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The term
‘entrepreneurship’ has associated with it a number of interesting connotations.
Many theorists, such as those associated to the classical and neo-classical theoretical
movements, have found great difficulty in expressing the exact meaning of the
notion- with no exact definition being available to this very day. As economic
thinking has progressed, so has the various theories on what is required for an
entrepreneur’s success, with various ‘Schools of Thought’ gaining prominence
across the literary paradigm. Innovative thinking, has been cited by various
prominent figures such as Joseph Schumpeter, as the primary factor required for
an individual to stimulate economic growth (Stevenson and Jarillo, 1990).
However, being much a multi-dimensional concept (Bula, 2012), it is of importance
to specify that within this report consideration and close comparison of the other
notable bodies of thought led by figures such as Richard Cantillon and Israel
Kirzner, will also be appropriately included in order to determine whether
innovation is centrally placed within the conditions under which
entrepreneurship takes place.

German-Austrian body of thought associated with innovation is encompassed by
the work of political economist Joseph Schumpeter. Through his proposed theory
concerning the circular flow of Economics, Schumpeter argued that all aspects
of an economy were inter-reliant and thus inter-dependent (Schumpeter, 1989). In
light of this, the role of an entrepreneur, the economist argued, was to
“shock” the economy into growth through the launch of various innovative ventures.
The consequent disequilibrium enforced on the particular market as a result of
this stimulation would prompt the eradication of inefficient firms and further
opportunity for profitable enterprise (Swan, 2009). Schumpeter would later name
this process as the “Gales of Creative Destruction”, and would serve to
solidify his view that radical innovation was critical in the evolution of
economic development. Furthermore, the exact definition of innovation was also explored
by Schumpeter, with his own interpretation of the term being, the introduction
of a “new method, ideas, or products to make changes that provide a
commercial benefit,” (Schumpeter, 1983). Delving deeper into this definition, a
clear emphasis on the idea of combinations of resources, or economics inputs,
required to create a successful enterprise can be acknowledged (Leff, 1979).

Schumpeter’s words, an entrepreneur “Is one who innovates a new organisation or
combination of inputs for the first time,” (Schumpeter, 1989). This serves to
illustrate his view that in order to stimulate economic growth for one’s firm,
one must possess a certain creativity to divert factors of production to a new
combination (McCraw, 2007). This line of theory refuted the classical understanding
of the entrepreneur as being a ‘mere manager’ of an enterprise with no real
control over economic growth. As illustrated by Marz (1991), “The entrepreneur is not (necessarily) the
one who invents new combinations but the one who identifies how these new
combinations can be applied in production. This line of reasoning implies that
a business owner is considered an entrepreneur only if he is carrying out new
combinations,” Schumpeter made a clear distinction between a manager
and an entrepreneur, the main difference being the ability to innovate ‘new’
combinations of resources. This argument encompassed Schumpeter’s desire to
stress the value of innovation in the creation of wealth change and economic growth.

A prominent
example of an innovation that induced an unprecedented economic effect on the
world’s economy, is the introduction of the Apple iPhone. Steve Job’s example
as an innovator- reassembling pre-existing technology into a new combination to
release an ‘all-in one’ mobile phone aligns accordingly to Schumpeter’s theory,
and resulted in broad economic development. First introduced in 2007, Apple has
since sold over 1 billion phones and has claimed to have created over 2 million
jobs worldwide (Macworld, 2015). The popularity, and undoubted success of the
iPhone has subsequently opened vast opportunity for complementary product
innovation (Reisinger, 2017), and profits have been extended through the
incremental development of further models of the phone. This prominent example,
in alignment with Schumpeter’s argument, provides substantial evidence as to
the importance of innovation to not only the stimulation of economic
development, but additionally to the notion of entrepreneurship.

There are,
however, opposing theories surrounding entrepreneurship with propagators such
as Richard Cantillon accounting greater importance to the personal qualities of
the entrepreneur in generating success- particularly in their clear propensity
to proceed through uncertainty and risk (McCraw, 2007). In defining what
exactly is meant by the term ‘uncertainty’, Knight (1996) associates the term
to “alternative outcomes that cannot be determined by a prior reasoning or by
statistical inference.” In consideration of this, an entrepreneur can be
identified as an individual who pursues profit under conditions of various
uncertainties- uncertainty of a macroeconomic nature for instance. Cantillon develops
his argument in acknowledging that entrepreneurs assume responsibility of
production decisions that have a direct impact on the equilibrium of an
economy, diverting from the line of argument concerning the importance of innovation
to instead focus on the role of uncertainty management.

