ABSTRACT
This paper proposes a rather different set of hypotheses, holding that entrepreneurs are always with us and always play some substantial role. But there are a variety of roles among which the entrepreneur’s efforts can be reallocated, and some of those roles do not follow the constructive and innovative script that is conventionally attributed to that person. Indeed, at times the entrepreneur may even lead a parasitical existence that is actually damaging to the economy. How the entrepreneur acts at a given time and place depends heavily on the rules of the game-the reward structure in the economy-that happen to prevail. Thus the central hypothesis here is that it is the set of rules and not the supply of entrepreneurs or the nature of their objectives that undergoes signifi cant changes from one period to another and helps to dictate the ultimate effect on the economy via the allocation of entrepreneurial resources. Changes in the rules and other attendant circumstances can, of course, modify the composition of the class of entrepreneurs and can also alter its size. Without denying this or claiming that it has no signifi cance, in this paper I shall seek to focus attention on the
allocation of the changing class of entrepreneurs rather than its magnitude and makeup. (For an excellent analysis of the basic hypothesis, independently derived, see Murphy, Shleifer, and Vishny [1990].)
The basic proposition, if sustained by the evidence, has an important implication for growth policy. The notion that our productivity problems reside in “the spirit of entrepreneurship” that waxes and wanes for unexplained reasons is a counsel of despair, for it gives no guidance on how to reawaken that spirit once it has lagged. If that is the task assigned to policymakers, they are destitute: they have no means of knowing how to carry it out. But if what is required is the adjustment of rules of the game to induce a more felicitous allocation of entrepreneurial resources, then the policymaker’s task is less formidable, and it is certainly not hopeless. The prevailing rules that affect the allocation of entrepreneurial activity can be observed, described, and, with luck, modifi ed and improved, as will be illustrated here.
