr. Peter Stephenson, Supervisor (Department o f Anthropology)
Dr. Brian Harvey, M em ber (D eS a^ien t of Education Psychology & Leadership Studies)
Dr. K in Li, M em ber (p@partment of Elepiticaland Computer Engineering)papartment o f Eleptticaland Compi
Dr. Robin Ridington, M em ber (Department o f Anthropology)
TA BLE O F CONTENTS
A B S T R A C T ... ii
TA BLE O F C O N T E N T S ... iii
L IST OF T A B L E S ... vi
L IST OF FIG U R E S ... vii
A C K N O W LED G EM EN TS... viii
D E D IC A T IO N ...x
CH A PTE R I IN T R O D U C T IO N ... I Background o f This S tu d y ... 1
The D om ain o f E ntrepren eursh ip ...8
Research Logic in the D om ain o f E n trep ren eu rsh ip ... 12
The Purpose o f This S tu d y ...14
S u m m ary ... 16
C H A PTE R II LITERA TU RE R E V IE W ... 18
Early Entrepreneurship T h e o ry ... 19
M ercantilist Entrepreneurship T h e o ry ... 20
Entrepreneurship in Laissez-faire C apitalism ... 23
V ig n ette... 25
The E ntrepreneur in Classic E co n o m ics... 26
G eneral Equilibrium T heory... 27
The A ustrian E n trep ren eu r...29
Entrepreneurship and the Socialist Calculation D e b a te ... 30
V ig n ette... 33
Entrepreneurship, Risk and In n o v a tio n ... 35
R is k ... 35
Innovation...39
V ig n e tte ... 40
Entrepreneurship Shifts from Econom ics to Business M anagem ent... 42
The Traits A pproach to Entrepreneurship R esearch... 45
The R ates A pproach to Entrepreneurship R esearc h ... 49
Pragmatic Entrepreneurship R e se a rc h ... 56 V ig n ette... 58 S um m ary...60 C H A PTER m E PIST E M O L O G Y ... 63 W ays o f K no w in g... 66 Scientific In q u iry ... 71 Humanistic In q u iry ... 78 The Interpretive T u r n ... 86
Rationale for This S tu d y ... 89
S u m m ary...96 CH A PTER IV M E T H O D O L O G Y ...98 D ata C ollection...98 Selection o f M em o irists... 100 D ata Q u a lity ...104 V alidity...104 Sam pling...105 R eliab ility ... 108
Protocols U sed in This S tu d y ... 109
A u th o rsh ip... 109
Ethical C o n sid eratio n s...110
R eco rd in g ...I l l D ocum entation... 112
T ranscription... 117
S u m m ary ...118
CH A PTER V F IE L D W O R K ...119
Canadian F ield w ork ... 120
U.S. F ie ld w o rk ...144
S um m ary...187
CH A PTER VI ANALYSIS O F D A T A ... 193
H ow Entrepreneurs Use O ral N arrativ e...195
Oral N arrative as a T ool for O rg an izin g ... 196
Oral N arrative as a Sales T o o l...202
Oral N arrative U sed in Financing V e n tu re s... 204
O ther Uses o f O ral N arrative by E n tre p re n e u rs...206
Sum m ing Up the U ses o f Oral N a rra tiv e ...206
U ncovering a D efinition and M odel o f E n trep ren eu rsh ip ...208
The Structure o f Entrepreneurs’ N arrativ e ... 210
D efinition D evelop m en t... 216
Proposed D e fin itio n ...227
M odel D evelopm ent...228
Prelim inary Testing o f D efinition and M o d e l... 234
S u m m ary... 235
C H A PTER V II D ISC U SSIO N AND IM PL IC A T IO N S ...239
D iscu ssio n ...243
E ntrepreneurs’ U se o f O ral N a rra tiv e ...244
A N ew D efinition and M odel o f E n trep ren eu rsh ip ...246
Lim itations o f the S tudy... 248
Im plications for R e se a rc h ...250
Im plications for P ractice... 252
Im plications for T e a c h in g ... 255
C lo sin g ...256
B IB L IO G R A P H Y ... 258
A PPEN D IX I PA R TIC IPA N T C O N SEN T F O R M ... 298
A PPEN D IX II R EC O R D IN G C A T A L O G ...300
A PPEN D IX III SY N O PSIS O F E N TR E PR E N E U R S’ U SE OF N A R R A T IV E ... 301
A PPEN D IX IV PA R T IC IPA N T S’ P U B L IC A T IO N S ... 303
A PPEN D IX V PA R TIC IPA N T N A R R A TIV E PLOT S U M M A R IE S ...304
A PPEN D IX VI PA R T IC IPA N T S’ D ESC R IPTIO N S O F TURNING P O IN T S ... 312
A PPEN D IX V II G EN ER IC STRA TEG IES EM PLO Y ED BY EN TREPREN EU R S IN THIS S T U D Y ...320
A PPEN D IX V III T E ST O F D A TA FLT TO PRED ICTED EN TREPREN EU RIA L R O L E S ...322
L IST O F TABLES
Table 1 Sum m ary o f Propositions D eveloped in This S tu d y ...15
Table 2 Sum m ary o f Entrepreneurship Research D esign S tu d ie s...64
Table 3 Dem ographics o f Entrepreneurs Interview ed... 99
Table 4 Alignment o f Ventures to G artner’s A rchetypes... 106
Table 5 Summary o f Storage and A ccess to R eco rd in g s... 115
Table 6 Classification o f Entrepreneurs’ U se O f N a rra tiv e ...195
Table 7 Oral Histories Analyzed by G uillen’s D efinition o f P icaresq ue... 214
L IS T O F H G U R E S
Figure 1 Skepticism D ivides Scientific Inquiry from Hum anistic In q u iry ...70
Figure 2 Characteristic D ivisions w ithin Scientific and Hum anistic In qu iry... 78
Figure 3 The Interpretive C y c le... 89
Figure 4 M odel o f an E ntrepreneur’s Social N etw o rk ... 101
Figure 5 Scholes Continuum o f N arrative S tructure... 209
Figure 6 Contextualization o f G uillen’s D efinition o f P ic a re sq u e ... 212
Figure 7 Social and Econom ic D im ensions o f E ntrepreneurship...229
Figure 8 Identification o f Entrepreneurial R o le s ... 230
Figure 9 Effect o f M arket Change on E ntrepreneur’s Self-identity... 253
A CK N O W LED G EM EN TS
I began my doctoral studies in 1997 in the Faculty o f Business at the U niversity o f Victoria. Dr. Ron M itchell encouraged me in the creation o f a special arrangem ent doctoral program . Dean R oger W olff created an adjunct position in the faculty that supported me through the first four years o f m y studies. D ean Ali D astm alchian acted as an early com m ittee m em ber and passed along to me his belief that a good doctoral program was one w hich led the scholar to an understanding o f his o r her ow n truth. Dr. M cRae Banks kindly invited m e to w ork with his faculty at W orcester Polytechnic Institute through the 1999 - 2000 term. The experience o f w orking in the dynam ic business and intellectual clim ate o f M assachusetts helped me to find m y ow n academ ic voice. To all o f these men, I offer a sincere thank-you for your support and your encouragem ent.
M y studies developed into an interdisciplinary doctoral program as I reached out into other faculties in my search for understanding o f entrepreneurship. I w ould like to thank Dr. Peter Stephenson for acting as my supervisor throughout the difficult process o f teaching an old dog some new tricks. Peter has opened many doors for me and has done this w ith grace, patience and wisdom. I have been very fortunate to have the guidance and steadfast support o f Dr. B rian H arvey and Dr. Kin Li, who acted as com m ittee m em bers through aU the stages o f my doctoral studies. Dr. Robin R idington introduced me to the oral tradition o f ethnography and encouraged me to explore the richness and
depth o f this medium. A ll o f these gentlem en have set a fine exam ple o f how to live a rich scholarly life and I am grateful to have been their student.
