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Why Do Spillovers Matter?

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The theory of the entrepreneur is currently not unified, but it tends to become so. Thanks to the adoption of a very broad definition of the entrepreneur, which allows it to base its reasoning on the idea that before any process of wealth creation, there is the identification of a profit. This very broad definition is the following. The entrepreneur is essentially the one who acts. This definition allows us to unravel the essence of the entrepreneur. Anyone who acts to change the present and achieve his or her goals in the future is an entrepreneur.

The use of this definition

It makes it possible to organize the various theories in presence, the Chumpeterian theory in particular, around the principle of identifying a profit.

An entrepreneur is above all the one who perceives a profit opportunity. In other words, a mutually advantageous exchange not yet exploited by agents on the market. The first section of this article shows, on this basis, that the Smithian chain of exchange multiplication – the division of labor – specialization – productivity gain. Begins with an act of identification of a mutually advantageous exchange that has not yet been perceived.

Recalling the importance of identifying profits in the process of creating wealth does not mean that innovation does not play a decisive role in the growth of production. The second section addresses this point. The identification of a profit from innovation is at the origin of a growth model that we call “top-down” because it requires large amounts of human, physical, and technical capital. This growth model, which links innovation-entrepreneurship and growth, is classically based on a dynamic of creative destruction. Old competitive advantages are destroyed by new ones. The recent literature on the subject tends, however, to amend this old model in two ways. First, it shows that this dynamic of innovation is not only driven by large firms. It is also carried by small firms (less than 500 employees). This leads us not to believe that only the activity of large firms can be at the origin of the development and destruction of old competitive advantages.

Empirical work based on quantitative economic history

. The economics and management sciences propose country-specific measures of entrepreneurial activity to assess the importance of the role of entrepreneurship in economic growth. This quantitative work shows that the relationship between innovative entrepreneurs and economic growth is well observed for developed countries. They also highlight the existence of a positive relationship between growth and enterprise creation based on two types of measures of entrepreneurial activity. The number of individuals who are their employer (self-employment) and the enterprise creation index of the Global Monitoring Entrepreneurship.

This work then supports the possibility of a bottom-up growth model that would not be driven by innovation but by imitation and the search for arbitrage profits.


Also, before rushing into the search for public solutions to problems of price imbalance, firm inefficiency, and/or consumer dissatisfaction, it is best to wait and see what entrepreneurs will do to deal with these problems.

Vigilance for profit and economic growth

The most general figure of the entrepreneur has been theorized by Kirzner (1973, 2005). Defining the entrepreneur as the individual who adopts a posture of alertness to profit opportunities (alertness), Kirzner constructs a theory on which other theories of the entrepreneur present in economic theory, and more specifically the theory of the innovative entrepreneur, can be organized. The other consequence of this definition is that it leads to the argument that growth is explained by the discovery of mutually beneficial exchanges by entrepreneurs. Their discovery work promotes exchange, division of labor, specialization, and productivity gains. The entrepreneur supports growth in production because he or she reveals new uses and/or informs about the misuse of existing resources.

The entrepreneurial theory

Its initially constructed to explain economic progress. However, like many recent works, we have chosen to explore the relationship between entrepreneurs and growth. This choice limits the richness of the analysis because we will only use those parts of the entrepreneurial theory that are most compatible with quantitative economics. This choice is justified, however, by the fact that by making entrepreneurial theory compatible with the quantitative approach to GDP, entrepreneurial theorists build a bridge between themselves and quantitative growth theories; they can thus hope to lead a larger number of economists to take an interest in their work and, above all, to have a more comprehensive theory of the relationship between entrepreneurship and growth.

Just processes of growth and economic progress. It is for these reasons that we are going to examine the contribution of entrepreneurs to economic progress, we are going to examine the part they play in growth.

Why are entrepreneurs driving growth?

Kirzner’s theory of the entrepreneur is not designed to explain the variable Y in the production function. It seeks to explain the improvement in the economic well-being of the population of rich countries, i.e. the creation of new goods and services, the improvement in the quality of existing goods, the increase in their variety, and the possibility of producing them more cheaply. In entrepreneurial theory, all of these goals are achieved through the posture of vigilance for the benefit of entrepreneurs. It is because they are vigilant for profit that they are constantly encouraged to better serve consumers (product innovation, technical innovation, lower prices, differentiation, etc.).

Origin of profit opportunities and imbalances

Once it is understood why the entrepreneur was maintaining the process, one must ask oneself about the origin of the profit opportunities. For Kirzner, price imbalances are the main source of profit opportunities. Dean and Meyer add the existence of organizational inefficiencies. Holcombe, in the perspective opened up by Mises, adds a knock-on phenomenon.

Minniti shifts the focus of attention somewhat to the existence or not of externalities of entrepreneurial networks that are not strictly speaking at the origin of opportunities. but that facilitate their identification by entrepreneurs.

By pointing out that price opportunities originate from price imbalances, Kirzner explains at the same time why the equilibrium theory-classical does not need an entrepreneur to explain the coordination of supply and demand in the market. The entrepreneur only has a role to play in coordination.

Because prices are imperfect, knowledge is dispersed, coordination is never instantaneous but located in time, and rationality is limited. prosperses on situations of imbalance and pockets of ignorance.


The growth can therefore be explained by the vigilance concerning profit opportunities, which itself can be explained by the number of opportunities not yet exploited by the agents present on the market.

The number of opportunities can be explained by the extent of price imbalances, by the inefficiency of firms on the market, by the number of opportunities itself, and by the degree of ambiguity of the information available on these opportunities. Indirectly, all these variables explain growth because they explain the existence of profit opportunities that guide the actions of entrepreneurs.

