What is entrepreneurship? Explain the perspective of Schumpeter on entrepreneurship.



There is some unresolved controversy in the meaning of entrepreneurship. Although, there is some consensus also about the entrepreneurship which includes a part of administration and its function in decision making process for regulating some types of organisation. Some scholars refer to the term 175 for strategic or innovative decisions while others apply it for business organisations. The term can be clarified in the historical context. The genesis of the word is French which appeared long back particularly to denote “to do something”. During early sixteen century, those who were engaged in leading military expeditions were lebelled as entrepreneurs. After 1700, the word was frequently referred to by the French for government road, bridge, harbour and fortification contractors and later to the architects. By 1800, the word appeared in the academic discipline as it had been used by a considerable number of the French economists, who treated the word in a

specific sense in the field of economics that has given special meaning to entrepreneur and entrepreneurship, with differences emerging mostly from the features of the sector of economy. And those economists who were interested in Government treated the entrepreneur as a contractor, agricultural specialist (farmer) and industrialist as a risk taking capitalist (Encyclopedia of Social Science, 87-88). However, entrepreneur and entrepreneurship have been used in various contexts by the scholars at various points of time.

Perspective of Schumpeter

Schumpeter had looked different theoretical aspects of entrepreneurship at different points of his life span. He, in fact, used a variety of approaches including psychology, economic theory, economic history and sociology. It is worthy to note here that Schumpeter first propagated competent history of entrepreneurship in the economic theory. And in this regard, the history of

economic thought has been influenced greatly by his approach which still dominates the academic field.

Although, Schumpeter followed versatility and multi-disciplinary approach, nevertheless, as evident by his writings, he never produced a concrete guidance for the behaviour of entrepreneurs as business schools have been formulating it. It is worthy to note here that Schumpeter repeatedly had pointed out that when ordinary economic behaviour is more or less automatic, the entrepreneur has always to think seriously over his/her action which is to be taken as entrepreneur is involved in doing something that is fundamentally new. This is such insight which seems to be very significant as when someone does something extraordinary new does not know how to proceed further, hence needs fresh guidance.

The idea of capitalist process which is the key point in the Schumpeter economic theoretical analysis can be stated that circular flow, as developed by Schumpeter, is disturbed and transformed by the innovators and their imitators. Given to certain technical economic conditions, the business begins to make profit, even when the market prices fall as a consequence of increased output. Here it is important that aggressive entrepreneur breaking into the placid circular flow, armed with nothing will, strengthen the idea of innovation, his/her success against obstacles of established firms, their forced liquidation or adaptation, is the key point on which Schumpeter interacted to a versatility throughout his career.

Schumpeter’s first effort to develop the theory of entrepreneur can be traced out in the theory of economic development. In this pioneer work, he tried to formulate a completely new economic theory and paid a bit little attention what earlier economists had accomplished. In this respect, his argument was that all significant changes in the economy are initiated by the entrepreneur, and that changes then gradually work at their own through the economic system, that is the business cycle.

Schumpeter also regarded that his idea of endogenously generated change, as opposed to change induced from exogenous forces, not only applicable to economic, but to all social phenomena and they could be conceptualised as consisting of two types of activities, on the one hand there were creative and innovative activities, while on the other repetitive and mechanical activities. The second edition of the theory of economic organization was published after the one and half decades later, in which Schumpeter made his argument more logical, systematised it and broaden its implications. After thirteen years, an other his work “Business cycle” came up in which the carried further and here he had described entrepreneurship in much technical sense.

When we think of Schumpeter theory of entrepreneur, we simply mean entrepreneurship as innovation. And perhaps the point on which Schumpeter speaks rather directly of the entrepreneur, his main bulk of his work represents an attempt to develop many economic theories viz. interest, capital, credit, profit and business cycle by interconnecting them to a theory of entrepreneurship. By doing so, he asserts that entrepreneurship can be defined as the making of a new combination of already existing materials, and forces; that entrepreneurship related of making of innovations, as opposed to inventions; and that no one is an entrepreneur forever, only when he/ she is doing the innovative activity.

Only money is not sufficient to motivate an entrepreneur, as he expresses that entrepreneurs are definitely not economic men in theoretical sense ([1946] 1991: 408). He goes to the extent by saying in the theory of economic development; that his idea related to the motivation of the entrepreneur easily comes in the field of psychology and thus has no scope in economic theory. During the last decade of his career, Schumpeter’s views, as evident in his writings, shifted from economic theory to sociology and economic history. His work on Capitalism, Socialism and Democracy (1942) is a sociological contribution, as in this work, his focus of inquiry is on the institutional structure of society where he analyses the entrepreneurial function and concludes that a number of institutional factors are weakening entrepreneurship and contributing to stagnation of capitalism as a social system. And people are more prone to change resulting lesser opposition to entrepreneurship. As a routine, the big enterprises, through a specialized team are beginning to develop innovative technology. Hence, capitalism has such notion where society rationalizes and demystifies along with entrepreneurship.


What does the idea about entrepreneurship and theory of capitalism, as given by different scholars in preceding pages, lead upto? Now it is time to review the main thrust of the theoretical contribution and its applicability. There is nothing doubtful that the contribution of Weber is of immense in the theoretical sense but it seems weaker in its practical implications. It represents just social science as sciencing. In spite of this weakness, Weber’s idea can be taken as point of departure for developing and shaping its practical applicability to entrepreneur with reference to the capitalist development.

And Weber’s initial definition of entrepreneurship may facilitate in extending Schumpeter’s individualistic entrepreneurship into a sociological perspective. The idea, for survival of entrepreneurship; modern enterprise or an organization which is able to generate chances of profits; is essential condition, can be commented as that only creative personality loaded with bundles of ideas is not sufficient for survival. Weber’s notion of methodical work and money making as vocation as they have been demonstrated in The Protestant Ethic raises an important question: How far elements of methodical work and money making articulate in the present dynamic situation of globalisation and liberalisation? This is such a question which perhaps needs modification of the theory of entrepreneurship and capitalism.


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