I ow e a special debt o f gratitude to my parents, Rex and D orothy M cK enzie, for their support throughout the many years o f m y schooling. M y father’s com m itm ent to lifelong learning set a fine exam ple for me to follow. M y m other’s patience and kindness has afforded me the ability to doddle through the vast w orld o f ideas w ith a m inim um frustration.
I could not have undertaken this research w ithout the assistance o f the individuals who participated in my study: D odie Eastaugh, Terry Farm er, Dave Feinleib, Sean Fillion, Pat H ackett, D iane Haelsig, M arilyn H olt, Jeannette Hughes, T om K effer, Stacy Kuiack, Luke M elchoir, Tony M elli, Stan M iritello, Ron M organ, Peter N ewman, Dan Newell, Sorin Pop, N athan Rothm an, Chris Stephens, R oger Van Dyken, Tim V asko, Shirley Vickers, Steven V illegas, Cathie W alker and L isa W ellman. M y thanks to aU o f you for your tim e and for your confidences. I w ould also like to thank John D rew, Bill Cooke, Janis M achala and Penny H arger for providing me with introductions to these fascinating entrepreneurs. Finally, I w ould like to thank Charm aine Stack for her help in gleaning the many errors o f style, punctuation and spelling from the many versions o f this docum ent.
I hope this dissertation does justice to the richness o f the experiences each and every one o f you has shared with me.
I dedicate this dissertation to M olly M cK enzie. It has been my greatest fortune to have M olly by my side since our teenage years: for better for worse, for richer for poorer, in sickness and in health. I am honored to have been loved and cherished by such a fine person all these years o f my life.
IN TRO D U CTIO N
“Interdisciplinary work, so nntcli discussed these days, is not about confronting already constituted disciplines (none o f which, in fa c t, is willing to let itse lf go). To do something interdisciplinary i t ’s not enough to choose a ’su b ject’ (a theme) and gather around it two or three sciences. Interdisciplinarity consists in creating a new object that belongs to no one. ”
Roland B arthes (Barthes 1989, p.72)
The thesis o f this dissertation is that oral histories o f entrepreneurs can be used to develop im portant new understanding o f the phenom enon o f entrepreneurship.
B ackground o f This Study
This study began in M ay o f 1996, although 1 did not know it at the time. As a M aster o f B usiness A dm inistration (M BA) student taking part in the U niversity o f V ictoria’s B usiness Practicum in M alaysia, 1 was living in K uala Lum pur w ith 35 other students. M y cohort was a mix o f graduate and undergraduate students, m ost o f w hom were significantly younger than myself. 1 was surprised that every evening, one or another o f the undergraduate students w ould insist on having supper or a coffee with me. During our tim e together, each o f them w ould ask m e to teU m y life story. Their interest centered on how 1 had reached the ripe old age o f 48 without ever having held a
traditional job.
1 had never thought o f my life story as being exceptional. M y w ife, M olly and 1 both grew up in fam ily businesses. M y parents ow ned a hotel and her parents ow ned a resort in B ritish C olum bia’s O kanagan valley. M olly and 1 started our first business in
difficult for either o f us to get a decent job. So, when we spotted a new block o f shops being built on a busy street in V ancouver’s dow ntow n, we decided to open a retail store. I spent tw o weeks in the V ancouver Public Library doing research; we borrow ed $5,000 Ifom ou r parents to finance the business; signed a lease and opened a store. O f course tbere w ere a lot o f bumps in the road. N either o f us had any form al business training, and our concept, a store specializing in herbs and spices, was naive at best. However, we w ere fortunate in being adaptable and prone to the kindness o f strangers.
In 1972, our liabilities far outw eighed our assets. The same year, M olly was forced to endure an extended hospital stay for treatm ent o f thyroid cancer. W e struggled through rounds o f surgery and radiation therapy along with rounds o f borrow ing to cover the continuing losses o f our fledgling venture. M olly survived, although her voice was reduced to a w hisper by a m iscalculated m ove during a difficult surgical operation.
A s soon as that crisis was over, another one emerged. In early 1973, the bank called the dem and note, which was covering our significant losses. M olly and I were full o f fighting spirit as a result o f her battle w ith cancer and we could not give in to the banks. British C olum bia was in the m idst o f a provincial election at the time. The opposition party w as prom ising to institute an agricultural land freeze throughout the province if they w ere elected. I could see that, if the prom ised legislation was enacted, the conversion o f farm land into residential land would stop and house prices in
V ancouver would go up. W e looked around and found a great deal on a house. The ow ner had done 80% o f a renovation before he had run out o f enthusiasm and money.
financing plan in w hich we borrow ed another $5,000 from our parents and used this m oney to secure a low-ratio m ortgage on the purchase o f the house. H ow ever we tied the re-financing o f the business loan to the m ortgage proposal; prom ising to re-m ortgage the house as soon as prices w ent up. I shopped this package to a half dozen banks and finally found one that was responsive.
We secured the m ortgage, bought the house for $25,500 and re-financed the store’s dem and note with a term loan. The N ew D em ocratic Party swept in to pow er and im m ediately enacted the agricultural land freeze. M olly ran the store, while I finished the renovation to the house and put a suite in the basem ent. By the end o f the year, the value o f the house had doubled and we re-financed, converting all o f our indebtedness into a first mortgage, which the rent from the basem ent suite almost covered. The next year, the business turned profitable and M olly’s cancer was declared to be in rem ission. In 1977, MoUy underw ent re-constructive surgery and regained the use o f her voice. W e hired a m anager to run the store and took a year out to think about our next adventure.
O ur next adventure involved buying a classic yacht, and alm ost 20 years o f involvem ent in the W ooden Boat Revival m ovem ent. W e started a num ber o f businesses; devoted a great deal o f tim e to travel; lived on a boat for 6V2 years and som ehow ended
up with all the trappings o f success honored by m iddle class A merica: a beautiful hom e with tw o new cars and a boat in the drivew ay. In 1990, the N orth A m erican boating industry suffered a dram atic setback. U nited States industry gross sales fell from $17.9 billion in 1988 to $10.6 billion in 1991 (N M M A 2002, p.6). M y small boat building and
backlog o f orders I had built up through the late 1980s. However, by 1994, m y business had stalled and I realized that my plans to expand had to be put on hold. I decided to pursue a M asters o f Business A dm inistration (M BA) degree at the U niversity o f V ictoria with the thought o f developing a production boat building business once I had acquired better m anagerial skills.
The students I talked to, over coffee in M alaysia in 1996, were facing anxiety over their first career decisions: w here w ould they find their first job? Som ehow my life story offered them an alternative. M y conversations w ith these students made m e aware o f the lack o f inform ation available about entrepreneurship as well as the grow ing interest in entrepreneurship.
The practice o f entrepreneurship has becom e pervasive throughout Canada and the U nited States. It is estim ated that four percent o f A m erican households were involved in starting new firms throughout the 1990s (Reynolds 1997, p.8). N ew and grow ing firms create the m ajority o f new jobs (Dennis 2000, p.31) and innovations in the U nited States (Acs and A udretsch 1990; A lvarez and G lover 1996, p. 140) and Canada (Balderson 1998, p. 15; Tal 2002). Further, there appears to be a distinct trend moving tow ards increasing entrepreneurship in the U nited States (G artner and Shane 1995, p .295) and C anada (Lagacé 1997, p.2).
