Employees and Entrepreneurship

Employees and Entrepreneurship

Co-ordination and Spontaneity in Non-Hierarchical Business Organizations

New Thinking in Political Economy series

Ivan Pongracic Jr.

Over the last few decades, there has been a great deal of management literature recommending the removal of firms’ hierarchies and the empowerment of employees. Ivan Pongracic, Jr. examines these themes through the lense of the economic theory of the firm. Balancing the tendency for management literature to overlook basic costs and trade-offs of decentralization, and the rigidity of economics that hinders an appreciation for the real world phenomenon of decentralization, this book arrives at a realistic middle ground between the two extremes. The dance between hierarchy and employee empowerment exists in even the most hierarchical firms, and this book explores this often overlooked dynamic.

Chapter 1: Introduction

Ivan Pongracic Jr.

Subjects: business and management, entrepreneurship, economics and finance, austrian economics

Extract

We live in a global economy . . . To have a fighting chance, companies need to get every employee with every idea in their heads and every morsel of energy in their bodies, into the game. (Jack Welch, ‘The “But” Economy’, Wall Street Journal, October 30, 2003) It is commonly accepted that the existence and survival of firms rest on their ability to generate new market knowledge in the form of innovations more effectively than (or at least as effectively as) their competitors. Yet economics has so far not explained very well how firms create and introduce innovations, and why some are more successful at it than others. Joseph Schumpeter defined the function of entrepreneurship as introducing novelty (as in something new) and initiating change, but there has been little economic examination of either the process of change or the introduction of novelty within firms and even fewer systematic inquiries into how entrepreneurship works within a firm.1 In modern economic theory firms either have nothing to do with innovation, or else are but vessels for carrying out the vision of a great, charismatic leader/entrepreneur (for example, Casson 1982; Nelson and Winter 1982). Circumstances where employees act in creative and entrepreneurial ways are not often considered. But in order to explain many of the most vibrant of today’s businesses and industries, we must not only incorporate entrepreneurship into the theory of the firm but do it in a way that will also explain employee creativity. That is the goal of...