Entrepreneurship: Productive, Unproductive, And Destructive
Entrepreneurship: Productive, Unproductive, and DestructiveAuthor(s): William J. BaumolReviewed work(s):Source: Journal of Political Economy, Vol. 98, No. 5, Part 1 (Oct., 1990), pp. 893-921Published by: The University of Chicago PressStable URL: http://www.jstor.org/stable/2937617 .Accessed: 07/01/2012 17:02Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at ms.jspJSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact support@jstor.org.The University of Chicago Press is collaborating with JSTOR to digitize, preserve and extend access to Journalof Political Economy.http://www.jstor.org
Entrepreneurship: Productive, Unproductive,and DestructiveWilliamJ. BaumolNew York University and Princeton UniversityThe basic hypothesis is that, while the total supply of entrepreneursvaries among societies, the productive contribution of the society'sentrepreneurial activities varies much more because of their allocation between productive activities such as innovation and largelyunproductive activities such as rent seeking or organized crime. Thisallocation is heavily influenced by the relative payoffs society offersto such activities. This implies that policy can influence the allocationof entrepreneurship more effectively than it can influence its supply.Historical evidence from ancient Rome, early China, and the MiddleAges and Renaissance in Europe is used to investigate the hypotheses.It is often assumed that an economy of private enterprise has an automatic bias towards innovation, but thisis not so. It has a bias only towards profit. [HOBSBAWM1969, p. 40]When conjecturesleaps in economicare offered to explain historic slowdowns or greatgrowth, there is the group of usual suspects that isI am very grateful for the generous support of the research underlying this paperfrom the Division of Information Science and Technology of the National ScienceFoundation, the Price Institute for Entrepreneurial Studies, the Center for Entrepreneurial Studies of the Graduate School of Business Administration, New York University, and the C. V. Starr Center for Applied Economics. I am also very much indebtedto Vacharee Devakula for her assistance in the research. I owe much to Joel Mokyr,Stefano Fenoaltea, Lawrence Stone, Constance Berman, and Claudia Goldin for helpwith the substance of the paper and to William Jordan and Theodore Rabb for guidance on references.[Journal of Political Economy, 1990, vol. 98, no. 5, Pt. 1]? 1990 by The University of Chicago All rights reserved. 0022-3808/90/9805-0001 01.50893
894JOURNALOF POLITICALECONOMYamong them, the entrepreneur.regularly rounded up-prominentWhere growth has slowed, it is implied that a decline in entrepreneurship was partly to blame (perhaps because the culture's "need forachievement" has atrophied). At another time and place, it is said, theflowering of entrepreneurship accounts for unprecedented expansion.This paper proposes a rather different set of hypotheses, holdingthat entrepreneurs are always with us and always play somesubstantialrole. But there are a variety of roles among which the entrepreneur'sefforts can be reallocated, and some of those roles do not follow theconstructive and innovative script that is conventionally attributed tothat person. Indeed, at times the entrepreneur may even lead aparasitical existence that is actually damaging to the economy. Howthe entrepreneur acts at a given time and place depends heavily onthe rules of the game-the reward structure in the economy-thathappen to prevail. Thus the central hypothesis here is that it is the setof rules and not the supply of entrepreneurs or the nature of theirobjectivesthat undergoes significant changes from one period to another and helps to dictate the ultimate effect on the economy via theallocation of entrepreneurial resources. Changes in the rules andother attendant circumstances can, of course, modify the compositionof the class of entrepreneurs and can also alter its size. Without denying this or claiming that it has no significance, in this paper I shall seekto 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 productivityproblems reside in "the spirit of entrepreneurship" that waxes andwanes for unexplained reasons is a counsel of despair, for it gives noguidance on how to reawaken that spirit once it has lagged. If that isthe task assigned to policymakers, they are destitute: they have nomeans of knowing how to carry it out. But if what is required is theadjustment of rules of the game to induce a more felicitous allocationof entrepreneurial resources, then the policymaker's task is less formidable, and it is certainly not hopeless. The prevailing rules thataffect the allocation of entrepreneurial activity can be observed, described, and, with luck, modified and improved, as will be illustratedhere.Here, extensive historical illustrations will be cited to impart plausibility to the contentions that have just been described. Then a shortdiscussion of some current issues involving the allocation of entrepreneurship between productive and unproductive activities will be of-
ENTREPRENEURSHIP895fered. Finally, I shall consider very briefly the means that can be usedto change the rules of the game, and to do so in a manner thatstimulates the productive contribution of the entrepreneur.I.On the Historical Character of the EvidenceGiven the inescapable problems for empirical as well as theoreticalstudy of entrepreneurship, what sort of evidence can one hope toprovide? Since the rules of the game usually change very slowly, a casestudy approach to investigation of my hypotheses drives me unavoidably to examples spanning considerable periods of history and encompassing widely different cultures and geographic locations. HereI shall proceed on the basis of historical illustrations encompassingall the main economic periods and places (ancient Rome, medievalChina, Dark Age Europe, the Later Middle Ages, etc.) that the economic historians almost universally single out for the light they shedon the process of innovation and its diffusion. These will be used toshow that the relative rewards to different types of entrepreneurialactivity have in fact varied dramatically from one time and place