The telling and re-telling o f m y life story led me to develop a curriculum in entrepreneurship as my M B A graduating thesis. 1 discovered that the developm ent o f entrepreneurship as a field o f practice has been paralleled by the developm ent o f
first academ ic course in entrepreneurship in 1947 (Cooper, M arkm an et al. 2000, p .l 16). Since that first offering, entrepreneurship as a field o f academ ic study can be seen to have grow n around three pivotal events \ These events m ark (1) the realization o f the
im portance o f entrepreneurship, (2) the active creation o f an infrastructure for its developm ent and (3) the affirm ation o f the potential rew ards o f the process.
The first pivotal event in the grow th o f entrepreneurship as a field o f academ ic study w as D avid B irch’s discovery, in 1978, o f em pirical evidence suggesting small business created the majority o f all net new jobs (Carney 1995). The publication o f “Job Creation in A m eriea” (Bireh 1987) overthrew the established b elief that large
corporations w ere the drivers o f grow th in the econom y. Through the analysis o f 12 million businesses tracked by D un and B radstreet over the period 1969 to 1986, Birch and his M assachusetts Institute o f Technology (M IT) research team discovered that small firms created about 88% o f all net new jobs (Bireh 1987, p. 16). B irch’s w ork has
w ithstood criticism o f its m ethodology (A rm ington and Odle 1982; D avis, H altiw anger et al. 1994), disapproval o f its underlying m etaphor o f dynam ic jo b generation (Brown, Ham ilton et al. 1990) and censure o f its political econom ic position (H arrison 1994). The com m on acceptance o f small business as the prim ary source o f net new em ploym ent (Dennis, Phillips et al. 1994) has led to governm ent com m itm ent to program s fostering
' I w ould like to thank H arold W elsch, Colem an Chair at D ePaul U niversity for sharing this insight in a panel discussion: “B uilding Bridges: Creating an
S ta te s / C oincidental to the publication o f B irch’s findings, the popular press developed m agazines such as Inc. (founded in 1979) and Success (founded in 1987) that addressed entrepreneurship and small business. “Job C reation in A m erica” set the stage for the rapid developm ent o f entrepreneurship as a field o f study by m aking governm ents and non-governm ent endow m ents aware o f the importance o f entrepreneurship as an area likely to provide social benefits.
The second pivotal event in the grow th o f entrepreneurship as a field o f academic study was the review o f m anagem ent education com m issioned by the Am erican
A ssem bly o f C ollegiate Schools o f Business (AACSB) in 1988 (Porter and M cK ibbin 1988). The principals o f this review , Lym an Porter and Law rence M cK ibbin, recognized entrepreneurism as one o f five econom ic variables relevant to the future o f m anagem ent education (P orter and M cK ibbin 1988, pp. 29-31). W hile noting that increases in the rate o f entrepreneurship tend to be a function o f econom ic change; P o rter and M cK ibbin concluded the inform ation econom y is likely to include a higher level o f entrepreneurship than had been experienced during the industrial era. The report specifically criticized business schools for preparing students for em ploym ent in large organizations rather than teaching students how to start and operate small organizations. Porter and M cK ibbin’s
N ational C onference Orlando, Florida, Feb. 7 - 10, 2001
^ The U .S. Small Business A dm inistration, (founded in 1953) began its very successful Sm all B usiness D evelopm ent Center program in 1979 (Chrisman, Ryan et al. 1985, p.2). The Federal Business D evelopm ent Bank (FBDB) was established as a Crow n corporation in 1975. Throughout the 1970s, FBDB developed a roster o f over
survey o f business school deans revealed a strong endorsem ent o f entrepreneurship as a topic to be added specifically to their curriculum or to be spread discretely throughout the curriculum. Business schools throughout Canada and the United States responded to this endorsem ent by rapidly increasing the num ber o f entrepreneurship courses offered. In
1974, 85 business schools offered courses in entrepreneurship. B y 1991, the num ber had increased to 369 (G artner and V esper 1994, p. 180)^. Entrepreneurship faculty positions have increased by 253% over the period 1989 to 1998 outstripping the supply o f qualified faculty (Finkle and D eeds 2001). By 1999, the field o f entrepreneurship had grow n to include 271 endow ed chairs (Katz 1999; M eyer 2001) and 58 research publications (K atz
1999). Porter and M cK ibbin’s w ork preceded and likely precipitated the active creation o f an infrastructure for the developm ent o f entrepreneurship as a distinct field o f
academic study.
The third pivotal event in the grow th o f entrepreneurship as a field o f study was the econom ic disequilibria caused by the developm ent o f com m unications technology (Hafner and Lyon 1996; B erners-Lee and Fischetti 1999) throughout the latter h alf o f the 1990s. The rapid econom ic change fostered by the developm ent o f low -cost, pervasive access to inform ation led to what has been described as “the largest act o f legal w ealth creation in history’’ (K aplan 2000). Business students responded to this environm ent by
1100 experienced business counselors as a part o f its CASE counseling service.
^ The m ost recent accounting o f schools offering entrepreneurship courses, done in 1999, m ore narrow ly defined entrepreneurship as business start-up as opposed to the ongoing m anagem ent o f sm all business and still counted 504 business schools offering courses (V esper and G artner 1999, p.3).
participating in start-ups at an unprecedented rate (Booker 1999; M orris 1999). Some researchers (W illiam son 1975; Naisbitt 1982; G reider 1997) have suggested that m ovem ent tow ards entrepreneurship is a tem porary phenom enon associated with the adoption o f new technology. O ther researchers (D rucker 1994; A lbrow 1997; W acker and Taylor 1997; H am el 2000) believe that the world econom y is undergoing a
fundam ental transform ation and that entrepreneurship will be a characteristic o f the new economic order. W hether the current entrepreneurial boom is short-lived or a more fundam ental change in society, publicity surrounding the success o f those who have built new ventures has affirm ed, in young people’s minds, the rewards o f the process o f entrepreneurship.
These three events: the publication o f “Job Creation in A m erica”, the adoption o f Porter and M cK ibbin’s recom m endations and the rapid increase in entrepreneurial activity sparked by the developm ent o f com m unications technology have reinforced the belief that entrepreneurship, as a field o f study, has a valuable connection to the
developm ent o f personal and social wealth. The grow ing legitimacy o f entrepreneurship as a field o f study is seen in the grow th from the first research conference held in 1970 (M cCarthy and NichoUs-Nixon 2001, p .28) to the establishm ent o f the Entrepreneurship D ivision o f the A cadem y o f M anagem ent in 1987 (Cooper 1998, p .l).
The D om ain o f Entrepreneurship
A lthough entrepreneurship has been gaining popularity as a field o f study,
entrepreneurship research is still w ithout a central research paradigm (Carsrud, 01m et al. 1986, p.367; Bygrave 1989, p.22; C ooper 1998, p.3). Thomas Kuhn has suggested that
definition (K uhn 1962, pp. 15-19). W ithout a rigid central definition, research becom es a nearly random activity characterized by divergence o f fact gathering and analysis.
