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Entrepreneurship and Social Reality Report (Assessment)

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Updated: May 11th, 2022

Management Summary

The paper examines core theories of entrepreneurship, from classical concepts (Adam Smith, etc.) to modern concept of socially responsible entrepreneurship. The phenomenon of entrepreneurship is shown as the constructor of social reality. Two examples of entrepreneurs’ activities are considered in frames of presented theories.

Theories of Entrepreneurship

Currently, there are many different interpretations of entrepreneurship, as researchers focus on various aspects of this phenomenon. Over the past 25-30 years, entrepreneurship research has undoubtedly been among the most dynamically developing areas of socio-economic and management sciences. The importance of this subject area is also confirmed by the fact that in 1995, the international prize for contribution to research on entrepreneurship and small business was established, awarded to more than 20 outstanding scientists, whose work largely determined the development of the discipline.

These include David Birch, Bill Gartner, Scott Shane, Paul Reynolds, Isaac Kirzner, William Baumol, David Audretsch, Bengt Johannisson, Zoltan Acs, Josh Lerner (Hoppe 2016). One of them, William Baumol, was even nominated for a Nobel Prize in 2014.

According to Kuratko (2013), economic theory and practice show that entrepreneur represents the subject who is carrying out economic resources combination in order for their use in the most optimal way and receiving profit under economic uncertainty. The conditions also include the process of decision-making, together with the responsibility for the obtained results (Kuratko 2013). Moreover, as a rule, an entrepreneur, makes attempts to introducing new production approaches for the products manufacturing, control and organization of economic practice, that is, he acts as an innovator.

Innovations serve as a specific tool of entrepreneurship, but not by themselves, but being a directed organized search for innovations, the constant focus on entrepreneurial structures. In the understanding of the modern entrepreneur-innovator, the innovative activity consists in reforming the method of production of goods (rendering of services) by introducing inventions, new methods, and technologies. The basis of innovative entrepreneurial activity is the desire to meet the new needs of society, the demand for a specific product (goods, work, services) (Westhover 2015). The motive of such activities are the desire for self-realization, the achievement of success in professional work; strengthening personal competitive potential, providing a strong market position and advantages over other entrepreneurs.

These features represent, in core, purely economic aspects of entrepreneurial activity, as Gupta (2019) states. At the same time, entrepreneurship is the activity of management in social plane. Here, the following crucial points should be mentioned. First, entrepreneurship is associated traditionally with economic activity, the purpose of which is to make a profit (Gupta 2019). However, many researchers believe that entrepreneurial structures seek to maximize profits not solely from selfish motives (Gupta 2019). In modern society, instead of a Smith’s economic man with his extreme egoism and individualism, a sociable person acts, firmly understanding that his entrepreneurial success largely depends on the success of partners and the economy as a whole (Sontaite-Petkeviciene 2015). Thus, the motives structure of an entrepreneur’s activity is determined by existing institutional order and appropriate social practices, which play the role of constraints and encourage entrepreneurs to modify them.

The studies of A. Smith, R. Cantillon, J. Thunen, F. Knight consider entrepreneurship through a function associated with bearing the burden of risk or uncertainty (Hoppe 2016). A concept that considers entrepreneurship as one of the four basic economic resources, along with labor, land, and capital, is presented in the research of J.-B. Sey, who considers the function of production factors coordination to be the main function of entrepreneurship (Hoppe 2016). These concepts were developed within the framework of classical economic theory and, accordingly, were quite relevant for their era.

The next concept, which in the scientific literature is called the innovative concept (sometimes, modernizational), is associated with the name of J. Schumpeter. In the framework of this concept, entrepreneurial activity is presented as a function of innovation, a function of implementing new combinations of resources embodied in the system of economic relations regarding the creation of a new material good, the introduction of a new production method, a new organization of business, as well as the creation of new market opportunities for the purposes of economic practice (Kuratko 2013).

