Entrepreneurs

Entrepreneurs are the economic actors who, in competitive markets, make decisions about which goods to produce and at what price to market them. Entrepreneurial activity is understood here to include both innovation, the introduction of new goods and new methods of production, and market making, attempts to find new customers for existing products or to sell to new customers at a more profitable price. Traditionally, and in both popular discourse and economic theory, entrepreneurs have been pictured as the buccaneering, larger-than-life owners of individual businesses. Indeed many would still argue that it is a defining feature of entrepreneurs that they risk their own resources in the pursuit of profit. At the same time, however, it has become conventional to distinguish between entrepreneurs and the entrepreneurial function and to argue that the latter can be performed by appointed managers.

Do entrepreneurs possess power? Economists such as Israel Kirzner who belong to the Austrian School argue that they do not. Entrepreneurs are the “Prime Mover[s] of [economic] Progress” and routinely make decisions that can affect the lives of millions of people. In doing so, however, they are simply responding to and so are the servants of consumer preferences. Entrepreneurs, in themselves, have no power to change those preferences and if they chose to ignore them would soon be driven out of business. What if, through an astute reading of the market, an entrepreneur is able to acquire a degree of monopoly power? Would he or she then be able to exercise this power by exploiting consumers? Kirzner would argue that entrepreneurs could not. Because it is always open to other entrepreneurs to enter a market if they feel that there are profits to be made, apparent monopolies when measured in current market share are, in practice, always contestable and this means that entrepreneurs cannot exploit consumers. Much the same argument might be made in relation to the powers exercised by entrepreneurs over their workforces. Entrepreneurs might, subject to minimal government standards, be able to set workers' wages and working conditions, and this might be said to give them a degree of power. They must, however, exercise this power in the context of a competitive market. If entrepreneurs were to abuse their power, this would simply encourage their workers to seek alternative employment.

Very different accounts of the role of the entrepreneur are offered by Joseph Schumpeter (1883–1950) and John Kenneth Galbraith (1908–2006). Schumpeter argued that entrepreneurs acquire “spectacular prizes” to the extent that they are able to anticipate what consumers might want and what they can be persuaded to want. He also argued that successful entrepreneurs do often acquire, in the short term at least, a degree of [Page 218]monopoly power over consumers, although he cautioned that the existence of monopoly should be regarded as a sign of economic vitality rather than of inefficiency.

In The New Industrial State, Galbraith argued that the entrepreneur no longer exists as an individual person, and that, within the modern economy, the entrepreneurial function is instead exercised by a large group of anonymous specialists who work within giant corporations where ownership is divorced from economic decision making. Galbraith views the rise of the giant corporation with ambivalence. On the one hand, he recognizes that corporations have accelerated the rate of innovation. On the other hand, he argues that corporations are able to anticipate and manipulate consumer preferences to “create the wants they seek to satisfy.” In this respect and at least in the tone he adopts, Galbraith appears to go farther than Schumpeter. Schumpeter indicates that consumers' preferences are malleable but leaves the impression that entrepreneurs must nevertheless at least engage with them. Galbraith seems to suggest that “product planners … advertising and sales executives [and] public relations men” can create preferences out of thin air. He also maintains that corporations have routinely hijacked the democratic political process and extracted policy concessions from government. In each of these respects, Galbraith would argue that entrepreneurs working within corporations possess a measure of power.

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