The divergence o f fact gathering and analysis undertaken in the nam e of
entrepreneurship is indeed broad. Included within the domain o f entrepreneurship there have been studies o f chaos theory (Bygrave 1989; Stevenson and H arm ehng 1990), cognition (Gatew ood, Shaver et al. 1995; Palich and Bagby 1995; B usenitz and Lau
1996; B aron 1998; K rueger 2000), decision theory (Cam pbell 1992), econom ic theory (Casson 1982; K irzner 1982; B arreto 1989; Baum ol 1993; Amit, M uller et al. 1995; A rthur 1996), education (Block and Stum pf 1992; Robinson and Sexton 1994; C harney and Libecap 2000), franchising (Bates 1995), global business (M cD ougall and O viatt 2000; M itchell, Smith et al. 2001), innovation (D rucker 1985; Acs and A udretsch 1992), intrapreneurship (M orris and Jones 1999), m arketing (Hills and LaForge 1992),
population ecology (Aldrich and W iedenm ayer 1993), psychology (Brockhaus and H orow itz 1986; Carsrud and K rueger 1995), resource-base theory (A lvarez and B arney 2000), small business (Carland, H oy et al. 1984), strategy (Biggadike 1976; Rum elt 1987; Bhide 1994), social entrepreneurship (Dees 1998), sociology (Reynolds 1991; Thornton
1999), stakeholder theory (V enkataram an 1999), venture capital (Barney, Busenitz et al. 1996) and venture perform ance (Sandberg 1984; M cD ougall 1987; H erron 1990;
Chrisman, Bauerschm idt et al. 1998). The inclusion o f studies o f so m any differing perspectives has led to confusion about the nature o f the phenom enon being studied. One study o f the dom ain o f entrepreneurship likened it to the Hindu fable: “The Blind M en and the Elephant” (Brazeal and H erbert 1999, p.30), w here six blind m en fo rm very
different concepts o f the nature o f the animal based on the part they were touching.
The search for a com m on definition o f entrepreneurship has becom e a central debate within the study o f entrepreneurship. The nature o f this debate is evidenced in a com parison o f the Colem an W hite Papers presented at the 2000 and 2001 U nited States Association o f Small B usiness and Entrepreneurship (U SA SBE) / Small Business Institute D irectors' A ssociation (SBIDA) Joint N ational Conferences. In 2000, H ow ard Stevenson presented a Colem an W hite Paper (Stevenson 2000) that credited the success o f H arvard's entrepreneurship research program to that institution’s adoption o f a com mon w orking definition o f entrepreneurship, “Entrepreneurship is the pursuit o f opportunity beyond the resources you currently control” (Stevenson 1983; Stevenson and Gum pert 1985; Stevenson 2000). In 2001, Dale M eyer presented a Colem an W hite Paper (M eyer 2001) that referenced the im portance o f a m uch broader topography o f
entrepreneurship, “Entrepreneurship as a scholarly field seeks to understand how opportunities to bring into existence ‘future’ goods and services are discovered, created and exploited, by whom, and w ith w hat consequences” (V enkataram an 1997, p. 120). These definitions differ both in term s o f bias and orientation. The Stevenson et al definition relates a behavioral bias (the pursuit o f opportunity) to a strategic orientation (w ithout regard to alienable resources they currently control) and focuses on the activity o f the individual. The M eyers/V enkataram an definition relates a creativity bias (how opportunities to bring into existence future goods and services are discovered, created and exploited) to an organizational orientation (by w hom and w ith w hat consequences) and focuses on the social consequences o f this action.
A study done by W illiam G artner (G artner 1990) found a sim ilar divergence o f opinion surrounding the definition o f entrepreneurship. G artner utilized the research technique o f a Policy Delphi (Linstone and T uroff 1975; M itroff and Linstone 1993, pp.20-29) to explore the underlying m eanings w hich 44 academ ic researchers and business leaders attached to entrepreneurship. The study reported tw o groupings o f the participants. One group (21% o f the respondents) defined entrepreneurship in term s o f outcom es, requiring the creation o f value or personal gain, sim ilar to the
behavioral/strategic definition. The other group (79% o f the respondents) focused on the characteristics o f the process, requiring innovation, growth or uniqueness, sim ilar to the creativity/organizational definition.
There appears to be a paradox associated with entrepreneurship research. The lack o f a central definition creates a rich diversity o f voices from many academ ic disciplines. H owever, the lack o f a central definition limits the usefulness o f
entrepreneurship research. N eil C hurchill and V irginia Lewis described the field o f entrepreneurship research in the mid 1980s as, “ ...a young, com plex, involved in a process o f discovery and transition...” (Churchill and Lewis 1986, p.334). A recent article published in the A cadem y o f M anagem ent Review is m ore pointed in its criticism : “R ather than explaining and predicting a unique set o f em pirical phenom ena,
entrepreneurship has become a broad label under which a hodgepodge o f research is
housed” (Shane and V enkataram an 2000, p .217 italics in original). There is grow ing concern that debate over a central definition has directed research efforts aw ay from the developm ent o f a distinctive theory o f entrepreneurship (Bull and W illard 1993, p. 185).
Research Logic in the Domain o f Entrepreneurship
W illiam Bygrave developed the argum ent that the lack o f a distinctive theory o f entrepreneurship has led to entrepreneurship researchers borrow ing theories and methods o f research from other sciences (Bygrave 1989, p.7). In particular. Bygrave criticized entrepreneurship researchers for being guilty o f phvsics envv. w hich he defines as the inappropriate im itation o f the theoretical and em pirical m ethods o f advanced rational scientific paradigm s (Bygrave 1989, p. 16). It is com m on for researchers in the field o f business m anagem ent to utilize a quasi-experim ental m ethod o f hypothesis testing and causal inference in an attem pt to gain respectability from their academ ic peers (Easterby- Smith, Thorpe et al. 1991, p.5). M ax W ortm an noted the prim ary m ethodologies o f US entrepreneurship research are mail questionnaires and directed interviews (W ortm an
1986, p.277). W hen specific instrum ents are used, they are generally taken from other fields o f study. These m ethodologies m ay not be best suited to entrepreneurship
research, since entrepreneurship consists o f idiosyncratic phenom ena connected by non linear relationships often w ith reciprocal causality (Stevenson and H arm eling 1990, p.2). M orton H use and Hans L andstrom correlated the use o f quantitative m ethodologies used by entrepreneurship scholars to the im portance o f publishing in academ ic journals in U.S. academic society. They noted that European entrepreneurship scholars, who are subject to less pressure for journal publication, show much m ore openness tow ards
m ethodological diversity (H use and L andstrom 1997, p.9).
Alex Stewart, the Chair-elect o f the Entrepreneurship D ivision o f the A cadem y o f M anagem ent has suggested that ethnography is w ell suited to the study o f
entrepreneurship (Stew art 1991, p .77). Stew art has pointed out participant observation allows scholars a unique glimpse o f entrepreneurship’s crucial lore (Stew art 1991, p.78). Low and M acM illan indicated the need for m ore contextual and process oriented research in the field o f entrepreneurship (Low and M acM illan 1988, p. 156). H ow ard A ldrich and Ted B aker claim ethnographic methods allow researchers to gain new insight from their field observations (A ldrich and B aker 1997, p.393). I f new and prom ising research is to be conducted in the dom ain o f entrepreneurship, it follows that it m ust be done in the field.
A grow ing num ber o f ethnographic studies have been produced as PhD dissertations in E urope (Steyaert 1997, p. 15). In one o f these studies, Chris Steyaert (Steyaert 1995) investigated the developm ent o f local know ledge o f entrepreneurship through the w riting o f narratives. In this study, storytelling was found to be
com plem entary to the creativity inherent in entrepreneurship. The study suggested that, through narrative, the storyteller was able to capture the sequences o f events and context o f the evolving developm ent o f the new venture (Steyaert 1997, p.30). D avid Bo je has described storytelling in organizations as “ .. .the preferred sense-m aking currency o f hum an rela tio n sh ip s...” (Boje 1991, p. 106). H e noted the contextually em bedded nature o f stories, describing the narrative discourse as a “perform ance event” (Boje 1991, p. 109). Research that seeks to interpret stories allow s phenom ena to be view ed through the subject’s eyes (emic point o f view), rather than from the more lim ited view point o f an outsider (etic point o f view) (Hansen and K ahnw eiler 1993, p. 1401). Thus, it would appear that the study o f the oral histories o f entrepreneurs is likely to be fertile ground for theory building in the field o f entrepreneurship.
