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The classic and dominant paradigm of entrepreneurship emphasizes the relatively universal and homogeneous responses of a small, but influential, minority as they make unique and breakthrough contributions. Entrepreneurs are often viewed as inspired individualists who possess the courage to “go against the grain” as they risk it all to pursue an impassioned vision. According to Joseph Schumpeter and those who build upon his seminal perspectives, such entrepreneurial individuals pursue a path of “creative destruction” that paves the way towards true and innovative progress.
Today, state of the art research is tempering and transcending this classic vision by acknowledging a wider array of cultural, psychological, and environmental contexts, influences, and responses. This monograph contributes to this research stream by viewing entrepreneurs within a cultural perspective and advocating viewing entrepreneurship in “culturally competent” ways. Presenting these perspectives in a short and circumscribed volume provides an elegant and influential means of disseminating these important perspectives.
Entrepreneurship and Culture expands beyond popular and conventional views of entrepreneurship and provides readers with alternative perspectives in even-handed ways. It shows the latest state of knowledge on the topic and will be of value both to advanced students, and to academics and practitioners in the fields of entrepreneurship, international business, leadership and organizational studies. Beyond the business school, this book will also be of interest to anthropology, economic development, and indigenous studies scholars.
Alf H. Walle is actively involved with the think tank “Cyrus Institute of Knowledge” of Boston, Massachusetts, USA.
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Entrepreneurship and Culture
The New Social Paradigm
Alf H. Walle
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Title: Entrepreneurship and culture: the new social paradigm/ Alf H. Walle.
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To the work and vision of Emile Durkheim, Frederick Jackson Turner, and William H. Whyte
8.1
Foreword
It has been my pleasure knowing Dr. Alf H. Walle since 2000 when we worked at the State University of New York—Geneseo as a colleague, then became co-author, and finally a long-term intellectual friend. I have comprehended his depth and breadth of intellectual curiosity, capabilities, and caring. His theoretical and applied contributions in the domain of management sciences for the advancement of knowledge is commendable. He has taught at several institutions of higher education and provided services to less fortunate people among us for many years. Above all, he has been making remarkable publications of high-quality research papers and books in the named areas.
I have held higher education administrative leadership positions and taught management and economic courses in Texas, New York, and Massachusetts. Currently, I am a professor of Management and Economics at Bentley University in Boston Massachusetts, and the president of Cyrus Institute of Knowledge (CIK). CIK is a nonprofit think tank and Dr. Alf H. Walleis an associate editor of its journal, Cyrus Global Business Perspectives, and a very active member of the organization. I have been an entrepreneur and have publications in the areas of international business and economics. Additionally, I have published a few books including Entrepreneurship, Innovation and Sustainable Growth: Opportunities and Challenges, which was published by Routledge in 2019.
Therefore, I am in a good position to provide a forward on his interesting book Cultural Entrepreneurship: The New Social Paradigm . The book has great content and is easy to read. He has provided an all-round historical perspective of entrepreneurship from Joseph Schumpeter to the present. He offers a broad view of entrepreneurship by expanding the concept of entrepreneurship multidisciplinarily and cross-culturally. The book is composed of four parts and twelve chapters.
Foreword xi
The book focuses on three areas.
1. It provides Joseph Schumpeter’s perspectives on entrepreneurship, which expand beyond business and economics. Dr. Walle describes the differences between “scientific” and “humanistic” aspects of economics and entrepreneurship. He has highlighted Schumpeter’s humanistic perspectives of economics. He stated that in the 18th century, the Age of Enlightenment (Gay 1996) emphasized scientific thinking, universal perspectives, and rational solutions to the problems facing the world and humanity.
2. While Dr. Walle examines entrepreneurship in more or less conventional terms, he has discussed various methods of entrepreneurship ranging from seminal innovation to initial applications to various forms of diffusion that extends its application.
3. He expands application of entrepreneurship beyond business to areas such as writers, artists, not-for-profit organizations, public sector, etc.
In Part I of the book, Dr. Walle has focused on classic views of entrepreneurship. He has provided perspectives of thinkers such as Thomas Carlyle, Ralph Waldo, Abraham Maslow, and Ralph Waldo Emerson on economics and its linkages to entrepreneurship and culture.
In Part II, he has evaluated and analyzed the perspectives of a range of 20th-century scholars such as Geert Hofstede, David McClelland, and William Whyte and compared their views with Schumpeter’s classic view of the entrepreneur.
