Despite his pivotal role in the marketplace, the entrepreneur has not been accorded a major place in modern economic theory. Dominated by steady-state and equilibrium models, neo-classical economics occupies a world where change has been largely assumed away and where, as a consequence, there is little need for entrepreneurial activity. It is a tidy, pre-Heraclitean world, well-suited to mathematical formulae, but less relevant to the risk-taking businessman.
It is no surprise, then, that the contributors to this small volume have drawn independently on an economic tradition in which the role of entrepreneurship is fully recognised.
The Austrian economists Schumpeter, von Mises and Hayek, all describe an economic world in flux. In this world where markets are created, new wants are satisfied and enterprises are born and die, entrepreneurship is vital. As a present-day member of the ‘Austrian School’, Israel Kirzner, points out in this volume, it is this dynamism, this ‘ceaseless churning and agitation’, this ‘never-ending discovery process’ which produces economic growth and which determines the success of the market.
Entrepreneurial activity cannot, then be designed; its fruits are, at best, unsure. For the producers and managers of public policy, entrepreneurship has uncertain value. In social cost-benefit analysis, the potential gains under a regime where entrepreneurial activity is encouraged and rewarded are usually assigned little weight. The result, as Malcolm Fisher observes, is that government controls abound.
The conditions under which entrepreneurship prospers are a major concern of all contributors to this book. There must be sufficient rewards to activate the entrepreneurial faculties. Kirzner notes that ‘human beings tend to notice that which it is in their interest to notice.’ Entrepreneurial alertness cannot be commanded nor, as Karl Popper put it, “produced by rational methods’; it must be elicited by the anticipation of reward. Successful enterprise is the product of the diverse experimentation which results.
At a more mundane level, the would-be entrepreneur must have access to the resources necessary to realise his vision. Barry Maley argues that in a socialist society the class of potential entrepreneurs is limited because the average citizen does not have the means to accomplish his plans. Writing from his experience as a businessman, Neville Kennard comments on the difficulty faced by private companies in accumulating capital in a climate of high taxation.
Not surprisingly, government is a major determinant of the entrepreneurial climate. High taxation, government regulations and controls suppress the incentives to entrepreneurship. Intervention in the market distorts the signals about entrepreneurial opportunities. High inflation and frequent rule-changes increase uncertainty and dampen the preparedness to take risks. In the end, Kennard observes, it is not entrepreneurial activity as such which is difficult, but coping with the constraints imposed by government.
Professor Kirzner and Professor Michael Porter examine the entrepreneur under comparative incentive structures. Kirzner compares the performance of entrepreneurs under free and regulated market economies with managers in socialised economies. Porter undertakes a similar task in analysing the incentives facing entrepreneurs in public and private sector enterprises in the Australian economy. Both writers reach similar conclusions. Although there are imperfect incentive structures within state enterprises, there
are no mechanisms to imitate the discovery process of the market. Change, particularly change threatening the extinction or radical restructuring of the enterprise, is beyond the scope of the state enterprise manager.
Emphasised throughout is the fragility of the entrepreneurial impulse. Keynes wrote:
Enterprise only pretends to itself to be mainly actuated by the statements in its own prospectus, however candid and sincere. Only a little more than an expedition to the South Pole is it based on an exact calculation of benefits to come. Thus if the animal spirits are
dimmed and the spontaneous optimism falters, leaving us to depend on nothing but a mathematical expectation, enterprise will falter and die .. . ‘
The danger of too much government, Maley concludes, is ‘the extinction of enterprise in all fields, except perhaps the entrepreneurial arts of the courtier and the gaoler.’
As befits a volume of a Policy Forum series, the papers reproduced in the body of this book were originally delivered at a seminar on entrepreneurship conducted by the Centre for Independent Studies in November 1981. Because of a failure of recording equipment, the discussion from that forum has been omitted from this volume. In its place, Israel Kirzner’s influential paper, ‘The Primacy of Entrepreneurial Discovery’, referred to by several of the contributors, is included as an appendix.