The Purpose o f This Study
This study sets out to gain understanding o f entrepreneurship from an
investigation o f the tacit knowledge o f w orking entrepreneurs. The study utilizes the ethnographic technique o f oral history collection and analysis in a search for evidence o f theory inherent in these narratives.
The popular press is full o f biographies and histories o f successful entrepreneurs (Fallon and Srodes 1983; ScuUey and Byrne 1987; Trum p and Schw artz 1988; Rothchild 1991; B arton 1998; Fro lick 1999; G ates and H em ingw ay 1999; K aplan 2000, to nam e a few). The field o f business m anagem ent has a long history o f utilizing storytelling in the form o f case studies as a pedagogic tool (A lvarez and M erchan 1992, p.29) and more recently has begun to utilize case studies in research (K anter 1983; Eisenhardt 1989, p .534; Chetty 1996). However, research that utilizes narrative is relatively rare in the field o f entrepreneurship. A thorough search o f past dissertations in entrepreneurship suggests that this study is the first dissertation that undertakes collection and analysis o f oral histories o f entrepreneurs. This study is by nature interdisciplinary, em bracing the fields o f anthropology, business m anagem ent, English literature and developm ental psychology. The study investigates tw o specific research questions:
1. D o entrepreneurs use oral narrative to exchange im portant inform ation?
2. D o the oral histories o f entrepreneurs contain com m on features from w hich one could induce a definition o f entrepreneurship?
developm ent o f the research literature o f the field is reviewed. C hapter i n questions the dom inant m ode o f analysis used in entrepreneurship research and suggests interpretation as an epistem ological alternative. C hapter IV outlines the m ethodology o f data collection used in this study. C hapter V pro\ ides an ethnographic description o f the study’s
fieldw ork. Chapter VI interprets the data collected in the fieldwork and develops six propositions, which have been sum m arized in Table 1.
Table 1
Sum m ary o f Propositions D eveloped in This Study
Proposition
Statement
Page
Prelim inary D efinition
Entrepreneurship describes the activity o f entrepreneurs both generally and normatively.
90 Proposition 1: Entrepreneurs use oral narrative to exchange
im portant information.
207 Proposition 2: E ntrepreneurs’ narratives reveal a com m on
underlying structure or genre that can be used in the developm ent o f a narrative theory o f
entrepreneurship.
216
Proposition 3: The genre o f entrepreneurs’ oral narratives reveals that entrepreneurs act in the pursuit of self-identity.
218
Proposition 4: Social individuals resolve self-identity ehanges by reconciling their inner self with their
reflection o f social values.
222
Proposition 5: Entrepreneurs are social individuals.
223
Proposition 6: Entrepreneurs are engaged in econom ic activity. 227 These six propositions lead to a new definition o f entrepreneurship, which is stated as: “Entrepreneurship describes the econom ic activity undertaken by social individuals in their pursuit o f self-identity” . This definition is extended into a model, w hich reconciles the roles o f successful founder, serial entrepreneur, sm all-business m anager and charter- holder as forms o f entrepreneurship. Chapter VII discusses the im plications o f this research.
A recent exam ination o f the state-of-the-art o f entrepreneurship research (A ldrich and Baker 1997, p.394) found that only one percent o f the 528 articles surveyed were ethnographic studies. A n extensive search o f the entrepreneurship literature by the author has revealed only one study utilizing oral history in entrepreneurship research. That study (M itchell 1996) used a collection o f 23 directed interviews o f entrepreneurs to investigate the attitudes o f serial entrepreneurs tow ards success and failure. It does not appear that any research has been undertaken w hich questions the use o f oral narrative by entrepreneurs to exchange information. A nalysis o f oral narrative has proven beneficial in developing theory in fields such as aboriginal studies (Ridington 1990), aging
(Stephenson, W olfe et al. 1999), technical know ledge (O rr 1996), and organizational culture (Boje 1995). It is hoped this research project will contribute to the field o f
entrepreneurship research by adding veracity to the current diverse fact gathering through analysis o f the voice o f the practicing entrepreneur.
Summary
Entrepreneurship is a grow ing and im portant field o f practice. Policy m akers and academics have becom e aware o f the im portance o f research in the field o f
entrepreneurship. Business m anagem ent scholars have identified entrepreneurship as an im portant com ponent o f m anagem ent education. Research in the field o f
entrepreneurship is ham pered by the lack o f a clear paradigm o f research, or a com m on definition o f the topic. It has been suggested that the use o f theoretical and em pirical methods borrow ed from m ore rational scientific fields o f study are not suited to the non linear and idiosyncratic relationships characteristic o f the phenom enon o f
entrepreneurship. Ethnography in general, and the analysis o f oral narrative in particular hold prom ise as being w ell suited to the study o f entrepreneurship. This study reports the collection and analysis o f oral histories o f self-identified entrepreneurs and describes new understanding o f the m ethods entrepreneurs use to exchange data in particular and o f entrepreneurship theory in general.
C H A PTER II LITER A TU R E R EV IEW
"'Like every topic in the social sciences, entrepreneurship, i f viewed historically and i f analyzed deeply enough, leads one into nearly all fie ld s o f knowledge.”
A rthur Cole (Cole 1959, p.29)
The entrepreneurship curriculum I developed as my M .B.A. graduating thesis was well received. H um an Resources D evelopm ent Canada (H RDC) provided funding for a post-graduate program: Y outh E nvironm ental Entrepreneurship, w hich used my
curriculum in the V ancouver Island area. The success o f this program led to me being hired as an adjunct m em ber o f the Faculty o f B usiness at the U niversity o f Victoria.
It did not take me very long to realize that, in order to have a voice in academ ic circles, I had to possess a Ph.D. I began looking for a Ph.D. program in entrepreneurship and quickly discovered that, while there were over 500 courses in entrepreneurship offered at universities throughout the w orld (Vesper and G artner 1999, p.3), there w ere very few universities w hich offered degrees in entrepreneurship (V esper and M cM ullan
1988, p.8) and no universities in N orth A m erica w hich offered a doctoral program specifically in entrepreneurship (V esper and G artner 1999, p.6). I set about creating my ow n doctoral program by special arrangem ent through the Faculty o f G raduate Studies at the U niversity o f Victoria. M y syllabus o f studies included a careful exam ination o f the developm ent o f entrepreneurship theory.
Early Entrepreneurship Theory
The term entrepreneur is derived from the French words “entre” and “preneur”, which literally translated means “to take betw een” (Bird and W est 1997). The previous chapter has identified the exploitation o f opportunity"^ as fundam ental to current
definitions o f the phenom enon o f entrepreneurship. Opportunity exploitation is rooted in the processes o f reciprocity, redistribution and exchange and thus is social in nature and culturally em bedded. James Soltow has noted, “ ...entrepreneurial history has stressed the relationship betw een econom ic change and the socio-cultural setting within w hich that change takes place” (Soltow 1968, p. 88).” It is not clear w hether o r not
entrepreneurship exists in prim itive econom ies. The form alist position in econom ic anthropology w ould argue that the bigm an phenom enon in M elanesian society is a form o f entrepreneurial behavior (Stew art 1990, p. 144), as is the phenom enon o f the
adventurer in feudal econom ies (N erlich 1987, pp.51-75). Countering these arguments, the substantivist position w ould be that, in both these cases, exploitation o f opportunity is so deeply em bedded in interdependent social intercourse as m ake it indistinguishable as a unique phenom enon. The form alist versus substantivist debate has been described as being ultim ately grounded in individual anthropologist’s unique ways o f perceiving the world (De M ontoya 2000, p. 17). H ow ever, it is clear that it was not until the separation
The w ord opportunitv derives from the Latin words “ob” and “portus”, which can be hterally translated as “at the port” . It is interesting to note that early m arkets tended to develop at natural ports o f trans-shipm ent: seaports, fords and riverheads. Thus the relationship betw een opportunity exploitation and trading is definitional (G uralink and Friend 1966, Polanyi, 1968 #1246).
o f econom ic processes from the fabric o f social life, described by M ark G ranovetter as econom ic em beddedness (G ranovetter 1985), that the distinctive phenom enon o f entrepreneurship was identified.