In Part III, he has examined the impact of change and how it can inspire some people to proceed beyond the status quo by being inquisitive, creative, and a builder. This part concludes with the development of a model of change that is based on strain theory and social homeostasis theory. These theories deal with positive attitude and initiating change.
In Part IV, Dr. Walle explains the perspectives of Schumpeter about entrepreneurship and their overlapping linkages to all of the thinkers of the era. He closes the loop by providing a more comprehensive, rich, and multidisciplinary view of entrepreneurship and its applications.
In conclusion, Dr. Walle states
To portray entrepreneurship in all its complexity and variety, I have consciously employed a wide of examples range from Henry Ford and Steve Jobs on the industrial side, to cultural icons including filmmakers and countercultural gurus such as Stephen Gaskin. Thus, although true entrepreneurs are rare, they have a way of cropping up in a wide variety of places.
xii Foreword
Therefore, I recommend this book to scholars, practitioners, and students who have interest in the novel idea of entrepreneurships because it has provided enriching historical content on the topic from the perspectives of the thinkers of the last two centuries.
Cordially,
Nader Asgary President - CYRUS Institute of Knowledge, Professor of Management and Economics, and former Associate Provost, Bentley University, Waltham, MA, USA
Preface
A short definition of entrepreneurship goes something like “doing new things or doing old things in new ways.” This depiction, first forged by Joseph Schumpeter, envisions entrepreneurs as achievers who are zealously addicted to the cause they champion, untiring in their dedication to it, and possessing the courage to take risks and weather criticism, while gambling all in pursuit of a cherished mission.
So viewed, entrepreneurs are often celebrated as the lifeblood of progress: those who forge ahead when others back off. They take risks when others play it safe. They may succeed and change the world; or in failure, point to what should be avoided. Win or lose, they constitute a unique heroic type. A rare breed of visionaries and achievers. These basic views, advanced by Joseph Schumpeter over a century ago, have been challenged by later thinkers, but they remain strong and influential. As a result, they continue to deserve attention even if some consider them to be passe.
With apologies to songwriter Kris Kristofferson (1971), entrepreneurs are “A living contradiction, partly true and partly fiction . . . who reach . . . for the stars.” Schumpeter would have agreed with that assessment.
This is not a standard textbook on entrepreneurship. Many exist, such as Nader H. Asgary and Emerson A. Maccari’s Entrepreneurship, Innovation, and Sustainable Growth (2020). My mission here is to look at issues that foster a better understanding of entrepreneurship, explore ways in which it fits into the modern industrial world, and examine how other regions and cultures relate to it in their own distinct ways.
The foundational views of Joseph Schumpeter did not originate in an intellectual void. Earlier thinkers provided orientations and perspectives that are consistent with his views. In the 19th century, writers such as Thomas Carlyle depicted history as the lengthened shadow of heroic achievers who, like Schumpeter’s entrepreneurs, transform the world through passionate dedication to a cause coupled with an unshakable resolve to succeed. In the late 19th and the early 20th centuries, a cult of rugged individualism (building on Ralph Waldo Emerson’s earlier emphasis of self-reliance) arose in North America. Influenced by this environment, Schumpeter made his mark; it survives to this day. Because
of this continued importance, those perspectives are acknowledged even if they need to be tempered.
Schumpeter’s archetypical portrayal of the entrepreneur is now over a hundred years old. In that time, much has changed in both the practitioner and the intellectual worlds. To deal with this intellectual growth and evolution, three key researchers who provide insights regarding entrepreneurship are discussed. Geert Hofstede’s cultural dimensions model analyzes cultures with reference to specific dimensions, including those that are consistent with entrepreneurship. David McClelland characterized Americans as possessing a strong need for personal achievement. This characteristic can be used to connect the American national character with the entrepreneurial spirit as portrayed by Schumpeter. William H. Whyte, relating these concepts to American business, suggested that as early as the mid-1950s, large corporations were becoming increasingly collective and less friendly toward individualistic achievers, such as entrepreneurs. Whyte coined the term groupthink, which refers to a growing “herd mentality” that can leave the odd man out, including entrepreneurs. Is this why entrepreneurs tend to be found in small organizations?