Schumpeter also emphasizes that the economic function of an entrepreneur is discrete (it is fulfilled only until a new combination becomes a routine) and is forever fixed to a certain carrier, i.e., entrepreneurship does not form a profession or a stable social class (Mishra & Zachary 2014). As time has shown, the research of Schumpeter was the most thorough and promising in creating a theory of entrepreneurship. In modern conditions, innovation as the main specific function of entrepreneurship is considered in the works of P. Drucker, E. Chamberlin, and J. Robinson.

Concepts that use a functional approach, in our opinion, include the concept of a neo-Austrian school (Kirtsner, Hayek, Mises, Rothbard, and others), which is called the second most important contribution of the Austrian school to economic science (Gupta 2019). In accordance with this concept, entrepreneurial activity is not only an attribute of a market economy, but also a necessary condition for its effective functioning. As Hayek and Kirzner showed, the market process is inherently entrepreneurial (Hayek & Kirzner as cited in Spulber 2014, p. 26).

Accordingly, entrepreneurship is considered as a category of market economy, inextricably linked with the evolution of the latter. The shortest and most comprehensive definition of a market economy sounds simple: “The economy of free entrepreneurship.” Unlike the neoclassical theory, which considers the market in terms of equilibrium, and the entrepreneur as a secondary figure, neo-Austrian school economists propose to consider the market as a continuous process of implementing entrepreneurial decisions, and they put the entrepreneur on the role of the main figure of market processes.

Amiri and Marimaei claim that the German historical school focuses, on the one hand, on analyzing the characteristics of the entrepreneur’s economic behaviour, and on the other hand, psychological motives of this activity are used to explain the phenomenon of entrepreneurship (Amiri & Marimaei, 2012, pp.152-153). In particular, the works of von Sombart and Weber give an interpretation of the entrepreneur as a carrier of a specific “spirit,” rooted in the religious and moral foundations of the people (Amiri & Marimaei 2012).

This position is still quite widely represented in the scientific literature on entrepreneurship and allows stating the formation of the concept of an entrepreneur, in which entrepreneurship is considered as a special type of economic behavior of a person with certain value orientations, specific motivation, and social role.

The concept of corporate social responsibility (CSR) should be also mentioned. If a public company stumbles and makes a decision without regard to the consequences for society and the environment, it will immediately be condemned by investors (Cohen 2017). Less 14% of the value of the shares in ten days is the ‘price’ paid by BP Corporation for a huge leak of oil into the Gulf of Mexico in the spring of 2010. This was the first response of socially responsible investors to a company that showed social irresponsibility (Amaeshi 2015). Thus, there is the evidence of changing and expanding the role of entrepreneurship in modern economics and society. It became one of the crucial driving forces for development.

It is also interesting to consider the views of psychologists and sociologists on the essence and features of entrepreneurship. According to David McClelland, an entrepreneur is a person full of energy, operating at moderate risk (McClelland as cited in Ranyard 2017). McClelland believed that entrepreneurship may be dictated by the desire for achievement, but it may also be a consequence of the desire to maximize income on the basis of a rational comparison of expected costs and benefits for various options for economic activity. The model of motivation created by McClelland addresses the needs of higher levels ‑ power, achievement, and affiliation. The basis of McClelland’s theory is the meaning that reveals the motivation of the entrepreneurial abilities in society.

The founder of the locus of control theory J. Rotter believed that the high motivation for achievement is associated with the internal locus of control. Individuals with an internal locus of control believe that they can control what happens in their life. On the opposite, persons with an external locus of control believe that their future results in terms of success and failure are determined randomly or by environmental conditions, but not by their actions (Ranyard 2017). Accordingly, it is assumed that a person with an internal locus of control will be more successful as an entrepreneur than people with an external locus of control.