M ercantilist Entrepreneurship Theory
Richard Cantillon (1680? - 1734) is credited with the developm ent o f the first theory o f entrepreneurship (Redlich 1949, p .2; Hoselitz 1960, p.234). Richard Cantillon was an Irish wine m erchant who made a fortune in Paris at the expense o f John L aw ’s inflationary stock m anipulation o f the M ississippi Company (H ayek 1985, p.236; M urphy
1985, pp.200-203). W riting in 1755, Cantillon described the role o f entrepreneurs in this way, “The circulation and exchange o f goods and m erchandise as w ell as their production are carried on in E urope by U ndertakers, and at a risk” (Cantillon 1755, part 1, chapter
13). Cantillon's undertaker or entrepreneur functioned as a m iddlem an, exercising
business judgm ent in the face o f uncertain future dem and (Bull and W illard 1993, p. 185). Landes describes the econom ic system o f C antillon’s entrepreneur as the putting-out system: “M erchant m anufacturers ‘put o u t’ raw materials - raw wool, yarn, m etal rods as the case m ight be - to dispersed cottage labor, to be worked up into finished o r semi finished products” (Landes 1966, p. 13). The entrepreneur, as defined by Cantillon, formed a crucial explanation o f the political and econom ic transform ation that was taking place as Europe left the feudal system by providing a m echanism that explained how social change was accomplished.
The feudal econom y was based on production and consum ption in relatively self- sufficient village com m unities (Landes 1966, p .l) . A num ber o f technological
innovations w ere instrum ental in disrupting the feudal econom ic system. These included; the invention o f moveable type by Johan G utenberg in 1455 (M cLuhan 1962, p. 124) which prom oted literacy and the spread o f ideas; the introduction o f double entry bookkeeping by Pacioli in 1494 (Short and Chesley 1994, p .9; Crosby 1998, p.210) w hich facilitated com plex trading actions; the developm ent o f three-field cropping in the 15* Century (Bruchey 1990) w hich increased agricultural efficiency and freed labour for uses other than subsistence; the spread o f m etallurgy techniques by Biringuccio in 1540 (Cardw ell 1994, p.63) w hich increased the availability o f material suitable for m achine production and the advances in shipbuilding and navigation throughout the 15* and 16* centuries (H arland and M yers 1984) w hich facilitated trade. Fundam ental to the shift from m edieval to m arket econom ics was the m ovem ent from an econom y em bedded in local social order tow ards an econom y w hich could be visualized as relatively
independent o f local social order (Polanyi 1968, p .82). Trade moved from a process o f reciprocity (M ahnow ski 1922, p p .81-104; Stephenson 1942, pp. 15-39) tow ards a process o f contractual exchange (Casson 1998, pp.9-10).
The putting-out system provided a social alternative to peasants who had becom e displaced from the agrarian social order through the adoption o f the three-field crop rotation system throughout Europe^. Three-field crop rotation provided a 50% increase in the productivity o f land, but required a m ajor change in the social relationships
^ A lthough the acts o f enclosure associated with the adoption o f the three-field crop rotation system began in the 15* century, they are generally associated with the mid-
surrounding the use o f land (Bruchey 1990, p.9). Karl Polanyi has claim ed that the acts o f enclosure am ounted to the com m ercialization o f soil (Polanyi 1944, pp.38-39), which turned nature into the commodity: land. In turn, the exploitation o f land led to the dispossession o f peasantry from traditional village life as their social claim s to nature were subjugated to the legal claims o f land title. The putting-out system coordinated the w ork o f hum ans as a commodity: labour, and thus acted as a bridge betw een feudal social order and the new market economy.
A n im portant technology in the facilitation o f the m ovem ent from the feudal order to the m arket econom y was the w idespread use o f money. Thom as Crump identified tw o types o f m onetary systems: bounded and un-bounded systems (Crump 1981, pp. 122-
133). The boundaries o f feudal m onetary systems w ere the villages’ social system s. W ithin these system s the principles o f reciprocity am ongst families, re-distribution through the auspices o f the church or the lord, and house holding o r production for o n e’s ow n use w ere em bedded in social patterns o f behavior (Polanyi 1944, p .55). C antillon’s undertaker acted as the conduit from this system to the unbounded system o f long distance trade, w hich centered on the marketplace. Surplus goods from local trade were exchanged in m arket places or at fairs held throughout Europe, thus creating a series o f relationships am ongst geographically dispersed social orders. Cantillon (Cantillon 1755, p art 3, chapter 2) described the m echanism o f bills o f exchange as a practical w ay in w hich traders m itigated the risk o f loss from the physical m ovem ent o f m oney over long distances (through robbery or cost o f safe m ovem ent) by exchanging letters o f exchange. The trade in these bills o f exchange led to the establishm ent o f paper m oney and
banking (where only a fraction o f all deposits kept in storage) (Crump 1981, pp. 151-152). This turned m oney into an un bounded m onetary system. As the value o f un-hounded money becam e m ore and more apparent, m any o f the feudal obligations that previously had been paid in kind w ere m onetarized (H eilbroner 1970, p.59). The breakdow n o f the reciprocity o f feudal obligations furthered the m ovem ent tow ards a m arket society.
Entrepreneurship in Laissez-faire Capitalism
In “The W ealth o f N ations” (Sm ith 1776), A dam Smith (1723-1790) defined three econom ic forces: land, labour and capital®. W hen left to their ow n devices (laissez-faire), these forces com bine into the m ost efficient com binations through the invisible hand o f the m arketplace (Smith 1776, book 4, chapter 1). Smith noted that the division o f labour in the w orkshops o f the day had greatly im proved the productivity o f w orkers (Smith
1776, book 1, chapter 1). He extrapolated that a similar division o f labour in society could im prove the productivity o f society as far as m arkets for labour could be developed (Polanyi, A rensberg et al. 1968, p. 128). One o f these m arkets for labour was the need for projectors, w hich Sm ith defined as som eone who carries on projects for profit.
W hile A dam Sm ith’s invisible hand explained the m echanics o f the w orkhouses o f the early industrial revolution, it could not explain w hat would cause the em ergence o f
® Polanyi points out that the treatm ent o f land, labour and capital as com m odities was unique to Smith, and the laissez-faire capitalism w orld-view (Polanyi 1968, p .62). Previously, land was sim ply considered nature, labour was considered to be hum an welfare, and capital was em bedded in social standing. The creation o f com m odity constructs for land, labour and capital form ed a new type o f society.
wholly new forms o f production such as integrated mills. The laws o f supply and dem and w orked for increm ental change, but even the existence o f projectors could not explain investm ent in radical new processes or products. It rem ained for J.B. Say (1767 -
1832), a French intellectual who had set up and managed a cotton spinning factory betw een 1804 and 1815 before becom ing the first professor o f econom ics in Europe (Say and Palm er 1997), to tackle the issue: how , in the absence o f a current m arket, do future goods and ser\ ices manage to com e into existence?