Having discussed these reflections upon entrepreneurship, additional perspectives are examined as a way of expanding the range of discussion. In this regard, the paradigm of neoclassical economics (and its rational focus) is compared to the passion often exhibited by entrepreneurs who take irrational risks as they pursue their dreams and missions.
The full effects of entrepreneurship also deserve attention. The concept of anomie refers to how change can trigger personal and social alienation in ways that undercut cultures and psychologically damage individuals. Since entrepreneurship seeks transformational change, it can create damaging stress and anomie as well as other hurtful impacts described by related concepts such as strain theory and cultural homeostasis.
Having discussed this background, the case is made that although entrepreneurship exhibits certain recurring characteristics, a range of varieties exist. Entrepreneurial development represents an initial breakthrough, entrepreneurial transfer involves fine-tuning and adapting an advance, so its full potential can be achieved. In addition, other entrepreneurs take what already exists and export it to be used by others or, on the other hand, import what exists elsewhere for use at home.
When doing so, of course, the need exists to ensure that these entrepreneurial efforts are positive and that all impacted stakeholders are treated in an equitable manner. This is accomplished by evaluating how people adapt, how problems are mitigated, and with reference to quality-of lifeissues. The goal is a multidimensional view of entrepreneurship that considers the needs of all impacted stakeholders.
It is hoped that dealing with these issues in a relatively concise way will crystalize important issues regarding entrepreneurship. If so, a more complete picture of entrepreneurship and its impacts can result.
Reference
Kristofferson, Kris (1971) “The Pilgrim Chapter 33.” Song written and performed by Kristofferson. Released on Record album The Silver-Tongued Devil and I.
Part I Prologue to Part I
The topic of entrepreneurship is of vital importance to business, economics, and policy science because it explores how great social, economic, and technological breakthroughs occur and the characteristics of those who create them.
Since the early 20th century, the concept of the entrepreneur has been linked to the work of Joseph Schumpeter, a humanist, economist, and business researcher who was associated with the Historical School of Economics. Even though his research was somewhat out of step in a scholarly world, where his contemporaries in economics were becoming increasingly scientific and quantitative, Schumpeter (and his eclectic background) was able to make a significant mark upon business thinking with his discussion of the entrepreneur as a strong-willed individualist whose thought and action expand beyond the rational and universal tendencies embraced by the neoclassical economic theories that dominated business thinking and continue as a powerful intellectual force today.
To better understand Schumpeter’s influence, his work needs to be placed within a broader social and scholarly context. The first two chapters of this monograph begin this process by discussing his work with reference to his contemporaries, such as psychologist Abraham Maslow and economic anthropologist Karl Polayni. These discussions are reinforced by pointing to parallels from the 19th to the early 20th centuries including the work of Thomas Carlyle, Ralph Waldo Emerson, Frederick Jackson Turner, Owen Wister, and Elbert Hubbard. By doing so, Schumpeter is interpreted within a broader context which will prepare the reader for further discussions.
1 The Schumpeter Shadow
Learning Objectives
1. Understanding the differences between “scientific” and “humanistic” economics.
2. Envisioning Joseph Schumpeter as a “humanistic” economist.
3. Reading Schumpeter with reference to representative humanists of the era.
4. Interpreting classic entrepreneurial theory from such contexts.
5. Analyzing the repercussions of Schumpeter’s vision of entrepreneurship.
Introduction
As economic thought developed in the 18th century and beyond, it diverged into at least two paths that embrace distinctive methods, priorities, and perspectives. One stream was greatly influenced by the dominance of science and the Age of Enlightenment, while the other was humanistic in nature, focused upon how people think or respond, and avoided universal and rational paradigms developed by theorists.
Because the prevailing theories of entrepreneurship emerged within a context of rival paradigms, our discussion begins with reference to their differences. With this dichotomy in mind, Joseph Schumpeter is introduced as a humanist who is linked to the Historical School of Economics, an intellectual movement that emerged in Germany in the 19th century as an alternative to more “rational,” “scientific,” and “universal” alternatives. Schumpeter, his humanistic perspectives regarding entrepreneurship, and their influences are interpreted from this framework.
After introducing Schumpeter’s model of entrepreneurship within a humanistic context, relevant theoretical- and practitioner-oriented implications are analyzed in ways that present an overview of his work as well as exploring their key influences and implications. In the next chapter, further parallels between his work and other expressions of 19th century-/early 20th-century culture and intellectual life are presented.
