Both sectors of production are under-priced, then proceeding to

Both
Schumpeter and Kirzner see entrepreneurship as purposive, as well as being the
driving force of socio-economy, however in terms of competition, Schumpeter’s
system erodes newly created profits, whilst Kirzner’s theory provides a
motivation for alertness to new profit opportunities. This can highlight the
idea that in Kirzner’s eyes, innovation and creativity are left as a secondary
priority. The main aim is to seek opportunity before acting upon them, meaning
that alertness is key in order to discover profit opportunities when the market
is in a state of disequilibrium.

 

The last main
school of Thought is the Austrian School of Thought, which suggests a different
definition of an entrepreneur. Israel Kirzner’s theory of entrepreneurship
explains the function of the man who pursues economic opportunities in the face
of uncertainty.  He describes “alertness”
as the fundamental quality of the entrepreneur, meaning that the entrepreneur
has the ability to perceive new economic opportunities that haven’t been
recognised by others. This alertness however is dependent on knowledge; the
entrepreneur’s alertness can be used to detect arbitrage opportunities,
recognising that certain sectors of production are under-priced, then
proceeding to act on this knowledge to earn profit. Kirzner’s theory stands in clear
contrast to Schumpeter’s theory, acquiring a perception of a market
socio-economy, which aims to highlight the entrepreneur’s journey to a personal
goal in terms of market exchanges.

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This can be
further supported through a concept created by Schumpeter known as the “gales
of destruction”. He derived it from work by Karl Marx, and popularised it as a
theory of economic innovation and the business cycle. This concept is described
by Schumpeter as the “process of industrial mutation that incessantly
revolutionises the economic structure from within, incessantly destroying the
old one, incessantly creating a new one” (Schumpeter, Joseph. 1994, Capitalism,
Socialism and Democracy, p. 82-83). As a result of the growing innovative
methods, many existing production processes and products would become outdated
and worthless. This opens doors for competitive firms to imitate these fresh
innovative ideas, resulting in a loss of profit for the original company if it
was to stop innovating the existing products. A clear example of a company that
utilises this method is Apple, with their ever growing range of iPhones. With
the use of this cyclic process, Schumpeter was able to use entrepreneurship as
a means to clarify economic growth and structural change.

 

The
German-Austrian School of Thought provides a very different perspective of the
characteristics of an entrepreneur. Joseph Schumpeter called for a different
approach, in comparison to Cantillon for example, when defining his
entrepreneur. He heavily emphasises the innovative characteristic as the main
function of the entrepreneur, suggesting that an entrepreneur is the person who
is “willing and able to convert a new idea or invention into a successful
innovation”. Schumpeter however was more concerned with economic development
rather than entrepreneurship, and stated that his entrepreneur is the creator;
one who causes market and economic change, as well as disequilibrium. He was a
firm believer that innovation played a vital role in entrepreneurship; with the
introduction of newly generated innovative methods, old industries will have
lost its usefulness, because these new methods ensure production is more
efficient for positive economic growth. The production market would be driven
forward, and the firm would be able to produce more at a lower cost.

 

Upon
evaluation of Cantillon’s theory of entrepreneurship, it is evident that good judgemental
and managerial skills are seen as greater qualities of the entrepreneur as
opposed to an innovative mind set. Therefore, in order to remain a dominant
force in the competitive market, it would necessary for the lead entrepreneur
to acquire a team to provide the skill set lacked by the entrepreneur himself,
most likely within the innovative and creative fields.

 

It is
important for us to consider how the term “Entrepreneur” is defined by
different economists. Economics assumes that the sole interest for people
entering and carrying out business is to make money. Richard Cantillon of the
French School of Thought is credited for developing the first economic theory
of entrepreneurship in 1755. He is known for being the “first significant
writer to make frequent and obtrusive use of the term entrepreneur in a
semblance of its modern form” (Herbert and Link, 2006, p.589), and defined the
entrepreneur as someone “working for oneself by assuming a level of personal
risk”. Cantillon’s description of entrepreneurship is very different to the
modern definitions we see today, his theory of entrepreneurship being that
entrepreneurs function by bearing risk under a theme of Uncertainty. According
to (Cantillon, 1931, p.151), entrepreneurs will “buy at a low price the
products of the villages and will transport them to the Capital to be sold at a
higher price”. This highlights entrepreneurs as “arbitrators”; acting on
perceived opportunities to pursue profits. This idea is reiterated by Herbert
and Link (1988, p.21), stating that an “important aspect of Cantillon’s theory
is that it stresses the function, not the personality of the entrepreneur”. 

 

“Entrepreneurship
and innovation are not the same, but successful entrepreneurship requires innovation”.
Entrepreneurship and innovation are two common concepts in the political
discussion and are often mentioned as conditions for economic growth and
sustainable development. In an increasingly developing world where
competitiveness amongst corporate companies is rising, many firms are
encouraged to be innovative in order to gain or sustain a competitive edge. However,
due to the deprivation of innovation in market conditions, it is presumed
amongst experts that there may not be space for a significant development in
the innovative field in the future. In this essay I will reduce the existing ambiguity
by describing the connection between innovations and entrepreneurial activities
and comparing and contrasting different economic theories of entrepreneurship,
along with reference to examples of innovation in practice.