Entrepreneurship is the modern-day philosopher’s stone: a mysterious something that supposedly holds the secret to boosting growth and creating jobs.
This is how a recent Schumpeter column in the Economist starts out. The argument that the author shares with us is basically that the heist for entrepreneurship both in developed countries as well as in developing countries (although he focuses on the first) is based on a faulty understanding of what an entrepreneur actually is:
But what exactly is entrepreneurship (apart from a longer way of saying “enterprise”)? And how should governments encourage it? The policymakers are as confused as the gurus. They assume that it must mean new technology; so they try to create new Silicon Valleys. Or that it is about small businesses; so they focus on fostering start-ups. Both assumptions are misleading.
Based on these faulty assumptions, policies are created (or supported by aid agencies) that are not actually fostering entrepreneurship but often lead to nothing but failing and expensive attempts to recreate technology wonders.
As an alternative, the column promotes a definition of entrepreneurship based on a new book by Daniel Isenberg called “Worthless, Impossible, and Stupid“.
In essence, entrepreneurs are contrarian value creators. They see economic value where others see heaps of nothing. And they see business opportunities where others see only dead ends.
Out of Mr. Isenberg’s writing, the author distills two important bits of advice for policymakers:
First, they should remove barriers to entry, and growth, for all sorts of business, rather than seeking to build particular types of clusters. Second, they should recognise the importance of the profit motive. There has been much fancy talk of “social entrepreneurship”—harnessing enterprise to do good deeds—but in truth the main motivator for entrepreneurs is the chance of making big money. This is what drives people to take huge risks and endure years of hardship. And this is what encourages investors to take a punt on business ideas that, at first sight, look half-crazy.
I think that these points are also extremely important for the field of economic development in developing and emerging economies. We need to reflect on the way we foster entrepreneurship with our programs. Should we continue to train a large number of people to become entrepreneurs in pre-defined sectors with business models developed by international consultants? Or should we rather prepare the ground for entrepreneurs à la Isenberg to emerge and implement their own radical business ideas – that are tested following a variation, adaptation and selection logic right where they need to work? For me, the latter has a big appeal. How exactly we can do that I am not sure. But it definitely links back to my last post of good practice vs. emergent practice and the need to strengthen local innovation systems instead of imposing innovative solutions.