toanother and that this seems to have had profound effects on patternsof entrepreneurial behavior. Finally, evidence will be offered suggesting that such reallocations can have a considerable influence on theprosperity and growth of an economy, though other variables undoubtedly also play substantial roles.None of this can, of course, be considered conclusive. Yet, it issurely a standard tenet of scientific method that tentative confirmation of a hypothesis is provided by observation of phenomena that thehypothesis helps to explain and that could not easily be accounted forif that hypothesis were invalid. It is on this sort of reasoning that Ihope to rest my case. Historians have long been puzzled, for example,by the failure of the society of ancient Rome to disseminate and putinto widespread practical use some of the sophisticated technologicaldevelopments that we know to have been in its possession, while in the"High Middle Ages," a period in which progress and change werehardly popular notions, inventions that languished in Rome seem tohave spread like wildfire. It will be argued that the hypothesis aboutthe allocability of entrepreneurial effort between productive and unproductive activity helps considerably to account for this phenomenon, though it certainly will not be claimed that this is all there was tothe matter.Before I get to the substance of the discussion, it is important toemphasize that nothing that follows in this article makes any pretenseof constituting a contribution to economic history. Certainly it is notintended here to try to explain any particular historical event. More-
896JOURNALOF POLITICALECONOMYover, the analysis relies entirely on secondary sources, and all thehistorical developments described are well known to historians, as thecitations will indicate. Whatever the contribution that may be offeredby the following pages, then, it is confined to enhanced understanding and extension of the (nonmathematical) theory of entrepreneurship in general, and not to an improved analysis of the historicalevents that are cited.II.The Schumpeterian Model Extended:Allocation of EntrepreneurshipThe analysis of this paper rests on what seems to be the one theoretical model that effectively encompasses the role of the entrepreneurand that really "works," in the sense that it constitutes the basis for anumber of substantive inferences.' This is, of course, the well-knownSchumpeterian analysis, whose main shortcoming, for our purposes,is the paucity of insights on policy that emerge from it. It will besuggested here that only a minor extension of that model to encompass the allocation of entrepreneurship is required to enhance itspower substantially in this direction.Schumpeter tells us that innovations (he calls them "the carryingout of new combinations") take various forms besides mere improvements in technology:This concept covers the following five cases: (1) the introduction of a new good-that is one with which consumersare not yet familiar-or of a new quality of a good. (2) Theintroduction of a new method of production, that is one notyet tested by experience in the branch of manufacture concerned, which need by no means be founded upon a discovery scientifically new, and can also exist in a new way ofhandling a commodity commercially. (3) The opening of anew market, that is a market into which the particularbranch of manufacture of the country in question has notpreviously entered, whether or not this market has existedbefore. (4) The conquest of a new source of supply of rawmaterials or half-manufactured goods, again irrespective ofwhether this source already exists or whether it has first to be1 There has, however, recently been an outburst of illuminating writings on thetheory of the innovation process, analyzing it in such terms as races for patents in whichthe winner takes everything, with no consolation prize for a close second, or treatingthe process, alternatively, as a "waiting game," in which the patient second entrant mayoutperform and even survive the first one in the innovative arena, who incurs the bulkof the risk. For an overview of these discussions as well as some substantial addedinsights, see Dasgupta (1988).
ENTREPRENEURSHIP897created. (5) The carrying out of the new organization of anyindustry, like the creation of a monopoly position (for example through trustification) or the breaking up of a monopoly position. [(1912) 1934, p. 66]The obvious fact that entrepreneurs undertake such a variety oftasks all at once suggests that theory can usefully undertake to consider what determines the allocation of entrepreneurial inputs amongthose tasks. Just as the literature traditionally studies the allocation ofother inputs, for example, capital resources, among the various industries that compete for them, it seems natural to ask what influences the flow of entrepreneurial talent among the various activities in Schumpeter's list.Presumably the reason no such line of inquiry was pursued bySchumpeter or his successors is that any analysis of the allocation ofentrepreneurial resources among the five items in the preceding list(with the exception of the last-the creation or destruction of a monopoly) does not promise to yield any profound conclusions. There isno obvious reason to make much of a shift of entrepreneurial activityaway from, say, improvement in the production process and towardthe introduction of new products. The general implications, if any,for the public welfare, for productivity growth, and for other relatedmatters are hardly obvious.To derive more substantive results from an analysis of the allocation of entrepreneurial resources, it is necessary to expand Schumpeter's list, whose main deficiency seems to be that it does not go farenough. For example, it does not explicitly encompass innovative actsof technology transfer that take advantage of opportunities to introduce already-available technology (usually with some modificationto adapt it to local conditions) to geographic locales whose suitabilityfor the purpose had previously gone unrecognized or at least unused.Most important for the discussion here, Schumpeter's list of entrepreneurial activities can usefully be expanded to include such items asinnovations in rent-seeking procedures, for example, discovery of apreviously unused legal gambit that is effective in diverting rents tothose who are first in exploiting it. It may seem strange at first blush topropose inclusion of activities of such questionable value to society (Ishall call them acts of "unproductive entrepreneurship") in the list ofSchumpeterian innovations (though the creation of a monopoly,which Schumpeter does include as an innovation, is surely as questionable), but, as will soon be seen, this is a crucial step for the analysisthat follows. If entrepreneurs are defined, simply, to be persons whoare ingenious and creative in finding ways that add to their ownwealth, power, and prestige, then it is to be expected that not all of