The Scientific, Rational, Universal Paradigm
As generally recognized, the Age of Enlightenment (Gay 1996) emphasized scientific thinking, universal perspectives, and rational solutions to the problems facing the world and mankind. Culminating in the 18th century, Enlightenment perspectives emerged as a web of thought that came to dominate a wide range of European thinking, including economics.
Adam Smith, a key member of the Scottish Enlightenment, is considered to be the father of modern economics. His Wealth of Nations (1776) is routinely acclaimed as the seminal keystone of classical economic theory that, in tune with Enlightenment principles, outlined a rational and universal model of economic thought and action. Thus, Smith pointed to worldwide tendencies in economic behavior with reference to what he called the invisible hand: a process by which meaningful social and economic benefits simultaneously arise as individual actors, pursuing self-interest, seek to achieve personal goals. Smith argues that these advantages are inevitable side effects arising from individual self-interest.
Moving from classical economics to neoclassical thinking that supplanted it (Morgan 2015), a similar emphasis upon universality and rationality persists. Such viewpoints continue to exert a profound influence today although contemporary neoclassicists argue among themselves regarding various details. Thus, among universities in the United States the so-called freshwater school (so named because of a proximity to the Great Lakes) advocate less governmental intervention, while their “saltwater” rivals (closer to the ocean) are more comfortable with governmental involvement in the economy. Although these differences persist, most mainstream economists agree regarding the basic premises of the neoclassical model and its reliance upon rational and universal paradigms when modeling how desirable and scarce resources are allocated and consumed. Among other assumptions, neoclassical economists hypothesize that:
1. Economic decisions are essentially rational in nature.
2. People have access to perfect information.
3. Individuals and organizations seek optimum strategies measurable in some objective way.
Sophisticated neoclassicists, of course, acknowledge that people and their decisions are more complicated than that. Emotions, for example, often exert an impact upon decisions (although the degree to which it does so is a matter of debate.) And certainly, not everybody has access to perfect information. To deal with such problems, the field of Behavioral Economics (Cartwright 2018) has arisen. Nonetheless, neoclassicists affirm that their universal and rational assumptions such as the economic man model, the perfect information premise, and the profit motive
The Schumpeter Shadow 5 framework simplify reality in useful and acceptable ways that facilitate much needed research. These assumptions are discussed as follows.
Economic Man Model: Neoclassical thinkers embrace some version of the “economic man” model that assumes people act in rational ways to achieve perceived goals that are motivated by the twin desires to maximize benefits and/or minimize costs. This is true although the scarce and desired commodity being sought can vary . . . ranging from food, to status, to attractive sex partners. Thus, people are viewed as (1) seeking specific and rational goals and/or (2) striving to gain these benefits at the lowest possible cost (however, costs and benefits are subjectively defined by the economic actor). These assumptions, of course, do not imply that people’s choices are inevitably wise, intelligent, or truly in their self-interest but merely that people make economic decisions using some sort of overt or covert calculation when choosing what appears to be the most efficient and/or productive alternative.
Perfect Information Model: Neoclassical modeling tends to assume that all actors in an economic encounter have access to correct and perfect information when evaluating options and making choices. In other words, all participants supposedly possess accurate and relevant information regarding costs, product quality, distribution complexities, and so forth. This knowledge would put them in a position to make optimum rational decisions centered around their self-interest. Although common sense tells us this assumption is seldom completely true, the model has proved to be useful in many contexts.
Maximum Benefit Model: While individuals pursue maximum utility, firms typically seek the highest level of long-term profits. Therefore, organizations strive to gain an advantage over their competitors and profit accordingly, while customers and clients pursue the most advantageous cost–benefit ratio.
In summary, neoclassical thinking simplifies the analysis of economic behavior by making certain assumptions that might not be totally accurate and fail to account for the full complexity of the situation. Although sophisticated neoclassical economists realize their assumptions are not totally accurate, they are viewed as accurate enough to contribute to economic analysis in positive and fruitful ways.
The Historical School: A Humanist Alternative
In the 19th century, noteworthy objections to Enlightenment thought (Farber 2010) arose. A range of significant criticisms challenge its emphasis upon rationality and universality. The Romantic movement, for example, pointed to the importance of the emotional aspects of mankind, not merely rational and universal perspectives. In this regard, English Romantic poet William Wordsworth emphasized that literature should exhibit “the spontaneous overflow of powerful feelings” (1800), not merely
rational articulations. The logical and universal ethos of the Enlightenment was giving way to a recognition of emotions and cultural differences.