Isaac Ajzen proposed a theory of planned behaviour, based on the assumption that behaviour can be planned, and allows predicting intentional behaviour. Behavioural beliefs form a favourable or unfavourable attitude to action, while normative beliefs lead to perceived social pressure, and controlling beliefs lead to the establishment of subjective norms. Intentions, according to Ajzen, represent the category that is most closely related to behaviour, in contrast to beliefs and desires (Kim-Soon, Ahmad & Ibrahim 2016).

The development and formation of the concepts of “social responsibility of business” and “social partnership” determine the growing importance of sociological understanding of entrepreneurship. In particular, Tony Watson suggested the theory of entrepreneurial action; this action is shown as somehow emerging “at the crossroads” in frames of the ‘array’ of tensions “at the general level of institutional logics and tensions at the level of an individual’s life-orientation” (Spedale & Watson 2013, p. 772). He claims about the necessity to abandon artificial division of ‘context’ and ‘individual’ in entrepreneurship phenomenon research but instead to consider the systemic interconnection of individual, organizational, and societal layers of the entrepreneurial activity.

Entrepreneurship: Examples of the Past and the Present

A striking example of a socially responsible entrepreneur, a special type of economic behaviour of a person with certain value orientations, of a person who constructs social reality around himself, is Elon Musk. His company, Tesla, announced a project that will demonstrate to the public its commitment to green technology and the desire to integrate alternative energy into its business. A microgrid will be installed on the Pacific island of Tau in American Samoa, consisting of 5328 solar panels, partially produced by SolarCity, which became part of Tesla, as well as 60 Powerpack batteries (Lopez 2017).

The micro-grid installation, which will cover almost 100% of the island’s electricity needs, was funded by American Samoa, the Environmental Protection Agency (EPA), and the US Department of the Interior, which is an example of a popular today public-private partnership. It should be noted that, in general, the success of Musk is not the result of a thirst for profit or fame, but the result of overcoming personal and financial challenges, the implementation of exclusively innovative projects Paypal, TeslaMotors, SpaceX. Innovation, coopetition, public-private partnerships and cooperation with stakeholders, active participation in fulfilling the needs of local communities characterize modern entrepreneurial behaviour.

An earlier, but no less successful example of a brilliant entrepreneur is Henry Ford. To increase efficiency, a conveyor assembly method was introduced at the Ford Motors plant, and the conveyors themselves rose to the level of the belt, which made the work much more comfortable. In addition, lifting hooks and cables were mounted on the production line, allowing lifting engines and heavy parts of the car much faster and with fewer people. The work shift was reduced from 9 to 8 hours, and instead of two, three shifts worked, which created new jobs and allowed not to stop production even for an hour. The average monthly salary of a Ford Motors worker was about $130 (at that time, $100 was considered a very decent income), so employees were interested in staying in the company (Winicott 2015).

In those years, the concept of CSR was not yet known in the world of business, and Ford, of course, was not so much guided by selfless care for workers as he used successful motivation to attract and retain employees. Continuous improvement was a key factor in Ford’s work. Each employee could participate in the development of production and suggest what and how to do more efficiently. Ford can be called a representative of Schumpeter’s innovative concept: the introduction of a new method of production, the creation of a new, synergistic, combination of resources.

There are many similarities between Musk and Ford, but the motivation for their entrepreneurial behaviour was determined in many ways by the era ‑ respectively, industrial and post-industrial. Thus, entrepreneurship, having emerged as a subject of economic activity within the framework of the functioning of the market-competitive mechanism, becomes an active agent of social transformations. This is forming a special type of social activity in the process of which these transformations are carried out.

The logic of the entrepreneurial process and the mechanism of entrepreneurial designing of social space consists in expanding the economic field by including the resources of other social fields in its functioning. This leads to the restructuring of the social space in two directions: economization of the social space of a certain social community (the economic field subordinates other social fields to the laws of its functioning); the unification of the economic fields of various social communities (the economic field of a certain social community as a result of the implementation of some entrepreneurial strategies includes the economic fields of other social communities as a subspace) (Westhover 2015).

