Back with a Vengeance: How the Entrepreneur's Role in the Past Influences His Role Today


"An entrepreneur is an adventurer."
- J.B. Say, early economist


The entrepreneur's characteristics, existence, and importance have been debated from the mercantilist period (1750's) until the present. Part of the debate concerns the precise definition of the entrepreneur; how he is defined, defines his role.

I define the entrepreneur as an agent of change who brings innovation to the market, creates new opportunities, and acts upon existing opportunities. He influences the allocative function of the market. An innovative entrepreneur appeals to the government to encourage market change, bestowing temporary monopoly power over important resources. Similar definitions of the entrepreneur from time periods separated by the Industrial Revolution prompted an inquiry into the similarities between the Commerce Revolution and the Information Revolution, and the role of the entrepreneur in each. I will discuss those similarities; including the entrepreneur's role in the market, changing technology, capital markets, trade, and forms of business organizations.

Market-making services, affected both markets and are heavily influenced by international trade. Wu commented "...that the entrepreneur and the market evolve over time as a result of their interactions." In similar markets, therefore, similar entrepreneurs exist. Just as the 18th century entrepreneur was successful and paved the way for a successful 20th century, so will be the future entrepreneur successful in his interactions with greater access to global markets. The entrepreneur will not only be responsible for the ideas and energy of existing in the market, but also the techniques to survive in the market. A market-making firm's production functions include material input plus inputs of market making services, such as human assets, and transport and communication infrastructure. A return to past methods to increase productivity resulted from a change in economic conditions. Where the merchant was hindered in trade, the government often stepped in, and this is true in the 20th century as well.

For example, the collapse of communism in Eastern Europe and the Soviet Union shaped the market structure and political arena for the 20th century, it also created free markets (to varying degrees in different countries) as did the opening of trade in the Commerce Revolution. In England, regulations relating to craft guilds had died. In France, the revolution destroyed existing regulations. England completely reconstructed joint stock laws, which had a variety of effects on the entrepreneur, but contributed to additional economic freedom. Thus, trading, transporting, or lending, not manufacturing, created most fortunes.

Economists also agree that another of the entrepreneur's responsibilities is to exploit innovation. The following are five ways an entrepreneur can innovate:

It is the entrepreneur's function to place the innovation in the market but, obstacles still remain. They include:

  1. Capital investors assessing the project do not understand the innovation.
  2. There is a lack of mutual understanding and confidence between innovator and investor.
  3. A lack of local services exists to link and educate the investor and innovator.
  4. Small firms cannot spread the risk of major innovation.

The economic arena was, however, a world of small enterprises. Many entrepreneurs bought machinery to divide labor and increase productivity. Improved technology increased output without increasing the need for labor input. Though capital per head held steady, output per head doubled. Capital increased to cover the population increase, but productivity increased income to buy goods. Cheap labor appealed to the pre-Industrial Revolution capitalist and appeals to the small capitalist of today. Human capital is vitally important to the information age as well.

Technology and information transportation continue to shape the 20th century market, which is referred to as the Information Age or intellectual capitalism. The age of intellectual capitalism began, roughly, after 1940 and depends on selling predominantly services, not product. It sells brain-power, not muscle or machine power and the input creating surplus value is knowledge. Transportation, as expressed by the "information highway," aids in the distribution of human capital.

Not only does capital flow freely, but so does information, due to technical advances in communication and information exchange. For example, there is a 15% increase in Internet accounts each month in the United States. Technology creates a structure in which independently operating entrepreneurs, much like the 17th century mercantilist sells market knowledge and market-making services. This also allows companies to launch new products and businesses faster and to cut costs by replacing managers and workers with information access.

Technology changes the way in which we live and work, and it changes the way we measure the world as well. When the 18th-century capitalist took full advantage of technology, he also reaped the benefits of increased productivity from correspondingly fewer units of labor. The same is true today. By using every possible resource to create innovative ways of increasing productivity, we see downsizing of human resources, and an increase in global access.

Important global ramifications exist as these multinational corporations develop. Similar to the mercantilist, large and small firms combine with firms in other countries to spread the risk of the global marketplace and create transportation routes. Niche markets demand product differentiation, resulting in a greater concentration of craft work and less need for capital intensive mass production. International competition and the time-saving technology caused a 22.5% drop in real hourly rates for U.S. high school dropouts from 1973 to 1993. This is also similar to the stages noted in the 1700s, especially the downturn between 1760 and 1780. Overall incomes were slow to rise up to 1750.

Opportunities for the entrepreneur in the 20th-century niche market result from inefficient resource allocation. These opportunities align with the coordinating entrepreneurial functions described by Cantillon and Say (early economists). And, similar to the piece-work labor of the 1700's, 20th-century permanent part-time workers and contract workers provide this type of task employment. For example, manufactures cut R&D departments and outsourced several tasks to suppliers. This puts the manufacturer in the position of the entrepreneur as coordinator. The suppliers then switch from production to staff R&D departments. This merely shifts the innovative function; according to Baumol, "It is his job [the entrepreneur] to locate new ideas and to put them into effect." Thus greater productivity is achieved with fewer labor units.

"Back with a vengeance" may be excellent, though misleading, writing. The entrepreneur has remained an agent in the economy. He is, however, "back" in the sense that he has more in common with the mercantilist than with the great captains of industry. The similarity of the market in the two time periods, separated by the Industrial Revolution, based on niches and orientated to innovation and discovery, created the most common ground. The entrepreneur of both periods was innovative, adaptive, and accepting of technological advances, and was in turn successful.

Though the entrepreneur will be important in the future, what kind of entrepreneur will he be? The 18th century entrepreneur was a renovated merchant who went out on a limb to innovate and utilize new technology. The 20th century entrepreneur is a virtual leader. This leader coordinates teams of brainpower with the latest technology, but is often a technician who also produces. The 18th-century entrepreneur's role has made a comeback into the Post Industrial Revolution's 20th-century entrepreneur, and he has come back with a vengeance to attack new problems and new technical advances into the 21st-century and beyond.

This is a summary of an extensive thesis by Shelley Robertson 76513,2750@compuserve.com


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