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Emergence of the Entrepreneurial Society

Original Publication By David B. Audretsch
In Business Horizons (2009) 52, 505-511

Synopsis by Ben Forster, CMC '11

In this article, David Audretsch examines the rise of entrepreneurship in American society in the 1990s, its role in reversing a decades-long decline in America's economic performance, and how investing in entrepreneurship may help us overcome the economic challenges of today.

In the aftermath of the Second World War, America's economic prosperity was built upon large scale manufacturing and the consumption of manufactured products. According to Audretsch, economic giants like tire, steel, computer, and automobile manufacturers relied heavily on capital stock, of which the U.S. was the largest supplier in the world. Unsurprisingly, this led to U.S. domination of global manufacturing for decades to come. Furthermore, this capital stock was controlled primarily by only several large American corporations. As Audretsch notes however, the domination of large scale manufacturing in America's economy was partly the result of a nationwide shift to more conservative social norms. These included valuing reliability, predictability, and social conformity, all of which permeated aspects of everyday social life. As William H. Whyte puts it, once trailblazing, proudly independent, and non conformist men prior to the war, were replaced by "the slavishly obedient organization men" who conformed to "society's sense of propriety". This so-called "managed economy", notes Audretsch, was also dependent on a complex web of support from governmental regulations, as well as social institutions, such as schools and churches. In turn, large manufacturing corporations remained in the national limelight while the importance of small businesses and entrepreneurship faded. As noted in the article, the principle qualifications of entrepreneurs, including imagination, courage, and non-conformity were not particularly relevant to the managed economy which relied more heavily on structure and hierarchy. Thus in the U.S., Europe, and the Soviet Union, small companies and entrepreneurs were ignored by government, and even allowed to disappear as a matter of public policy. By the 1970s, with the rest of the world catching up to America's capital monopoly, the U.S. soon lost its competitiveness as economic powerhouses like Germany and Japan emerged.

According to Audretsch, it was through entrepreneurship that the U.S. was able to restore American global competitiveness. Just as conservative social norms began to unnoticeably give way to creativity, independence, and autonomy, entrepreneurial firms like Google and Amazon rose to the center stage of the U.S. economy. One of the most important factors in explaining the sudden relevance of entrepreneurship, Audretsch says, was the importance of knowledge as a new source of competitiveness. As emerging economies obtained increasingly large supplies of labor and capital, the U.S. could still maintain a monopoly on knowledge. Although the overall goal was economic growth, U.S. public policy made significant shifts in how it would achieve this. Such shifts focused policy on the deregulation of industries, such as oil, telecommunications, and financial services, as well as a profound focus on investing in education, human capital, research, and science.

However the transition from the managed economy to the "entrepreneurial society" was anything but seamless, Audretsch says. Rather, the U.S. suffered from what the author calls "the knowledge filter". According to Audretsch, the fundamental sources of the knowledge filter are society wide uncertainties about new ideas and knowledge in general, thus resulting in the dismissal of new ideas. Although public policy may focus on investing in education, government regulation and federal bureaucracy can often be resistant to new ideas or technologies. As Audretsch points out, when society imposes this kind of knowledge filter, individuals may find it increasingly necessary to engage in entrepreneurship in order to preserve otherwise rejected new ideas. Furthermore, individuals are likely to bring ideas from the laboratory into the marketplace where they can grow via what Audretsch calls the "knowledge spillover theory of entrepreneurship". The article suggests that this is a reason why investment in new knowledge is crucial, especially for economies whose competitiveness is derived from ideas, creativity and knowledge.

Entrepreneurship, the author says, is vital for economic growth and provides a wealth of social returns. Because ideas in one sector can quickly come to fruition in the marketplace, investment in entrepreneurial capital, such as schools, culture, and other institutions that foster entrepreneurial creativity is necessary both in supporting aspiring entrepreneurs, but also in maintaining a position of leadership in the global economy. Audretsch suggests that just as foreign economies caught up to the U.S. in the managed economy, so may they catch up to the U.S. in the entrepreneurial society. Amidst the current economic crisis, the author says, the U.S. must commit itself to entrepreneurship both to maintain economic growth and its position as a global economic leader.