In Germany, for example, the concept of Volkgeist (Walle 2002 34–9) celebrates the spirit of the folk or the people as a collective entity. In the late 18th and 19th centuries, it emerged as an influential idea that is similar to what is now envisioned as “national character” and emphasizes people’s unique heritage and traditions. The concept of culture that has developed within anthropology can be traced back to the concept of Volkgeist and, especially, how it was envisioned by 19th-century German philosopher Frederick Hegel (Walle 2002 33–4).
In this intellectual environment, economists in Germany began to question the Enlightenment’s emphasis upon rationality and universal responses. One example of this trend was the tendency to question classical and neoclassical economic principles. Seeking an alternative led to the development of the Historical School of Economic thought (Grimmer 2003) that addressed how actual economic behavior takes place in specific places among distinctive peoples. In the pursuit of such investigations, the Historical School emphasized that an overreliance upon rational and universal economic paradigms can be inappropriate. De-emphasizing these models, the Historical School examined how economic behaviors and responses of the past had uniquely occurred under particular environmental and cultural conditions. This led to a tendency to discount or question deductive analysis, universal theories, and mathematical modeling.
Wilhelm Georg Friedrich Roscher, an early leader of the Historical School, for example, was concerned about the full impacts of modernization and technological change that was taking place in Europe in the middle of the 19th century (Smith 1991 175–6). Such interests, of course, venture far beyond the rational and universal emphasis of the neoclassicists.
Later members of the school continued to provide alternatives to the universal and rational neoclassical paradigm by adding emotional and culturally specific contributions such as the concept of “creative destruction” first advanced by Werner Sombart (Reinert and Reinert 2006) and the contributions of Max Weber that deal with the influence of culture and society upon economic systems. See, for example, Weber’s The Protestant Ethic and the Spirit of Capitalism (2002 originally 1905) and how it argues, in contrast to the dogma of Karl Marx, that culture influences economics, not vice versa.
Thus, just as neoclassical economic thought was emerging as a powerful and compelling economic paradigm, alternative views, such as Romanticism and the Historical School of Economics, de-emphasized rationality and pointed to unique cultural influences. Although the neoclassical model became dominant, thinking consistent with the Historical School survived within some contexts. The views of entrepreneurship developed by Joseph Schumpeter (a late member of the Historical School) will be discussed as an example of this tendency.
Schumpeter as Humanist
Besides being a member of the Historical School, the influence of Joseph Schumpeter and his views of entrepreneurship are similar to those of psychologist Abraham Maslow, especially how Maslow’s work has influenced business theory and practice. Both Maslow and Schumpeter were humanists who offered alternatives to prevailing scientific perspectives that were becoming increasingly dominant in their respective fields. Nonetheless, both Maslow and Schumpeter found significant and influential niches even though their work went against the prevailing trends of scholarship, theory, and practice.
Maslow, as the reader may recall, was a humanistic psychologist who worked in an era when his discipline was dominated by scientific methods and quantitative analysis. Embracing a humanistic style of analysis that was rejected by most research psychologists of his era, Maslow, nonetheless, exerts a powerful impact upon disciplines such as social work and business. His hierarchy of needs model (Maslow 1943) presents a ranking of motivators ranging from the need to merely survive physically to achieving “Self-Actualization” (striving toward what the person holds most dear) on the upper end of the continuum. Although many scientifically oriented psychologists discounted Maslow’s humanistic thrust, his hierarchy of needs model has emerged as a powerful paradigm that influences a wide variety of business disciplines including marketing and management.
Maslow’s outsider, but influential, role is similar to that of the Historical School of Economics, which in the post-World War 1 era saw its reputation decline. Both Maslow’s work and the remnants of the Historical School, such as Schumpeter, were often unappreciated by those who emphasized the importance of rational and scientific methodological techniques. The ideas of these humanists, however, gained a significant following in other spheres or within specific niches.
Stemming from the Historical School, Schumpeter’s work, like Maslow’s, exhibited a humanistic tendency that transcended a focus upon rationality and methods inspired by science. Although such an intellectual alignment placed Schumpeter and his work outside of the mainstream of the discipline in which he worked, he was able to make significant and lasting contributions regarding entrepreneurship, just as Maslow had done with his Hierarchy. Before analyzing Schumpeter’s perspectives of entrepreneurship, however, it is useful to provide a brief overview of his career.