According to
Cantillon (1755), “the entrepreneur is someone who specializes in taking
responsibility for and making judgemental decisions that affect the location,
form, and use of goods.” From this definition, Cantillon’s debate can be seen
to centre on the role of an entrepreneur as an administrator rather than an
innovator. The acquisition of resources and the subsequent management of these
resources present an entrepreneur with a constant ‘wave’ of judgemental
decision to comprehend and solve (Leff, 1979). As is discussed by economist
Jean Baptiste Say (1821), the success of an entrepreneur is dependent on their
ability to co-ordinate resources- such as labour and capital, in a way that
helps manage uncertainty. What primarily differentiates favourable uncertainty
management is the individual’s ‘degree of foresight’ enabling him/her to make
appropriate production decisions. The view initially provided by Cantillon is
strongly supported by Knight (1996), who advocates that economic firms with the
greatest degree of proficiency “specialise in the management of uncertainty.” This
also accounts the personal attributes of the entrepreneur in possessing this
aforementioned ‘foresight to change’ as providing the basis of profitable

The emphasis
on administrative ability seen within Cantillon’s discussion can be closely
related to Penrose’s analysis (1959) of the business firm, in which she
specifies the ‘productive opportunities’ capitalised on by astute entrepreneurs
is only made possible through the correct administration of a firm. Personality
traits of an entrepreneur are also referenced, with particular emphasis on
one’s ability to accurately make judgemental decisions for the firm (Penrose,
1959), this complements the body of thought associated with an entrepreneur’s
capability to manage uncertainty- something seen as critical in the act of

An equally
relevant alternative school of thought relates the primary objective of entrepreneurship
as a process of economic adjustment towards a state of equilibrium within a
particular economy (Casson, 2003). Kirzner (1979) believed that the empirical
content of economics related to the process of adjustment to ward equilibrium
(Marz, 1991). Under this assumption, Kirzner concluded that an entrepreneur’s
success relied on their propensity to be ‘alert’ to the opportunities for
profitable enterprise established by disequilibrium within an economy. In his
work, “Perception, Opportunity and Profit”
Kirzner maintains that this ‘alertness’ to economic change is the
distinguishing characteristic of an entrepreneur, and is entirely necessary for
efficient decisions to be made (Kirzner, 1979). In neo-classical economic
theory there appears a stark absence of the notion of the entrepreneur. Within
the confines of “Marshallian? analysis, it is explained that equilibrium
conditions occur in the markets under the assumptions of ‘perfect knowledge and
information, perfect competition (existence of many firms), existence of
homogenous goods, and free entry and exit,’ (McCraw, 2007). Marshall’s analysis
aims to illustrate that markets under the perfect competition assumptions will
result no excess profit opportunities and hence no opportunity for
entrepreneurship (Casson, 2003). However, Kirzner would highlight the flaw to
this argument in stating that it is not always the case that full knowledge and
information are assumed by the entrepreneur therefore disequilibrium and
subsequent opportunity capitalisation would naturally occur. It is clear then,
according to theorists such as Kirzner at least, that the propensity to
acknowledge change in an economy’s equilibrium is central and defining component
of entrepreneurship.

consideration of the lines of argument discussed, it is apparent that through
combining the above discordant theories, a generalized characterisation of
entrepreneurship can be deduced. Although Schumpeter’s line on innovation contains
several points of precise reasoning, certain flaws can be identified in his
model in that his fails to link the notion of innovation and entrepreneurship
with a situation in which a new product or service has been introduced and
profit is not the result (Bula, 2012). Those who would argue for the importance
of innovation would contend that a venture may fail but one must continue to
the point at which success is accomplished. The theorists in entrepreneurship
oppose this view of an innovator who experiments and may one day succeed in
making profits because entrepreneurship is about patience, risk taking and
commitment. Coupled with this, the alternative theories proposed by figures such
as Kirzner and Cantillon convincingly dispute the importance of managing
uncertainty and being ‘alert’ to entrepreneurial opportunities presented by
disequilibrium within an economy. Both characteristics hold great value in an
entrepreneur’s journey and must be accounted for in relation to the question. Given
the example of Steve Jobs, amongst others, one cannot contend that innovation
is not a legitimate factor required for successful entrepreneurship. However,
the apparent shortcomings of Schumpeter’s argument, coupled with the centrality
of other factors present in an entrepreneur’s journey leads me to the
conclusion that innovation, although an important factor, is one of many facets
required for successful entrepreneurship to take place, and cannot work alone.
Therefore, it is to my inclination to question the extent to which one can
consider innovation as ‘central’ to entrepreneurship.