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New Directions in Entrepreneurship Research

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Tags Calculation and KnowledgeEntrepreneurshipInterventionism

Dean Shepherd has a new article in the Journal of Business Venturing discussing the future of entrepreneurship research. A video of Shepherd talking through his major points can be found here, along with a gated version of the paper, which is aptly titled, “Party On! A call for entrepreneurship research that is more interactive, activity based, cognitively hot, compassionate, and prosocial.”

As the title indicates, the paper is mainly about finding new and useful ways to study entrepreneurs and their organizations. Shepherd is already a leader in the discipline, and this paper is likely to become a standard citation in the next few years. It’s therefore worthwhile to think about how his proposals fit with work in Austrian economics. And as it happens, Shepherd’s plan offers a number of opportunities for Austrians interested in entrepreneurship, management, and organizations.

Shepherd points out that it’s a great time to be studying entrepreneurship. Today as never before entrepreneurs are confronted with “grand challenges” both in the marketplace and society more broadly. And despite constant efforts to stifle their work, entrepreneurs rise to these challenges, thereby showing their vital role in solving some of our deepest economic and social problems. Bringing this role to light is one of the most important tasks for new research, and in fact, has been a key part of Austrian work for decades. Doing economics is often about asking “big” questions, and one very effective way Austrians can do that is by studying entrepreneurship.

One of the biggest challenges Shepherd refers to involves exploring the social implications of entrepreneurship. Economists traditionally assume entrepreneurs are motivated by monetary profit, but of course in the real world, their goals are far more complex. It’s for this reason that “social entrepreneurship” has received so much recent attention from academics. Social enterprises are usually based on conventional for-profit business models, but they differ in that their proceeds are used to further “social” goals, such as helping the homeless, cleaning up the environment, expanding educational and job-training programs in low-income neighborhoods, and so on.

It’s worth noting that social enterprise isn’t necessarily about altruism, because it can benefit entrepreneurs too. What’s more, Austrians often point out that market exchange and entrepreneurship are fundamentally social activities, because the profit motive itself is a powerful (maybe the most powerful) means of bringing people together for their mutual benefit. As Adam Smith observed, the marketplace makes each individual’s welfare depend on the welfare of others. Here then is one area Austrian work is already relevant for current research trends.

Similarly, there is also room for new thinking on “compassionate entrepreneurship,” a type of behavior which is closer to traditional charity or nonprofit enterprise. Shepherd’s example is the near-instantaneous flow of goods and services to areas affected by natural disasters. Austrians are in a perfect position to discuss these issues, for instance, by bringing to bear insights about economic calculation, or the lack thereof, in charitable causes. Calculation provides a vital explanation for the success and failure of many relief and development efforts, and deserves to be more widely discussed.

Compassionate ventures also highlight the need for more work on the relationship between entrepreneurship and government intervention. Whether an enterprise is for-profit or not, intervention seriously hampers entrepreneurs’ ability to use resources effectively. Disaster relief is a prime example: typically, the price system is severely restricted in emergency situations, especially by price ceilings, which not only hurt entrepreneurs, but also the people most desperately in need of their help. There are few regulations as inhumane, as “anti-compassionate,” as price controls.

Intervention also reminds us that entrepreneurship is about more than just the people who do good in society—it’s also about the ones who do bad. Whether well-intentioned or not, political decision making produces some pretty catastrophic results. Yet there is still much work to do in explaining the political process and its effects, for example, by applying economic logic to politics, or exploring the implications of intervention and “political entrepreneurship.”

What I’m getting at is that Shepherd’s list of research goals can be expanded to include economic research. Economics is, after all, where the study of entrepreneurship got its start, through the work of Richard Cantillon, Jean-Baptiste Say, and others. Of course, the influence of economics did not stop there: in the early 20th century, economists like Schumpeter, Knight, and Mises kept entrepreneurship theory alive through a long period of neglect. And more recently, Mark Casson’s book The Entrepreneur: An Economic Theory (1982) helped launch the explosion of interest in entrepreneurship that’s still continuing thirty years later.

These economists emphasize that entrepreneurship is a timeless phenomenon; it’s a special function in society that’s unique in both its challenges and rewards. As Shepherd notes, it’s also a process rather than an isolated event such as starting a business. Austrians have argued against this “startup bias” for some time, offering instead a broader take on the economic and social implications of business (see Peter Klein’s discussion). This view is more in keeping with early economic work on entrepreneurship, which often focuses on the kind of big questions mentioned above.

Importantly, it’s exactly because entrepreneurship research is developing rapidly that we need to keep this rich history in mind. Otherwise, we run the risk of neglecting vital insights, and promoting disastrous policies. This danger is very real, as evidenced by a glance at the economics profession, which offers a sad reminder of the consequences of ignoring the history of thought.

Shepherd, however, argues the opposite case: in his view, the danger of entrepreneurship becoming successful as a discipline is that it might become too conservative, cautious, and ultimately, stale. In other words, it might stop being entrepreneurial.

There is definitely some truth in his criticism. However, there is also a wide road to be travelled between these two pitfalls. Economic research on entrepreneurship has stood the test of time, and continues to generate new insights. Furthermore, there is ample opportunity for applying economic ideas to the latest topics and trends in entrepreneurship.

Matt McCaffrey, former Mises Research Fellow, is assistant professor of enterprise at the University of Manchester.

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