Say approached the question o f the m arket for future goods from both the macro and micro level o f analysis. On the m acro level, he developed w hat has becom e know n as Say’s Law, which was briefly stated by John M aynard Keynes as “supply creates its own dem and” (Keynes 1935, p 25). W hile Say’s Law has becom e a focal point in the econom ic debate over the causes o f m arket gluts and the ensuing unem ploym ent (Thw eatt 1979; Baum ol 1997; Blaug 1997; Kates 1997), its original purpose was to explain how m arkets arise for goods not yet conceived nor produced. In contrast to the zero-sum exchange system described by A dam Smith, J.B. Say asserted that the
production o f new goods increased the w ealth o f all m ankind (Say 1828, p .58), thus m aking entrepreneurship an increasing sum exchange system. On the m icro level, J.B. Say developed a w orking level theory o f the entrepreneur. In this theory, hum an industry is divided into three distinct operations. The first operation is scientific: “studying the laws and course o f nature o f the product” (Say 1828, p.33). The second operation is entrepreneurial: “the application o f know ledge to a useful purpose” (Say 1828, p.33). The third operation is the act o f production: “the execution o f the m anual labour” (Say
each o f the operations may be perform ed by a num ber o f different persons. The
entrepreneur is the person who applies know ledge to a useful purpose, thus perform ing a vital social function. It can be argued that the division o f labour created by the separation o f econom ic processes from the fabric o f social life was a necessary pre-condition to the first formal identification o f the role o f entrepreneur as a unique vocation.
V ignette
A n exem plar o f the role identified by C antillon, Smith and Say is Francis Cabot Low ell (1775-1817), a successful N ew E ngland m erchant and land speculator who becam e an entrepreneur. The end o f the A m erican Revolution brought Low ell rising profits from trade, but also rising risks. Searching for a steady stream o f incom e, Low ell spent the years 1810 to 1812 living in Edinburgh, w here he studied the econom ic and social theories o f the Scottish Enlightenm ent and noted the m odel o f developm ent used in the local textile m anufacturing industry. Low ell returned to M assachusetts and form ed the B oston M anufacturing Com pany in 1813. W orking with a brilliant mechanic, Paul M oody, Low ell reproduced w orking versions o f the m achinery he had seen in Scotland from memory. In 1814, L ow ell’s m achinery began production in W altham (Sobel 1974, pp. 1-40; D a k e ll 1987). Low ell functions in aU three roles set out by J.B. Say: studying the nature o f the new endeavor, applying this know ledge to the useful purpose o f forming a new venture and supervising the execution o f the m anual labour. Low ell clearly
identified him self as a specialized agent, w hose function is to develop new econom ic systems, thus fulfilling Sm ith’s requirem ent as an entrepreneur. H e also functions as the force that undertook the production and circulation o f goods at his ow n risk, thus
fulfilling the function described by Cantillon.
The Entrepreneur in Classic Econom ics
Follow ing A dam Sm ith’s basic tenet o f the invisible hand, a group o f econom ists including D avid Ricardo, T.R. M althus and John Stuart Mill developed w hat is know n as Classical E conom ic Theory. Classical Econom ic Theory consists o f a num ber o f
interlocking models (Barreto 1989, p.2) that focus on the rational action o f individuals acting through the forces o f supply and dem and in the marketplace. W ith only a few exceptions, the concept o f the entrepreneur is not a part o f the Classical Econom ic M odel (Baum ol 1968, pp.66-68).
Jerem y Bentham , in England, and J. H. von Thiinen, in G ermany, pointed out the lack o f the entrepreneurial function in Classical Econom ic Theory. Jerem y B entham (1748-1832)^, a w orking entrepreneur, looked at econom ics as a practical branch o f politics and legislation: a com bination o f both art and science (H ébert and Link 1982, p.42). B entham differed from the m ainstream o f Classical Econom ics in that he saw utilitarianism as a recursive function that created a role for the entrepreneur beyond arbitrage (Casson 1992, p. 1158). Bentham defined the entrepreneur as “ ...a ll such persons as, in the pursuit o f wealth, strike out into any new channel, and m ore especially into any channel o f invention” (Bentham 1787). W ith this definition, Bentham clearly
^ B entham ’s prim ary contribution to Classical Econom ic Theory is his part in the definition o f econom ic utilitarianism : the presum ption that individual optim al choices are determ inate. U tilitarianism was critical to the rational explanation, w hich C lassical Econom ics offered for the optim ization o f supply and dem and (W arke 2000).
stated a new view o f the entrepreneur: the creative econom ic agent (Redlich 1949, p.7). Johann H einrich von Thiinen (1783 - 1850) is prim arily know n in econom ics for the developm ent o f spatial econom ics. In “The Isolated State”, V on Thunen set out an explanation o f entrepreneurial gain (von Thiinen and H all 1842, V olum e II) which he defined as “ ...pro fit minus (1) interest on invested capital, (2) insurance against business losses, and (3) the wages o f m anagem ent” (H ebert and Link 1982, p.43). In this
definition, von Thiinen synthesized C antillon’s description o f the entrepreneur as risk bearer and B entham ’s description o f the entrepreneur as creative econom ic agent. However, von Thiinen went one step further and identifies entrepreneurial rent as a specific stream o f earnings.
G eneral Equilibrium Theory
A lfred M arshall (1842 - 1924) is synonym ous with the establishm ent o f neo classical G eneral Equilibrium econom ic model in m ainstream economics^. G eneral Equilibrium posits that an econom y, w hich produces and distributes goods efficiently, does so by m atching supply and dem and in all m arkets sim ultaneously (Pindyck and Rubinfeld 1992, p.572). G eneral E quilibrium theory becam e the dom inant paradigm o f econom ic analysis from shortly after the publishing o f M arshall’s “Principles o f
E conom ics” (M arshall 1890) until the latter part o f the tw entieth century (Sam uelson 1961). M arshall’s principles relegated the w ork o f the entrepreneur to superintendence: a
M arshall taught and influenced the leading econom ists such as Francis Edgew orth, John M aynard Keynes, A.C. Pigou and Paul Samuelson: all o f who w ere
function that includes organization o f production, forecasting, risk taking and leadership (M arshall 1890, B ook IV). The highly specialized role o f superintendence becam e associated w ith the earnings o f m anagem ent rather than being specifically attributed to entrepreneurship.
The G eneral E quilibrium model provides a highly rational (W agner 1891, p .320 ), tightly focused (Casson 1995, p.7) and internally consistent (K irchhoff 1991, p.95) solution to the question o f how social order is constructed based on three fundam ental assumptions: the production function, the logic o f rational choice and perfect inform ation (Barreto 1989, pp.102-107). The production function assumes that production output is a function o f a com bination o f inputs, allow ing profitable levels o f production to be
calculated. Rational choice assum es that individuals and firms m ake rational choices in their use o f scarce resources and in their choice o f lim ited ends. Perfect inform ation assum es that individuals and firms are com pletely aw are o f all considerations affecting their decisions. B arretto effectively argued that the concept o f the entrepreneur was incom patible w ith these assum ptions (Barreto 1989, pp.101-117). The entrepreneur as innovator, described by Say and Bentham, created an open system that defied the
assum ptions o f production function and rational choice. The entrepreneur as uncertainty bearer, described by Cantillon and V on Thunen, nullifies the assum ption o f perfect inform ation. Even the lim ited function o f the entrepreneur as coordinator, described by Smith, conflicts with the assum ption o f perfect inform ation since perfect inform ation reduces decision-m aking to a m anagerial role. Thus, the introduction o f the entrepreneur
into G eneral Equilibrium theory was seen as an attack on the consistency o f G eneral Equilibrium theory.