Schumpeter as Compelling Outsider
Although sometimes critical of other members of the Historical School, Schumpeter is generally considered to be a member of that group or at least aligned with it. He, for example, did not adhere to the main tenets
of Neoclassical Economics, the chief rival of the Historical School. In addition, Schumpeter’s style of research was more humanistic than scientific. Instead of embracing commonly held neoclassical assumptions, Schumpeter focused upon a wider framework as he sought to understand how entrepreneurs (viewed as a distinctive group of exceptional individuals) responded in fruitful, impassioned, and productive ways that transcended the rather rigid, rational, and universal formulations of the neoclassicists. In doing so, Schumpeter’s work is consistent with the Historical School, especially the contributions of Werner Sombart. (For a fuller discussion see Michaelides 2009.)
By the 1930s, the influence of the Historical School had significantly declined. This situation left Schumpeter as a surviving, but somewhat isolated, vestige of a passe school of thought even though his reputation remained strong. Schumpeter’s situation was somewhat paralleled by the work of anthropologist Karl Polayni and his substantivist paradigm of economic anthropology that challenged the premises of formalist economic anthropology that adjusted neoclassical principles to deal with small-scale societies, such as tribes. Polayni’s work provided an alternative to neoclassical-inspired anthropological models such as those of Raymond Firth, a formalist who is recognized for his work with the New Zealand Maori (1939, 1967). In the 1960s, a major debate in anthropology dealt with this division in thought and a rich literature developed (that will not be addressed here). The work of Scott Cook (1966) is recommended as an important critique written when the polemic was at its height.
In essence, the substantivist position emphasizes that economic actions and decisions are nested within a cultural context that needs to be considered when economic actions, trends, and responses are examined and analyzed. The classic statement of the substantivist position is found in Karl Polayni’s The Great Transformation (1944), which argues that a great divide in humanity is marked by the transition from small-scale societies (in which people interact in intimate, face-to-face ways) to the modern industrial environment that is typified by wage labor, increasingly impersonal relationships, an economy-based on money, and so forth. Polayni and those who embrace his perspectives believe that although neoclassical theories might accurately model the modern industrial world, this paradigm is not universally applicable for all people, civilizations, historic periods, and ways of life. Although the substantive model diverges from the formalist/neoclassical approach, it remains a powerful and respected school of thought.
Thus, Polanyi (and those who follow his lead) use substantive perspectives to demonstrate how particular circumstances and groups of people transcend neoclassical modeling just as Schumpeter (as will be discussed later) focused upon how certain atypical individuals respond in distinctive and much needed ways that are not adequately acknowledged and modeled by neoclassical theory.
In addition, Schumpeter’s work emphasizes evolutionary perspectives. Christopher Freeman (2009 126), for example, points out that “the central point of . . . [Schumpeter’s] whole life work [is] that capitalism can only be understood as an evolutionary process of continuous innovation.” Because he embraced an evolutionary perspective, Schumpeter believed that the capitalist system, as it existed when he wrote, would be transcended through inevitable change and innovation. Schumpeter, however, was not a political activist or agitator and was merely pointing to what he felt were the unavoidable implications of his evolutionary perspectives (See Freeman 2009).
This evolutionary perspective is consistent with the philosophy of 19th century-philosopher Frederick Hegel, who “affirms that knowledge must not be viewed in absolute terms but with reference to its history and the environmental milieu in which it arises and exists” (Walle 2002 28). Hegel, therefore, believed that mankind and civilization are in a constant state of improvement and pursuing a struggle for perfection. Hegel presented this view using his dialectical theory that envisions change (1) starting when the status quo condition known as the thesis, (2) is challenged by a breakthrough innovation or alternative, known as an antithesis, (3) only to be reconciled with what Hegel called a synthesis. Once a new synthesis becomes established, furthermore, it emerges as a new thesis and the cycle of progress continues. Karl Marx, of course, adopted Hegel’s paradigm of change both in his political work and in his social theorizing by emphasizing that social and economic systems possess the seeds of their own destruction: limitations that provide the opportunity for new and more appropriate solutions to arise. These advances, in turn, are eventually rendered obsolete because they inevitably possess characteristics which eventually emerge as fatal deficits. As we shall see in the discussions of creative destruction (later), Schumpeter was friendly toward such perspectives.
