Tags
In the economics literature, there is a heated debate over whether entrepreneurship should properly be considered a factor of production, or whether it is better thought of as a special mode of using the three main factors of production. For the present purposes I don’t really care; the main thing is that entrepreneurship is sufficiently different from land, labor, and capital that it merits discussion by itself.
What is entrepreneurship? Depending on who you read, it can consist of either or both of willingness to bear risk, or skill at coordinating and directing the other three factors of production. In either case, unlike land and capital (both passive resources) and labor (the physical work of masses of people), entrepreneurship is a mental and social activity of individuals (though groups of skilled entrepreneurs can be quite effective, for example the “PayPal Mafia”)
Willingness to bear risk (or uncertainty, not the same thing) means to accept the possibility of failure when trying something that could work better (or be more profitable) than the status quo. The entrepreneur has a certain amount of resources, and is willing to devote them to some business pursuit even though they could be lost if things go bad. This is distinct from “normal” work or investing, where a given amount of labor or capital yields a more or less predictable output (wages or interest payments). (You might argue that many workers face risks as well; according to this framework, they would therefore be acting in part as entrepreneurs.) This was the standard 18th- and 19th-century formulation, pioneered by Cantillon.
The newer understanding of entrepreneurship is skill at coordinating the three factors of production in new and more productive ways. This aspect is somewhat broad; it could encompass inventiveness, creativity, strategic vision, skill at managing employees and vendors and getting them to play nice with each other, skill at negotiating deals, or a deep desire for technical or organizational optimization. Note also that this aspect of “entrepreneurship” doesn’t require that the entrepreneur be using her own capital; the entrepreneur could be an employee of the firm specifically for her entrepreneurial talents, rather than being the boss and risking her own money. This vision of entrepreneurship was pioneered by Joseph Schumpeter and Israel Kirzner.
A word on organizational skill. Anyone who has ever run a business, or been a supervisor or manager, knows just how hard it is to get a group of people pointed in the same direction and keep them from dissolving into acrimony or full-throated mutual combat. The ability to manage people, and to cultivate a strong organizational culture, is what often separates successful companies (and countries) from backward ones. And the prevailing culture of a society can make building strong organizations easier or harder. Willingness to work hard and work as a team, balanced by the confidence to take individual initiative, can lead to tremendous results. Conversely, a society that fosters narrow selfishness, does not encourage individual drive, and punishes nonconformity or excellence, will tend to produce organizations that are lackluster at best.
Additionally, while entrepreneurs are risk-tolerant, they still want to find good opportunities that are worth the risk. So they thrive in a society that is relatively stable (but not stagnant!), has predictable laws, and low levels of violence. Societies with high corruption and banditry, on the other hand, make entrepreneurialism a difficult sell—because businessmen are much less likely to enjoy the fruits of their labors.
As a result, you can fairly characterize whole societies as being more or less hospitable to entrepreneurialism. America is famously entrepreneurial (or more properly, certain parts of America); Israel has been called the “Startup Nation,” punching well above its weight in terms of new businesses. By contrast, countries with high levels of social stratification and economic corporatism, such as France or Germany, will tend to discourage entrepreneurs because it is hard for them to challenge the status quo with something new. And countries that have high corruption or social unrest (or even civil wars) will have little entrepreneurialism beyond the informal “hustles” of people trying to keep themselves alive by any possible means.
*****
(This post is part of Politics for Worldbuilders, an occasional series. Many of the previous posts in this series eventually became grist for my handbook for authors and game designers, Beyond Kings and Princesses: Governments for Worldbuilders. The topic of this post belongs in the planned second book in this series, working title Wealth [Commerce?] for Worldbuilders. No idea when it will be finished, but it should be fun!)