Entrepreneurship Suffers Textbook Case of Neglect

by
Calvin A. Kent
Wall Street Journal
  9/4/87

     Since a course on economics principles is the first - or only - taste many students get of college-level economics, the process of entrepreneurship should be fully and accurately portrayed in its textbooks. Yet a survey of the 15 leading college economics principles texts, conducted by Baylor University's Center for Private Enterprise, indicates that entrepreneurship is a neglected concept in most of them.

Here are six fundamental concepts regarding entrepreneurship
that rarely are integrated into the texts:

1. Entrepreneurship as an economic re-source. Years ago most principles textbooks listed entrepreneurship or entrepreneurs as a separate "factor of production" along with land, labor and capital. But today, if mentioned at all, entrepreneurship is viewed as either a subset of "labor" or as a part of "human capital" and dismissed in a few sentences or, at best, a couple of paragraphs.

     Often the entrepreneur is portrayed as nothing more than a manager, coordinating the use of the other economic resources. Only a few of the texts recognize that the entrepreneur is the innovative risk-taker in society. As such, he is a distinct factor in the productive process, seeing niches that others have overlooked and acting on those insights. Without this innovative, risk-taking propensity the other factors are basically sterile.

     Few of the books make it clear that entrepreneurship is more than starting a new business. It also takes the form of "intrapreneurship," when the entrepreneurial event occurs within an existing organization. While in recent years several mass-market books have stressed that intrapreneurship is the key to the survival of corporate America, no college textbook conveys this insight.

2. Entrepreneurs create and destroy markets. At the heart of those incredibly dull chapters labeled microeconomics in most college textbooks is supply and demand analysis. The curves are derived and shifted, and equilibrium prices and quantities result. This is basically a static analysis. The student who has not been dulled into lack of curiosity may wonder what causes supply and demand to change, new markets to appear and old ones to disappear. That student will recognize that the market is dynamic, not static.

     If the role of the entrepreneur in the marketplace is discussed at all in the texts, it is to mention that the entrepreneur responds to known price signals in the market, moving it toward equilibrium. In fact, entrepreneurship destroys market equilibriums by creating entirely new markets or market relationships through the introduction of products, services, processes or technologies.

3. Entrepreneurship and profit. While all the textbooks pay homage to the need for profits in a market economy, and a good number mention that profits are the incentive for the entrepreneur, most of the discussion focuses upon profits as a residual: what is left over after costs have been subtracted from revenues. This leaves the student without the understanding that entrepreneurial perception creates profits. But just as entrepreneurship creates profits, it destroys them. Joseph Schumpeter accurately portrayed the phenomenon of the “thundering herd” of imitators who compete away the profits made by the first entrepreneurs.

     Very few principles textbooks communicate to the student that while important, profit is not the only motive for the entrepreneur. Autonomy and power are equally important, but these concepts cannot be easily integrated into the static geometry of the chapters on market equilibrium.

     The texts also fail to note that if the entrepreneur's perception was a mirage, the entrepreneurial effort is not rewarded - as many defunct businesses bear testimony.

4. Entrepreneurship and technological change. Innovation is the entrepreneur's principal function in the market economy, but only a few of the textbooks tie entrepreneurship to innovation. While discussions of growth economics do include concepts such as technological change and technology transfer, they do not include their agent: the entrepreneur.

5. Entrepreneurs create jobs. In the macroeconomics portions of the textbooks there is usually a discussion of unemployment and how to cure it. The traditional answers are found in Keynesian and monetarist manipulations of the money supply, taxes and government spending. Many of the texts also mention the desirability of job training to deal with structural unemployment. But only one of the textbooks mentions that there is abundant research to confirm that the more dynamic entrepreneurial firms are the principal generators of jobs in the economy.

6. Entrepreneurship in economic growth. All of the texts contained chapters on economic growth. Many present the results of statistical analyses that try to isolate the factors that have caused some nations to grow and others to stagnate. These texts also include chapters on the underdeveloped countries with policy prescriptions for how their state might be upgraded.

     The role of the entrepreneur as agent in the material progress of humankind is rarely mentioned. In fact, many of the texts assume that in underdeveloped countries there is an insufficient supply of entrepreneurial talent to propel them forward and so the government must plan. But in any society, no matter what its state of development, there is entrepreneurial potential that can be unleashed by a free-market structure. The growing literature indicates that what is restricting economic growth are government policies, both in the developed and the underdeveloped world, that restrict the entrepreneur.

     One surprising finding of the survey was that entrepreneurship is as incompletely covered in the newer “free-market” textbooks as it is in the more traditional “Keynesian” ones. Three of the standard Keynesian texts do the most comprehensive job of covering the topic.

      Economics educators need to rethink what is included in the principles course. If they integrate entrepreneurship, their students may find economics relevant to the real world after all.

    Mr. Kent is professor and director of the Center for Private Enterprise at Baylor University in Waco, Texas.

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