As a result of entrepreneurial redesigning of social reality, a modern economic society is formed: the economization of the social structure, the pragmatization of all social relations, the establishment of the project approach as an appropriate form of contemporary culture for an economized society are taking place.

We cannot but point out the existing serious difficulties in developing the structure and methodology of entrepreneurship research. Despite a number of successful examples of obtaining comparable empirical data, there are still few longitudinal projects in this area (Weidinger, Fischler & Shmidtpeter 2014). One-time research initiatives prevail, the result of which are disparate and sometimes even conflicting. However, since entrepreneurship research has become quite international, the most interesting publications are born from the intense collaboration of scientists from different countries and continents.

A certain level of collective trust and general approaches to the expected results of empirical research would thus contribute to the intensification of cooperation at the institutional level. It can be assumed that in the future, international organizations, consortia of leading business schools and associations, rather than single researchers and groups, will join these forces. It is necessary to implement longitudinal projects that will have a significant effect in the field of science, education, as well as in the preparation and implementation of international political measures for entrepreneurship incentives.

The internationalization of research projects will contribute to the development of interdisciplinary approaches to data analysis, since the main problem of any comparative study is the lack of understanding of the specifics of socio-political and economic contexts. It makes no sense to compare the incomparable: entrepreneurship in developed market economies, in transition societies, or in emerging markets. A deeper understanding of social norms, customs and relationships, typical economic practices, etc., characteristic of different environments, requires an interdisciplinary approach.

Reference List

Amaeshi, K 2015, Corporate social responsibility, entrepreneurship, and innovation, London, UK: Routledge.

Amiri, NS & Marimaei, MR 2012, ‘Concept of entrepreneurship and entrepreneurs traits and characteristics’, Scholarly Journal of Business Administration, vol. 2, no. 7, pp.150-155.

Cohen, B 2017, Post-Capitalist entrepreneurship: startups for the 99%, London, UK: Productivity Press.

Gupta, S 2019, Entrepreneurship: theory and practice, London, UK: Routledge.

Hoppe, M 2016, ‘The entrepreneurship concept: a short introduction’, Högre Utbildning, vol. 6, no. 2, pp. 95-108.

Kim-Soon, N, Ahmad, A & Ibrahim, N 2016, ‘Theory of planned behavior: undergraduates’ entrepreneurial motivation and entrepreneurship career intention at a public university’, Journal of Entrepreneurship: Research & Practice, vol. 16, pp. 1-12.

Kuratko, DF 2013, Entrepreneurship: theory, process, and practice, Boston, MA: Cengage Learning.

Lopez, M 2017 Elon Musk: life story and life lesson of future, business, success and entrepreneurship, Scotts Valley, CA: CreateSpace Independent Publishing Platform.

Mishra, CS & Zachary, R. 2014, The theory of entrepreneurship: creating and sustaining entrepreneurial value, London, UK: Palgrave Macmillan.

Ranyard, R 2017, Economic psychology, Hoboken, NJ: Wiley-Blackwell.

Sontaite-Petkeviciene, M 2015, ‘CSR reasons, practices and impact to corporate reputation’, Procedia – Social and Behavioral Sciences, vol. 213, pp. 503-508.

Spedale, S & Watson, TJ 2013, ‘The emergence of entrepreneurial action: at the crossroads between institutional logics and individual life-orientation’, International Small Business Journal, vol. 32, no. 7, pp. 759-776.

Spulber, DF 2014, The innovative entrepreneur, Cambridge, UK: Cambridge University Press.

Weidinger, C, Fischler, F & Shmidtpeter, R 2014, Sustainable entrepreneurship: business success through sustainability, New York: Springer.

Westhover, JH 2015, Strategic, sustainable, and innovative entrepreneurship, Deerfield Beach, FL: HCI Press.

Winicott, M 2015, Henry Ford: entrepreneurship lessons: teachings from one of the most successful entrepreneurs in the world, Scotts Valley, CA: CreateSpace Independent Publishing Platform.

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