The A ustrian Entrepreneur
C arl M enger ( 1840 - 1921) is credited w ith founding the A ustrian school o f econom ics (A lter 1990, p .3 13; M cM ullan and Long 1990, p.61; V aughn 1990, p.379), which centered econom ic theory on the subjectivity o f econom ic values (K night 1981, p. 19). M onger’s research goal was to reconcile the inconsistency inherent in G eneral Equilibrium theory by grounding price determ ination in hum an action (Salerno 2001, p.2). M enger began by describing a general theory o f goods. Four conditions are prerequisite for a thing to become a good:
1. A hum an need.
2. Such properties as render the thing capable o f being brought into a causal connection with the satisfaction o f this need.
3. H um an know ledge o f this causal connection.
4. C om m and o f the thing sufficient to direct it to the satisfaction o f the need. (M enger 1871, p.52)
M enger elaborated that goods can be o f m aterial nature o r useful hum an actions or can even be im aginary in nature (goods that are assum ed to fulfill hum an needs). Changes in the relative value o f goods take place through the m echanism o f entrepreneurial activity, which M enger defined as:
Entrepreneurial activity includes: (a) obtaining inform ation about the econom ic situation; (b) econom ic calculation - all the various
com putations that must be made if a production process is to be efficient (provided that it is econom ic in other respects; (c) the act o f will by w hich goods o f higher order (or goods in general - under conditions o f
developed com m erce, w here any econom ic good can be exchanged for any other) are assigned to a particular production process; and finally (d)
supervision o f the execution o f the production plan so that it may be
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M enger acknow ledged that, in sim ple situations, entrepreneurial activity m ight be indivisible from the norm al econom ic activities o f the individual. H ow ever, with the division o f labour, entrepreneurial activity can stand on its ow n as a useful activity and thus be considered a good in its ow n right (M enger 1871, p. 161).
M enger’s theory o f entrepreneurship was based in an epistem ology o f
m ethodological individualism (A lter 1990, p.328), which clearly stated that economic phenom ena can only be explained by showing that they are the outcom e o f individual behaviors (M enger 1883, P.193). M enger’s claim that national econom ies were a fiction (M enger 1883, p. 196) created the first paradigm atic division in the field o f economics^. M onger’s association o f the entrepreneur with the process o f social change also set the stage for the m odem view o f entrepreneurship as an individual endeavor, rather than as a process o f collective social action. This position was challenged in the socialist
calculation debate.
Entrepreneurship and the Socialist Calculation Debate
L éon W alras (1834-1910) opposed M enger’s theory o f entrepreneurship three years later, w hen he laid out W alras’ L aw (W alras 1874), which stated “ ...th e total value o f all goods supplied equals the total value o f all goods dem anded” (Y eager 1994, p. 159).
^ This paradigm atic debate is referred to as the “M ethodenstreit” or “Battle o f the M ethods” . The debate pitted M enger and his supporters against G ustav von Schm oller and his supporters. M ax W eber attem pted to re-join the two factions under the paradigm o f social econom ics (Sw edberg 1991, pp.16-19).
W hile the concept o f goods used in W alras’ Law is identical to the one laid out by M enger, there is an im plied negation o f the role o f the entrepreneur. W alras’ student, V ilfredo Pareto (1848-1923), made this im plied negation explicit w hen he noted that the formal process o f resource allocation in both socialist and market econom ies required the same solution o f W alras’ Law (Cottrell and C ockshott 1993, p.2).
Ludwig von M ises (1881-1973) disputed P areto’s claim by arguing that pricing systems in socialist econom ies w ere necessarily deficient because they did not recognize the judgm ents o f the people participating in econom ic transactions (von M ises 1920). Von M ises' argum ent was based on a distinction betw een the idealized entrepreneur o f econom ics and the practicing entrepreneur (von M ises 1949, p .62). W hile the idealized entrepreneur could be defined as “acting man in regard to the changes occurring in the data o f the m arket” (von M ises 1949, p.255), the practicing entrepreneur w as defined as “acting man seen from the aspect o f the uncertainty inherent in every action” (von M ises
1949, p .254). Thus, von M ises argued that all consum ers act in some extent as
entrepreneurs. Further, since short-term m arket equilibrium was only achieved through the actions o f individuals acting in the presence o f uncertainty, real-w orld prices may only be trivially true and not be a reflection o f long-term equilibrium (K irzner 1999,
p.218).
Oskar Lange and A bba P. Lerner countered von M ises’ argum ent by suggesting a theory o f efficient socialist planning, w hich had central planners fixing m arket prices for production inputs (Lange 1936; Lange 1937; Lerner 1937; Lange 1947). The resulting surpluses o r shortages o f inputs would signal to central planners the need to adjust prices
upwards or dow nw ards thus creating equilibrium w ithout the intervention o f the entrepreneur described by M enger (K irzner 1997, p. 15).
Friedrich H ayek (1899 - 1992) argued against the theories o f Lange/Lerner by claim ing that socialist planning could not achieve greater efficiency in resource allocation than free m arket allocation because the inform ation any planner could possibly acquire was inferior to the price-m echanism o f a m arket (Cottrell and Cockshott 1993, p. 13). H ayek defined m arket equilibrium as a state o f affairs characterized by the m erging o f know ledge and intentions o f different m em bers o f society. The actions o f one individual are the data on w hich other individuals make their decisions (H ayek 1937, p.38). Thus, H ayek argued the concept o f G eneral E quilibrium was a fabrication o f the statistical aggregates used by econom ists (H ayek 1945, p.524). According to Hayek, equilibrium in the m arketplace is configured by the m utual com pensation o f a large num ber o f
independent discoveries o f circum stantial know ledge (Kirzner 1997, p.71).
Israel K irzner has defined the theory o f entrepreneurial discovery as, “ .. .the alert becom ing aw are o f w hat has been overlooked. The essence o f entrepreneurship consists in seeing through the fog created by the uncertainty o f the future” (K irzner 1997, p. 51). The theory o f entrepreneurial discovery provided several explanations that w ere lacking in G eneral E quilibrium theory (K irzner 1997, p.52). First, the role o f advertising in the econom ic process was explained. W hereas G eneral Equilibrium theory suggested that advertising increases the dem and for consum er products (Galbraith 1969, p. 157), the theory o f entrepreneurial discovery suggested that advertising directs consum ers to inform ation and to goods that are available (K irzner 1997, p.57). Second, the tem porary
nature o f entrepreneurial profits was predicted (Jacobson 1992, p.785). The concept o f entrepreneurial rent can be defined as the difference between a v enture’s paym ent stream and the cost o f resources com bined to form the venture (Rumelt 1987, p. 143). Third, an explanation was offered for the role o f luck. Although entrepreneurial rents occur as a result o f action, the time delay betw een the entrepreneurial discovery and the paym ent o f the rent associated with this discovery may blur the cause and effect relationship.
Similarly, the exploitation o f an opportunity may not occur on a conscious level. Either o f these conditions, previously considered to be luck, can be explained through the theory o f entrepreneurial discovery (K irzner 1979, pp.154-181).
The theory o f entrepreneurial discovery lent support to M onger’s epistem ology o f m ethodological individualism (M enger 1883, pp. 139-151) by show ing the m echanism by w hich the entrepreneur appears only occurs when analysis is done at the level o f the individual. W hen the “atomistic, fully inform ed rational actor” (Starr and M acM illan
1991, p.228) o f G eneral Equilibrium theory is assumed, the entrepreneur disappears; subsum ed to the aggregation o f the epistem ology of collectivism o r universality. C lifford G eertz found support for entrepreneurial discovery in his study o f inform ation searches in M orocco’s Bazaar. This study show ed how even simple econom ic transactions are not so m uch rational in nature as form ed by incom plete and conflicting inform ation (G eertz
1992, p.228).
V ignette
Sam uel G oldw yn (1879? - 1974) provides an exam ple o f the theory o f
