Entrepreneurship and Dynamic Capitalism: The Economics of Business Firm Formation and Growth

Entrepreneurship and Dynamic Capitalism: The Economics of Business Firm Formation and Growth

Entrepreneurship and Dynamic Capitalism: The Economics of Business Firm Formation and Growth

Entrepreneurship and Dynamic Capitalism: The Economics of Business Firm Formation and Growth

Synopsis

Kirchhoff blends economics, business, and governemnt policy to demonstrate that entrepreneurship's role in business formation and growth energizes and maintains the viability of capitalism. Entrepreneurs convert new ideas into marketable products and services and use these to grab market shares from older, established firms. This process not only produces economic growth, but also redistributes resources so as to assure equitable distribution within society. Acknowledging that this perception is descriptive but lacks predictive power, Kirchhoff offers a typology to assist in predictive theory building and to guide government policy development.

Excerpt

That small entrepreneurial firms should emerge as a driving force in economic development precisely when technical change seems to play an unprecedented role in the national welfare poses a paradox to at least one strand of conventional wisdom. A prevalent assumption is that technological change requires increasingly large quantities of research and development resources amassed and organized by giant corporations. With the greater internationalization of markets and the important role that technological leadership plays, this view would have predicted that small firms would recede in importance as they are increasingly overwhelmed by large enterprises able to exploit economies of scale.

The late Joseph Schumpeter, a towering figure of the twentieth century, had opposing views about economic development. In The Theory of Economic Development, Schumpeter calls attention to the role of the entrepreneur, who plays a central role in his analysis of capitalist evolution. It is the entrepreneur's social function that is central to that book. The entrepreneur, as a member of a social class, is central to the economy's continual self-generated growth. While it is the essentially unadventurous bourgeois class that must provide the leadership role, it does so by absorbing within its ranks the free spirit of innovating entrepreneurs who provide the vital energy that propels the capitalist system.

In Capitalism, Socialism, and Democracy, Schumpeter draws attention to the role of the large (monopoly) firm as an effective engine of economic development. The monopolist firm will generate a larger supply of innovations because there are advantages that, though not strictly unattainable on the competitive level of enterprise, are as a matter of fact . . .

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