“Entrepreneurship it is presumed amongst experts that

“Entrepreneurship and innovation are not the same, but successful
entrepreneurship requires innovation”. Entrepreneurship and innovation are two
common concepts in the political discussion and are often mentioned as
conditions for economic growth and sustainable development. In an increasingly
developing world where competitiveness amongst corporate companies is rising,
many firms are encouraged to be innovative in order to gain or sustain a
competitive edge. However, due to the deprivation of innovation in market conditions,
it is presumed amongst experts that there may not be space for a significant
development in the innovative field in the business future. In this essay I will
reduce the existing ambiguity by describing the connection between innovations
and entrepreneurial activities and comparing and contrasting different economic
theories of entrepreneurship, along with reference to examples of innovation in
practice.

                                                                                                          

It is important for us to consider how the term “Entrepreneur” is
defined by different economists. Economics assumes that the sole interest for
people entering and carrying out business is to make money. Richard Cantillon
of the French School of Thought is credited for developing the first economic theory
of entrepreneurship in 1755. He is known for being the “first significant
writer to make frequent and obtrusive use of the term entrepreneur in a
semblance of its modern form” (Herbert and Link, 2006, p.589), and defined the
entrepreneur as someone “working for oneself by assuming a level of personal
risk”. Cantillon’s description of entrepreneurship is very different to the
modern definitions we see today, his theory of entrepreneurship being that
entrepreneurs function by bearing risk under a theme of Uncertainty. According
to (Cantillon, 1931, p.151), entrepreneurs will “buy at a low price the
products of the villages and will transport them to the Capital to be sold at a
higher price”. This highlights entrepreneurs as “arbitrators”; acting on
perceived opportunities to pursue profits. This idea is reiterated by Herbert
and Link (1988, p.21), stating that an “important aspect of Cantillon’s theory
is that it stresses the function, not the personality of the entrepreneur”.  Upon evaluation of Cantillon’s theory of
entrepreneurship, it is evident that good judgemental and managerial skills are
seen as greater qualities of the entrepreneur as opposed to an innovative mind
set. Therefore, in order to remain a dominant force in the competitive market,
it would necessary for the lead entrepreneur to acquire a team to provide the
skill set lacked by the entrepreneur himself, most likely within the innovative
and creative fields.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

 

The German-Austrian School of Thought provides a very different
perspective of the characteristics of an entrepreneur. Joseph Schumpeter called
for a different approach, in comparison to Cantillon for example, when defining
his entrepreneur. He heavily emphasises the innovative characteristic as the
main function of the entrepreneur, suggesting that an entrepreneur is the
person who is “willing and able to convert a new idea or invention into a
successful innovation”. Schumpeter however was more concerned with economic
development rather than entrepreneurship, and stated that his entrepreneur is
the creator; one who causes market and economic change, as well as
disequilibrium. He was a firm believer that innovation played a vital role in
entrepreneurship; with the introduction of newly generated innovative methods,
old industries will have lost its usefulness, because these new methods ensure
production is more efficient for positive economic growth. The production
market would be driven forward, and the firm would be able to produce more at a
lower cost. This can be further supported through a concept created by
Schumpeter known as the “gales of destruction”. He derived it from work by Karl
Marx, and popularised it as a theory of economic innovation and the business
cycle. This concept is described by Schumpeter as the “process of industrial
mutation that incessantly revolutionises the economic structure from within,
incessantly destroying the old one, incessantly creating a new one”
(Schumpeter, Joseph. 1994, Capitalism, Socialism and Democracy, p. 82-83). As a
result of the growing innovative methods, many existing production processes
and products would become outdated and worthless. This opens doors for
competitive firms to imitate these fresh innovative ideas, resulting in a loss
of profit for the original company if it was to stop innovating the existing
products. A clear example of a company that utilises this method is Apple, with
their ever growing range of iPhones. With the use of this cyclic process,
Schumpeter was able to use entrepreneurship as a means to clarify economic
growth and structural change.

 

The last main school of Thought is the Austrian School of Thought,
which suggests a different definition of an entrepreneur. Israel Kirzner’s theory
of entrepreneurship explains the function of the man who pursues economic
opportunities in the face of uncertainty. 
He describes “alertness” as the fundamental quality of the entrepreneur,
meaning that the entrepreneur has the ability to perceive new economic
opportunities that haven’t been recognised by others. This alertness however is
dependent on knowledge; the entrepreneur’s alertness can be used to detect
arbitrage opportunities, recognising that certain sectors of production are
under-priced, then proceeding to act on this knowledge to earn profit. Kirzner’s theory stands in sharp contrast to that of
Schumpeter’s theory, obtaining a vision of a market socio-economy, which aims
to enhance the entrepreneur’s pursuit of a personal goal through market
exchanges. Both Schumpeter and Kirzner see entrepreneurship as
purposive, as well as being the driving force of socio-economy, however in
terms of competition, Schumpeter’s system erodes newly created profits, whilst
Kirzner’s theory provides a motivation for alertness to new profit
opportunities. This can highlight the idea that in Kirzner’s eyes, innovation
and creativity are left as a secondary priority. The main aim is to seek
opportunity before acting upon them, meaning that alertness is key in order to
discover profit opportunities when the market is in a state of disequilibrium. 

With the three main Schools of Thought taken into consideration,
we can now look at some economic theories and how they each have made an impact
on innovation in society today.

 

Following on from Schumpeter’s theory, taking an innovative stance
when it comes to entrepreneurship can result in lasting value for society. For
example, the role of an entrepreneur is still considered as a key responsibility
when it comes to the creation of jobs. If the entrepreneur is an innovative
figure, just like Schumpeter describes, the entrepreneur must enter the market
with a whole new market segment, with new goods and services. As demand
increases, the company’s growth would increase, because of this innovative
edge. Increased demand means that the company would need to employ more people
to ensure efficient production. This in turn would create more jobs for
society, and would aid in moving the economy forward and decreasing
unemployment.

 

The use of innovative methods can also bring about a contribution
to socio- economic development. For example, innovation can help alleviate
social challenges, which encompass health and demographic challenges, and social
exclusion and inequalities, among others. For example, innovation can help
elderly individuals remain healthier, live independently longer, and counteract
the diminishing of physical capabilities that become more prevalent with age.
Innovation can also provide more personal, preventive health care products that
ensures an improvement in the quality of human health. This can help reduce
differences in living standards between groups in society, because these
innovations are in a sense cheaper and simplified versions of already existing
goods. This creates a long lasting, positive effect on society today.

x

Hi!
I'm Joan!

Would you like to get a custom essay? How about receiving a customized one?

Check it out