The word entrepreneur is thrown around a lot in casual conversation. But do most of us really understand what it means? According to Merriam-Webster, the word entrepreneur is defined as, “one who organizes, manages, and assumes the risks of a business or enterprise.” And while that definition might sound a little stale, this is essentially how most of us think of the word.
We associate the term with the likes of Andrew Carnegie and Walt Disney, great innovators who managed to take their grand ideas from their minds to reality. And while the business world seems to have a monopoly on the term itself, there is a lot more to being an entrepreneur than starting a business.
But as Adam Thierer, Senior Research Fellow at the Mercatus Center says, “The term can be used in many different ways to describe a variety of individuals who engage in economic, political, or even social activities. Entrepreneurs affect almost every aspect of modern society.” In fact, in a recent post on the topic, Thierer brilliantly describes a few different ways entrepreneurs manifest themselves within society— and some may be more beneficial to the rest of us than others.
Austrian Economists and Entrepreneurs
From the Austrian perspective, there is probably no economist more commonly associated with entrepreneurship than Joseph Schumpeter. For Schumpeter, the entrepreneur was about creativity and destruction. In fact, his theory of creative destruction focuses on these very elements. He believed that the entrepreneur played one of the most vital roles in our economy. And by “exploiting” inventions as he put it, he believed the entrepreneur could “reform or revolutionize the pattern of production.” And from this exploitation, society, and the individuals it is comprised of, benefit.
This more common definition of entrepreneurship was shared by another Austrian economist, Israel Kirzner. Kirzner believed that an entrepreneur was someone who demonstrated “alertness,” meaning they could recognize the implications a new product or idea could have on the market. Thierer defines Kirznerian entrepreneurs as “individuals who are able to identify the ways in which a market could be moved closer to its equilibrium, such as recognizing a gap in knowledge between different economic actors.”
While this is the most traditional sense of the word, both Kirzner and Schumpeter elevated the entrepreneur’s role in society to new levels. From the economic perspective, all innovation begins with the entrepreneur. And through this innovation, they make possible societal change as well as the disruptive innovation that usually results in creative destruction.
But not all forms of entrepreneurialism have the same positive impacts on individuals. In fact, some are more harmful than others.
Rent-Seeking Entrepreneurs
While the type of entrepreneur mentioned above is one who generally helps to create value in the market and in society as a whole, creating value is not necessarily a defining characteristic of entrepreneurship. Thierer brings up the example of a political lobbyist, someone who is, in many ways, still an entrepreneur but is not creating real value for anyone other than himself. For many lobbyists, they identify ways to benefit from political institutions, which almost sounds like what Kirzner calls “alertness,” but at the end of the day are offering no true innovation, and thus, are creating no real value.
And if you are wondering what these benefits might be, Thierer lists them as, “monopoly status, favorable regulations, subsidies, bailouts, loan guarantees, targeted tax breaks, protection from foreign competition, and noncompetitive contracts.”
Since these types of benefits do very little to positively influence individual consumers, many economists refer to this type of “rent-seeking” entrepreneurship as destructive entrepreneurialism or unproductive entrepreneurialism. And it is not hard to see why. As Thierer’s colleagues, Peter Boettke and Chris Coyne have commented, “destructive entrepreneurship reduces the total surplus in an attempt by the entrepreneur to increase his own wealth.”
Put differently, these rent-seeking, unproductive entrepreneurs are seeking value for themselves at the expense of the rest of us. They want political favors given to them regardless of whether or not society and individuals benefit in any way. So while they are still entrepreneurial in nature, they do not hold the same role as Schumpeter and Kirzner’s entrepreneurs.
Social Entrepreneurs
In his piece, Thierer mentions how he, along with his fellow colleagues, have defined social entrepreneurs as “innovative, social value-creating activity that can occur within or across the nonprofit, business, or government sectors.” Where this type of entrepreneur differs from the other is profit.
Rather than seeking monetary incentives, the social entrepreneur is motivated by a mission larger than himself. MIT economist Eric von Hippel likes to call this “free innovation,” and defines this as:
(1) was developed by consumers at private cost during their unpaid discretionary time (that is, no one paid them to do it) and (2) is not protected by its developers, and so is potentially acquirable by anyone without payment—for free.”
Our modern tech world is ripe with examples of this. For example, anyone who has ever used any sort of open-sourced application has engaged in this kind of entrepreneurialism. Thierer uses the example of open-sourced designs being routinely used on 3D printers. The creators are not receiving any monetary gain from their inventions, but they are contributing to a greater cause by creating value for society. This might seem almost counterintuitive since so much of how we view entrepreneurship is dependent on earning a profit. But for these entrepreneurs, the impact they are having on society is more important to monetary gain.
Since the tech world is by and large becoming more open-sourced, it is likely that this form of entrepreneurship will dominate the market in the coming years.
Be Entrepreneurial in All Things
While Thierer brilliantly focuses on these aspects to define different variations of entrepreneurs, this does not mean this is a conclusive list. In reality, each of us has the opportunity to be entrepreneurial in just about everything we do. Whether it is looking for ways to create value in the office or at home, entrepreneurship exists in many different capacities.