Vigilance for innovation and economic growth

Neo-Schumpeterian growth models, however, consider innovation to be the main cause of growth. Technological changes and all the factors that generate the appearance of new information are at the origin of development. Venkataraman (1997), after Schumpeter, distinguishes the inventor, the producer of new information, from the innovator, that is, the one who perceives an opportunity for profit from innovation. Instead of discovering a profit of arbitration, he seizes a profit of innovation.

Initially, Schumpeter (1934) argues that the exploitation of an innovation profit destroys the profit opportunities of other entrepreneurs. This goes against the existence of the spillover effects described by the Kirznerian vision. The other difference between the Schumpeterian and Kirznerian theories lies in the way they explain the origin of profits. In the Schumpeterian view, the origin of profits is endogenous. It is a creative act on the part of the entrepreneur. In the Kirznerian vision, on the contrary, the origin of profits is exogenous to the market. The entrepreneur discovers an opportunity for profit that pre-exists since it originates from market imbalances or his dynamics. Attempts to reconcile the two visions by the neo-Chumperians and the Austro-American school are an opportunity to refine the origin of profits and to propose new variables to explain the growth of production.

GDP per capita and entrepreneurial activity

While the measure of innovation by the number of patents and/or the importance of R&D investments has long been used, the same cannot be said for the measure of entrepreneurial activity. The activity of the routine entrepreneur operating in well-known markets is generally measured by the share of the working population that is not employed (self-employment). These data are available for OECD countries via the Internet (Statistical Compendium, Labour market Statistics). The work of the GlobalEntrepreneurship Monitoring (GME) prefers to propose an indicator based on surveys. It is also available on the Internet. They are still exploratory but open up new perspectives for the study of the relationship between business creation and growth.

In general, the OECD believes that the number of self-employed individuals is an important element of entrepreneurial activity and economic dynamics in a country. This international organization defines this type of entrepreneurial activity as work in which remuneration is directly dependent on profits and where the person in the job has operational decisions, i.e., is responsible for the performance of the firm.
The results of empirical work using this measure may lead to the observation of a negative correlation between the proportion of self-employed individuals and output growth. Contrary to the theory, the creation of a firm is not a favorable factor for growth and development.

Salgado-Banda

For example, he shows that while the relationship between the number of patents and growth rate is statistically significant and positive.

Enterprise creation, as measured by self-employment, is negatively related to growth. He explains this relationship by the fact that these company creations may be unproductive because they are oriented towards recent research or non-innovative activities. This result partly confirms the thesis defended by Leff. Leff argued that to say that the lack of entrepreneurship was a source of underdevelopment was abusive. He then supported state interventionism in high-tech sectors and the creation of large vertically integrated groups. He even defended the idea that small firms did not have sufficient competitive advantages to face global competition.

In addition to the fact that these theses have been invalidated by the evolution of GDP in recent years and the importance of the number of innovations in small firms, it is necessary to recall a certain number of facts that contradict the idea that non-innovative entrepreneurial activity is not favorable to growth.

First, it was noted that the Japanese and Southeast Asian models are not initially based on innovation but imitation. Second, data on self-employment are difficult to use because they are not easily comparable across OECD countries. If used correctly, they can show that there is a positive relationship between entrepreneurial activity and GDP growth. The work of Carree, van Stel, Thurik, and Wennekers and Acs, Audretsch, Braunerhjelm, and Carlsson confirms the existence of such a relationship.

Conclusion

Largely driven by the management sciences, the entrepreneur has thus regained his place in the theories of growth. The entrepreneurial theory explains economic growth by the intensity of entrepreneurial activity in the market. Differences in growth between countries can be explained by differences in market vigilance. These differences are themselves explained by the number of entrepreneurs.by price imbalances, by the inefficiency of firms, and by the permanent dissatisfaction of consumers. This renewal of the entrepreneurial economy also leads to a rethinking of growth policies and to questions about the objectives that public authorities must set for themselves to achieve economic progress.

First

It is important not to underestimate the entrepreneur’s capacity to resolve what equilibrium theory calls market failures. Since the entrepreneur feeds on price imbalances, organizational imperfections, product deficiencies, and, more generally, consumer expectations. Before intervening to modify the market discovery process, it is necessary to ensure that the public solution does better than the entrepreneurial solution (Kirzner 1978, 1985).

Second

It is not fair to think of growth as the only model in developed countries, and more specifically, innovation. It is in the interest of poor countries to trust their entrepreneurs and to build a bottom-up development model that takes advantage of the technological advances of rich countries and then surpasses them since imitation can eventually lead to innovation by promoting capital accumulation and the multiplication of capitalist entrepreneurs.

Finally

It is important not to underestimate the role of small firms in innovation, and it is not desirable, under these conditions, to commit ourselves unwisely to the logic of competitiveness clusters whose sole objective would be to compete with large groups. A prosperous economy is above all made up of a localized network of companies capable of benefiting from each other’s dynamism.


The essential point, however, is not there, because the theory of the entrepreneur is better adapted to the theory of economic progress than to the theory of quantitative growth in production. What is important is not to produce more, but to offer goods that better satisfy consumers.

The key issue is not to reallocate resources to education, R&D, or infrastructure building, but to create institutions that encourage individuals to be entrepreneurial. Based on this diagnosis, a country like France has low growth rates because it suffers from a lack of entrepreneurial activity among its members. Returns on investment in universities, research, and education, in general, are low because no entrepreneurs are taking over science. Successful science without entrepreneurship would only feed the growth of other countries.

Written by Ottay

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