Furthermore, in his Capitalism, Socialism and Democracy (2014 originally 1942), Schumpeter advocates an elitist view of society by complaining that due to the ignorance of the majority, political leaders often manipulate voters in order to achieve their goals. Such viewpoints, of course, have a long history (often associated with complaints such as the Tyranny of the Majority (Walle 2019 227–9).
Thus, Schumpeter’s work is characterized by the following.
1. Formal, universal, and rational paradigms are not viewed as adequate.
2. Cultural considerations need to be embraced.
3. Schumpeter’s work is evolutionary in nature.
4. Schumpeter’s work possesses elitist characteristics.
Thus, Joseph Schumpeter can be viewed as a holdover of the Historical School of Economics that embraced a humanistic style of thought and
research in an era dominated by research trends and streams of thought that were increasingly rational and scientific. From this perspective, his work parallels the careers of other influential humanists of his era such as psychologist Abraham Maslow and anthropologist Karl Polayni. All three made significant contributions by working outside of the mainstream of their fields. Their humanistic contributions were expressed in a world dominated by neoclassical and scientific intellectual trends.
Schumpeter’s Paradigm of Entrepreneurship
The current interest in entrepreneurship as a distinct phenomenon is typically traced back to the early 20th century and the publication of Joseph Schumpeter’s The Theory of Economic Development (1912) and, to a degree, Schumpeter’s revisiting the subject in Capitalism, Socialism, and Democracy (1942).
Schumpeter believed that entrepreneurship tended to emerge from a particular sort of person who possesses characteristics that could be described as “Unternehmergeist,” which is German for “entrepreneurspirit.” He characterizes the actions of such atypical individuals as “the doing of new things or the doing of things that are already being done in a new way” (Schumpeter 1947).
Schumpeter argues that those embracing the entrepreneurial spirit could exist in either of two environments labeled “Mark 1” and “Mark 2” (Malerba and Orsenigo 1996), which are depicted as stark opposites (although a gradient or range of situations between the two could probably exist). Mark 1 situation is characterized by conditions that are in flux and everchanging. In addition, few barriers exist to inhibit those who possess an entrepreneurial spirit. Due to these favorable conditions, many significant advances can be accomplished by new and smaller organizations that allow individuals who embody a strong entrepreneurial ethos to thrive. In a Mark 1 situation, conventional ways of acting, thinking, and doing can be rendered passe by dreamers and innovators who possess a true entrepreneurial spirit.
The second possibility is a Mark 2 environment in which large, powerful, established, and well-funded organizations dominate. Their influence creates a situation where it becomes more difficult for small and assetweak outsiders to achieve their potentials. Under these circumstances, true entrepreneurs are likely to be thwarted, although some innovation akin to entrepreneurship might take place in larger bureaucratic organizations if such entities are able to encourage such independent thought and action.
As originally envisioned by Schumpeter, true entrepreneurship extends far beyond merely starting or running an establishment such as a business or not-for-profit organization. Thus, owning or managing a conventional business (such as opening a franchise of an existing business chain) in
The Schumpeter Shadow 11 ways that reflect prevailing norms, strategies, tactics, and methods would not, generally, meet the entrepreneurial criteria.
Following the entrepreneurial path, in contrast, involves envisioning, promoting, and shepherding significant change regarding how key participants think, act, combine available assets, and so forth. According to this perspective, true entrepreneurs are dynamic agents of changes that are evolutionary and transformational. Schumpeter views them as the visionaries, the driving forces, and the inspiration that create and introduce productive and innovative adjustments that radically transform life and civilization.
Certain people, armed with ingenuity, novel perspectives, an impassioned drive, and untiring diligence, periodically disrupt the conventional ways of doing things by offering useful and novel options. Celebrated representatives of groundbreaking entrepreneurship include inventor Thomas Edison, manufacturer Henry Ford, and computer wizard Steve Jobs. They were at the right place at the right time and possessed the skills, vision, drive, and confidence needed to trigger transformational change in their areas of expertise.
