Abstract:
· The ubiquitous concept of the entrepreneur has its roots in economics;
· Entrepreneurs play an essential role in the production process;
· While they are innovators, they are also the ones who identify opportunities for profit;
· Entrepreneurs differ from capitalists, who derive their income from capital.
More than ever, business creation is on the rise, as evidenced by the development of incubators and the amounts invested by business angels. Since 2009, an average of €40 million has been invested each year by the France Angels network, 48.3% of which has gone to the digital sector[1].
Entrepreneurship is generally defined as a process initiated by individuals (self-employed or employees) whose innovative behavior and/or risk-taking aim to generate a profit or some form of remuneration, whether monetary or not (Schmiemann, Eurostat 2012). In many respects, entrepreneurship goes beyond the limits of the productive sphere alone and can define strategic behavior in politics (Wagner, 1966) as well as within cooperatives and associations (Malo, 2001).
In terms of its potential for business creation and development, the entrepreneurial process offers considerable prospects for employment and growth that can change the macroeconomic conditions of an economy (Eurostat, 2012). Therefore, in times of economic recovery, a dynamic of innovation and business creation is an important sign of economic recovery, as it indicates that individuals are once again identifying opportunities for profit.
While entrepreneurship is now in the spotlight, the role it plays in economic theory is often poorly understood. Without claiming to be exhaustive, the rest of this article outlines the main theories of the entrepreneur as an economic agent.
1. Conceptual origins in the18th century
Historically, the figure of the entrepreneur has been reserved for the economic sciences. The authorship of this concept is commonly attributed to Richard Cantillon (1680-1734) who, in his posthumously published « Essay on the Nature of Trade in General » (1755), defined the entrepreneur as a risk-taking individual who mobilizes resources in anticipation of future profits from his activity.
The figure of the entrepreneur proposed by Turgot (1727-1781) heralds the premises of19th-century developments. While Turgot’s priority was to identify « the use to which capital is put » (Fontaine, 1992), he was quick to distinguish the entrepreneur as the agent remunerated for managing business, from the capitalist lender of money whose remuneration comes from interest, i.e., the remuneration of capital. The true originality of his approach, however, lies in his identification of the entrepreneur-capitalist as the agent whose knowledge is more relevant (ibid., p. 523).
2. The 19th-century entrepreneur-manager
In line with Cantillon, early reflections on the figure of the entrepreneur were marked by the relationship to the business world maintained by his heirs, in particular the authors of the French school Jean-Baptiste Say and Jean-Gustave Courcelle-Seneuil (we can see the less significant contributions of Condiallac (1776), Courcelle-Seneuil (1855), Tarde (1890), and Leroy-Beaulieu (1919)).
The emphasis is primarily on the entrepreneur’s ability to manage well, which differentiates him from the capitalist (see Box 1). The entrepreneur becomes the pivotal agent of any system of production and distribution, which Say defines as the agent endowed with good judgment (1828-1829). The entrepreneur is the agent who masters business acumen and the art of entrepreneurship, i.e., the art of using capital and labor as effectively as possible (Courcelle-Seneuil, 1872). The enterprise is therefore defined as « any application of human activity that consists of combining the use of various forces to achieve a specific goal » (Courcelle-Seneuil, 1872, p.1, cited by Ribeil 1994, p.40).
While the art of entrepreneurship has an innate dimension, the acquisition of specific knowledge such as product manufacturing processes, identifying consumer desires, or knowledge of cost prices and production costs are all elements that entrepreneurs must master (Courcelle-Seneuil, 1872:188; Say, 1848:18). In the French tradition, the use of « good judgment » requires imagining possible futures in situations of uncertainty and, in this sense, exercising caution[2].
In laying the foundations of business science, the two authors therefore emphasize leadership and knowledge of industrial processes, which can only be acquired through practice. In the French tradition, the entrepreneur is no longer just the good resource manager identified by Turgot, but also a prudent man capable of imagining the future without referring to the past in situations of uncertainty (Facchini, 2007). In these circumstances, knowledge is not the only determinant of entrepreneurial success; the ability to make the right decisions in uncertain situations must also be taken into account.
In 1819, Jean-Baptiste Say combined theory with practice by founding, with Vital Roux, the world’s first business school: the École spéciale de commerce et d’industrie, now known as ESCP Europe.
3. Uncertainty, innovation, perception: the entrepreneur in the 20th century.
At the beginning of the 20th century, a major distinction, stemming from Frank Knight’s (1921) work on the concepts of risk and uncertainty, would have a significant impact on entrepreneurial theory. For Knight, the concept of risk refers to a situation where the occurrence of an event can be probabilized, unlike the concept of uncertainty, where the probability of the event occurring is unknown. This fundamental distinction leads us to think of the entrepreneur’s actions not in a risky universe, but in an uncertain world (Facchini, 2007). In an uncertain world, it is no longer appropriate to refer to the probability of an event occurring, but rather to imagine the world of possibilities, even if it is unpredictable.
