Converting Ideas into Value
Edited by Claudio Petti
Chapter 1: Entrepreneurship, Innovative Enterprise and Economic Development
1. Entrepreneurship, innovative enterprise and economic development William Lazonick TWO WORLDS OF ENTREPRENEURSHIP In recent years development agencies as well as politicians have called for policies that can encourage ‘entrepreneurship’ in the poorest parts of the world with a view to closing the ever-growing gap between regions that have and regions that have not (UNDP, 2004; World Bank, 2004; Utomi, 2006). The term ‘entrepreneurship’ is often used rather loosely to mean any instance in which an individual takes the initiative to do something new and constructive, whether in the sphere of business, government or civil society. Nevertheless, there appears to be a general consensus that the type of entrepreneurship that makes a direct contribution to economic development is that which entails the founding of a new business enterprise. New firm formation, it is thought, tends to allocate the economy’s resources to more productive uses than would otherwise have been the case. Yet at any point in time, the vast majority of the business sector output of an economy derives from the investment and employment of established firms. As in the late 1990s dot.com binge in the advanced economies, the founding of new firms may actually waste an economy’s productive resources rather than enlarge them. Under these circumstances, entrepreneurship may be ‘value-reducing’, and through the manipulation of the stock market even ‘value-extracting’ rather than ‘value-creating’. For entrepreneurship to contribute to economic development, a new firm must transform productive resources into valued outputs in ways that existing firms are unable or unwilling...
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