5 - Entrepreneurship and Innovation

Summary

ENTREPRENEURSHIP AND INNOVATION

Entrepreneurship has been recognised as a micro-driver of innovation and economic growth (Wennekers and Thurik 1999; Audretsch and Thurik 2001b; Acs 2006; Audretsch et al. 2006). What is meant by entrepreneurship, innovation, and economic growth is often not clear or is very idiosyncratic. This chapter starts with a discussion of the nature of entrepreneurship and its relation to innovation. The second section provides an overview of theory and empirical research on the relation between entrepreneurship, innovation, and economic growth. The chapter continues with a study on entrepreneurship and innovation in the Netherlands from an international and historical perspective. After these conceptual, theoretical, and empirical investigations, we turn to policy issues.

ENTREPRENEURSHIP DEFINED

What is meant with entrepreneurship and how does this relate to innovation? Entrepreneurship and innovation are fuzzy concepts that have been given multiple meanings. Innovation and entrepreneurship are often regarded as overlapping concepts. This can be traced back to probably the most well known definition of entrepreneurship, by Schumpeter (1934: 74), who defines entrepreneurs as individuals that carry out new combinations (i.e., innovations). Schumpeter distinguishes four roles in the process of innovation: the inventor, who invents a new idea; the entrepreneur who commercialises this new idea; the capitalist, who provides the financial resources to the entrepreneur (and bears the risk of the innovation project); the manager, who takes care of the routine day-to-day corporate management. These roles are most often executed by different persons (see for example Kenney 1986). The literature on entrepreneurship recognises a variety of entrepreneurial roles in economic change, such as:

• – the person who bears uncertainty (Knight 1921);

• – an innovator (Schumpeter 1934);

• – a decision maker (Casson 2003);

• – an industrial leader (Schumpeter 1934);

• – an organiser and coordinator of economic resources (Marshall 1890);

• – an arbitrageur, alert to opportunities (Kirzner 1973; 1997);

• – an allocator of resources among alternative uses (Schultz 1975).

These roles all implicitly carry with them an economically positive connotation. However, if entrepreneurs are defined to be persons who are ingenious and creative in finding ways that add to their own wealth, power, and prestige (Baumol 1990), then it is to be expected that not all of their activities will deliver a productive contribution to society (cf. Murphy et al. 1991).