In this context, Joseph Schumpeter defines the entrepreneur as an innovator. He is an agent capable of breaking with routines and traditions of consumption by combining resources in new ways, reorganizing the firm, or introducing new inputs. Schumpeter thus defines the process of « creative destruction, » whereby the implementation of new ideas, if successful, leads to the abandonment of certain practices, intermediate consumption, and certain goods in favor of new ones. Ultimately, this process drives the dynamics of wealth creation and economic development. Unlike other agents, entrepreneurs exhibit leadership behavior with predictive foresight and visionary imagination, accompanied by innovative rather than routine behavior in response to uncertainty.
In response to this approach, Israel Kirzner (1973 and 2005) presents a renewal of entrepreneurial theory in a synthesis of the contributions of Knight (uncertainty), Say (the organization of production), and Schumpeter (innovation). The entrepreneur is then considered an inherent function of action in a context where neither the ends nor the means are given. Kirzner therefore defines the entrepreneur as an agent endowed with » alterness, » that is, a particular acuity in perceiving gains and the ability to seize them. In this sense, he has a quicker eye than the crowd. Entrepreneurship thus becomes a particular stance, an attitude of vigilance toward as-yet-unperceived profit opportunities. Therefore, while it is useful to propose methods for maximizing profit, it is still necessary to identify it.
Subsequently, numerous ramifications have stemmed from these great entrepreneurial figures. In addition, the decisive role of entrepreneurial behavior has been identified in a large number of non-market situations such as politics, associations, and international cooperation.
Conclusion
Due to their specific skills, entrepreneurs play a fundamental role in the production process. They differ in particular from capitalists, whose capital they make profitable.
Since 2003, the European Commission has emphasized the challenge of identifying « the factors that are crucial to creating a climate that is favorable to business and entrepreneurs. Public policy must focus on increasing the number of entrepreneurs in Europe by adopting the most appropriate measures for the development of entrepreneurship and new businesses » (2003:9).
Since 2014, the European Union has embarked on a vast program to support the competitiveness of small and medium-sized enterprises and plans to invest €2.5 billion in this area by 2020. In a second BSI article to be published shortly, we will return to the entrepreneurial dynamic in Europe over the period 2007-2016, offering a focused analysis of France.
References
Cantillon, R. (1755). An Essay on the Nature of Trade in General. History of Economic Thought Books.
EUROPE, E. I. (2003). Green Paper Entrepreneurship in Europe.
Facchini, F. (2007). Entrepreneurship and economic growth: recent developments. Revue d’économie industrielle, (3), 3-3.
Fontaine, P. (1992). Turgot’s theory of entrepreneurship: commentary. L’Actualité économique, 68(3), 515-523.
Kirzner, I. (1973). Competition and Entrepreneurship. The University of Chicago Press, Chicago.
Kirzner, I. M. (2005). Human attitudes and economic growth. Cato J., 25, 465.
Knight, F. H. (1921). Risk, uncertainty and profit. New York: Hart, Schaffner and Marx.
Malo, M. C. (2001). Strategic management of cooperatives and social economy associations (Part 2): The enterprise and its orientations. International Journal of Social Economy: Recma, (282), 84-94.
Ribeil, G. (1994). Courcelle-SENEUIL. Founder of modern business management in the mid-19th century. The invention of management: History and practice, l’Harmattan, Paris, 33.
Say, J. B. (1848). Various works by J.-B. Say, containing. Guillaumin et Cie.
Say, J. B. (1828). 1829. Complete course in practical political economy.
Schelle, G. (Ed.). (1923). Works of Turgot and documents concerning him: with biography and notes (Vol. 3). F. Alcan.
Schmiemann, M. (2012). Measuring entrepreneurship in Europe. Entrepreneurship determinants: culture and capabilities, Eurostat statistical yearbook.
Schumpeter, J. A. (1954). History of economic analysis. Psychology Press.
Schumpeter, J. A., & Perroux, F. (1935). Theory of economic evolution. Paris: Dalloz.
Wagner, R. E. (1966). Pressure groups and political entrepreneurs: A review article. Public Choice, 1(1), 161-170.
Appendix: From Jean-Baptiste Say to Xavier Niels
Very early on, following in the footsteps of Turgot, Say distinguished between the role of the capitalist and that of the entrepreneur. The former brings capital to the business, while the latter makes it grow. This distinction is more relevant than ever in the relationship between business angels, who provide capital, and promising young start-ups that aim to create new market segments or position themselves as competitors in existing markets. In this context, entrepreneurs with innovative projects must demonstrate their skills as good resource managers and their knowledge of the market in order to obtain financing from investors. Entrepreneurs, who are paid a salary, thus make the capital of business angels grow, from which the latter derive their remuneration.
[1]16.9% for the health and biotech sector, 7.1% for the energy and cleantech sector, 3% for the services and transport sector, 12.8% for industry and chemicals, 6.1% for consumer goods, and 5.9% for other sectors. 2015 figures from France Angels, the French national federation of business angels.
[2]In situations of uncertainty, it is not possible to refer to the past to predict future events.