The work of such entrepreneurs can be viewed in a way that is reflective of Frederick Hegel’s dialectical model and its evolutionary implications. Envisioned in Hegelian perspectives (discussed earlier), a conventional means of doing business or performing an activity exists as a relatively static “Thesis” that needs to be surpassed for fruitful progress to take place. Under these conditions, an insightful entrepreneur with the proper skills and assets goes against the grain in ways that promote new modes of thought and action that result in an antithesis. After the thesis and antithesis are blended in constructive ways, a new synthesis emerges. Once this synthesis becomes established as the norm, however, it serves as a new thesis as the quest for progress continues in a constant and inevitable evolutionary journey.
Thus, Eli Whitney (best known for inventing the Cotton Gin) was an entrepreneur who has been credited as the first manufacturer to demonstrate the technique of assembling products using interchangeable parts (Fitch 1882). Before Whitney, guns were made by individual gunsmiths. As a result, even if a batch of guns looked identical, the parts were not interchangeable. As a result of these subtle variations, it was impossible for an army to maintain a reasonably compact and readily available supply of spare and replacement parts. If a weapon was damaged, it could not be quickly and easily repaired. Working for the U.S. military, Whitney sought to manufacture indistinguishable muskets from parts that were fully interchangeable. Such final products could be assembled by relatively unskilled workers, and defective guns could be more easily refurbished. Indeed, spare parts could be conveniently cannibalized from damaged weapons.
Thus, Whitney was an entrepreneur who, starting with the thesis of conventional individual craftsmanship, envisioned the antithesis of utilizing mass-produced identical products that could be assembled into final
products. This led to the new synthesis of workers assembling identical items from parts that could have been made in mass or even supplied by subcontractors.
In the early 20th century, Henry Ford sought ways to more efficiently manufacture a complex and multidimensional product (automobiles). Ford started with Whitney’s assembly interchangeable parts “Synthesis.” Building upon what had emerged as a new thesis, Ford added the assembly line in which the product travels along a moving path so workers can combine interchangeable parts in a more systematic and efficient manner. Since Ford’s time, additional evolutionary changes have taken place in assembly lines that, for example, take human characteristics (such as the potential for boredom) into account in ways that boost efficiency and enhance morale. Robots have also been included.
Schumpeter, therefore, believed evolution was inevitable. He did, however, envision at least two ways in which it could occur. Under conditions of significant change and instability, Mark 1 entrepreneurs were able to operate independently and create breakthrough innovations. In a Mark 2 situation, larger and more bureaucratic organizations are likely to thwart overly individualistic initiatives. In these situations, furthermore, breakthrough innovations would tend to be less revolutionary although small, incremental advances are likely to take place.
In both situations, however, change tends to reflect the Hegelian dialectical model of thesis, antithesis, and synthesis. According to this paradigm, Schumpeter envisioned the possibility of constant evolution and progress triggered by specific conditions and made possible by those who are capable and willing to emerge as entrepreneurs.
Schumpeter and Creative Destruction
Schumpeter argues that the pivotal force leading to economic development is what he called creative destruction that was brought about by entrepreneurs who introduce innovations and paradigm shifts that trigger radical and unprecedented change and progress. As these adjustments unfold, Schumpeter envisioned older methods and strategies (as well as the status quo organizations that embrace them) becoming vulnerable and obsolete. Expanding his thinking, Schumpeter (1942) went on to observe that large and entrenched bureaucracies often resist innovations, allowing financially weak entrepreneurs to find a window of opportunity where their vision can mature as a competitive force. Because of his pioneering work, Schumpeter continues to be recognized as a seminal force within entrepreneurial studies.
According to Schumpeter, “creative destruction is the process of industrial mutation that continuously revolutionizes the economic structure
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FOOTNOTES:
[1]More accurately the coffee-house of the dome —Translator’s Note.
[2]The Arabs in this country keep no account of their age. The most they can remember is that they were born the year this or that happened
[3]Chest.
[4]Correspondence in the Paris newspaper, the Journal des Debats of 5th September 1893
[5]M. Rouvier is newly appointed to Stockholm as French Representative.
[6]Anthropologie Criminelle des Tunisiens Musulmans; Les formes de la famille chez les premiers habitants de l’Afrique du Nord; Exploration anthropologique de la Khroumirie
[7]Duveyrier, Les Touareg du Nord; Captain Bissuel, Les Touareg de l’Ouest; Largeau, Le Sahara Algerien.
[8]From Dr. E. F. Bojesen’s Handbook on Greek Antiquities.
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