Why Entrepreneurship Matters

Why Entrepreneurship Matters

By Alexei Marcoux, PhD

Evidence abounds that America is less entrepreneurial than in the past. By one measure — business startups — U.S. Census data reveals a four-decade-long decline: After starting just under 600,000 new businesses in 1977, Americans formed new ventures at a fluctuating rate of 500,000 to 600,000 per year until the financial meltdown of 2008. Since 2008, new business formations have dropped to 400,000 to 450,000 per year. Even as we revere the entrepreneurial spirit, fewer of us possess or act on it.

Before lamenting the decline in entrepreneurship, it’s worth taking a step back and addressing a more basic question: Why should we care? Differently put, why does entrepreneurship matter?

The 21st century is Joseph Schumpeter’s world — we merely live in it. The early- to mid-20th century Harvard economist is the man of the hour because we see all around us the fruits of his entrepreneur. The force behind the “perennial gale of creative destruction” (or what today’s startup culture, following Harvard Business School professor Clayton Christensen, calls “disruptive innovation”), Schumpeter’s entrepreneur is the bringer of innovations that transform our world.

In Gates and in Jobs, in Bezos and in Musk, we see the breaker of routines and the bringer of new products, new business models and new ways of living. Above all, Schumpeter’s entrepreneur deals in paradigm-shattering novelty: Think of the way Netflix obsoleted Blockbuster’s business model in transforming the way we watch movies, or the way Amazon sent Borders into liquidation in transforming the way we buy books (and now, almost everything else).

In Schumpeter’s world, entrepreneurship matters because it is what will bring us the next smartphone, the next always-on heart monitor, the next who-knows-what that will change and improve our lives in unanticipated ways. If entrepreneurship is in decline, our worries should be focused on our technology: What innovations, what improvements in the quantity and quality of life are we not getting because we’re getting less entrepreneurship? Entrepreneurship matters in a mainly customer-focused way.

That is one way that entrepreneurship matters, but it may not be the most important. To see another, look not to your smartphone but to your paycheck. As widespread as salaried or hourly-wage employment is today (and has been for roughly the last century), it’s easy to forget just how rare it is in human history and how entrepreneurship makes it possible.

This is Frank Knight’s world. The dean of the early 20th century Chicago School economists, Knight saw entrepreneurship not in terms of Schumpeter’s disruptive novelty, but as the work of people who bear the uncertainties of enterprise. Facing a five-year failure rate of more than 50 percent and 10-year failure rate of more than 70 percent (according to Entrepreneur magazine), Knight’s entrepreneur is the person who abandons the relative safety of a regular paycheck, hangs out a shingle and eats what she kills.

In Knight’s world, entrepreneurship matters because the risk-friendly people who start businesses create the climate in which the risk-averse majority are able to avoid entrepreneurship and collect a regular paycheck. This, too, is borne out by data: In a study of job creation between 1987 and 2005, the U.S. Bureau of Labor Statistics found that almost all net private-sector job creation (jobs created minus jobs lost) occurred in firms of age zero. Stated another way, business startups create net new jobs; legacy firms mainly don’t.

In a 2004 interview, Bill Rancic, the serial entrepreneur who won the first season of NBC’s The Apprentice, referred to this risk-averse majority, saying, “Is the entrepreneurial way of life for everyone? No, of course not. Some people need to know that every Friday they’re going to get their $800 or whatever, and it’s going to be there 52 weeks a year.”

If you resemble that remark (as I know I do), then entrepreneurship matters also in a work-focused way. It is a human service to the risk-averse majority, permitting a dignified livelihood insulated from many (though, of course, not all) of the uncertainties of enterprise. Entrepreneurship, then, is a too-often unacknowledged form of caritas in commercial guise.

At bottom, the care and feeding of an entrepreneurship-friendly polity and culture isn’t about meeting the needs of entrepreneurs specifically — it’s the care and feeding of all of us.

About the Author: Alexei Marcoux, PhD, is a professor of business ethics and society and senior scholar with the Institute for Economic Inquiry in the Heider College of Business. Marcoux is a two­-time winner of the Best Paper Award from the Society for Business Ethics, co-­author of two textbooks on business ethics, co­-editor of The Routledge Companion to Business Ethics, founding co-­editor of the Business Ethics Journal Review, co-­curator of the Business Ethics Highlights website, and co-author of the Concise Encyclopedia of Business Ethics.