898JOURNALOF POLITICALECONOMYthem will be overly concerned with whether an activity that achievesthese goals adds much or little to the social product or, for that matter, even whether it is an actual impediment to production (this notion goes back, at least, to Veblen [1904]). Suppose that it turns out, inaddition, that at any time and place the magnitude of the benefit theeconomy derives from its entrepreneurial talents depends substantially, among other variables, on the allocation of this resource between productive and unproductive entrepreneurial activities of thesorts just described. Then the reasons for including acts of the lattertype in the list of entrepreneurial activities become clear.Here no exhaustive analysis of the process of allocation of entrepreneurial activity among the set of available options will be attempted.Rather, it will be argued only that at least one of the prime determinants of entrepreneurial behavior at any particular time and place isthe prevailing rules of the game that govern the payoff of one entrepreneurial activity relative to another. If the rules are such as toimpede the earning of much wealth via activity A, or are such as toimpose social disgrace on those who engage in it, then, other thingsbeing equal, entrepreneurs' efforts will tend to be channeled to otheractivities, call them B. But if B contributes less to production or welfare than A, the consequences for society may be considerable.2As a last preliminary note, it should be emphasized that the set ofactive entrepreneurs may be subject to change. Thus if the rules ofthe game begin to favor B over A, it may not be just the same individuals who switch their activities from entrepreneurship of type A tothat of type B. Rather, some persons with talents suited for A maysimply drop out of the picture, and individuals with abilities adaptedto B may for the first time become entrepreneurs. Thus the allocationof entrepreneurs among activities is perhaps best described in the wayJoan Robinson (following Shove's suggestion) analyzed the allocationof heterogeneous land resources (1933, chap. 8): as the solution of ajigsaw puzzle in which the pieces are each fitted into the places selected for them by the concatenation of pertinent circumstances.III.Entrepreneurship, Productive andUnproductive: The Rules Do ChangeLet us now turn to the central hypothesis of this paper: that theexercise of entrepreneurship can sometimes be unproductive or even2There is a substantial literature, following the work of Jacob Schmookler, providingstrong empirical evidence for the proposition that even the allocation of inventiveeffort, i.e., the directions pursued by inventive activities, is itself heavily influenced byrelative payoff prospects. However, it is now agreed that some of these authors go toofar when they appear to imply that almost nothing but the demand for the product ofinvention influences to any great extent which inventions will occur. For a good summary and references, see Abramovitz (1989, p. 33).
ENTREPRENEURSHIP899destructive, and that whether it takes one of these directions or onethat is more benign depends heavily on the structure of payoffs in therules of the game. The rather dramatic illustrationseconomy-theprovided by world history seem to confirm quite emphatically thefollowing proposition.1. The rules of the game that determine the relativePROPOSITIONpayoffs to different entrepreneurial activities do change dramaticallyfrom one time and place to another.These examples also suggest strongly (but hardly "prove") the following proposition.2. Entrepreneurial behavior changes direction fromPROPOSITIONone economy to another in a manner that corresponds to the variations in the rules of the game.A. Ancient RomeThe avenues open to those Romans who sought power, prestige, andwealth are instructive. First, it may be noted that they had no reservations about the desirability of wealth or about its pursuit (e.g., Finley1985, pp. 53-57). As long as it did not involve participationin industryorcommerce,there was nothing degrading about the wealth acquisitionprocess. Persons of honorable status had three primary and acceptable sources of income: landholding (not infrequently as absenteelandlords), "usury," and what may be described as "political payments":The opportunity for "political moneymaking" can hardlybe over-estimated. Money poured in from booty, indemnities, provincial taxes, loans and miscellaneous extractionsin quantities without precedent in Graeco-Roman history,and at an accelerating rate. The public treasury benefited,but probably more remained in private hands, among thenobles in the first instance; then, in appropriately decreasingproportions, among the equates,the soldiers and even theNevertheless, the whole pheplebs of the city of Rome.nomenon is misunderstood when it is classified under theheadings of "corruption" and "malpractice", as historiansstill persist in doing. Cicero was an honest governor of Ciliciain 51 and 50 B.C., so that at the end of his term he hadearned only the legitimate profits of office. They amountedto 2,200,000 sesterces, more than treble the figure of600,000 he himself once mentioned (Stoic Paradoxes 49) toillustrate an annual income that could permit a life of luxury.We are faced with something structural in the society. [Finley1985, p. 55]
900JOURNALOF POLITICALECONOMYWho, then, operated commerce and industry? According to Veyne(1961), it was an occupation heavily undertaken by freedmenformer slaves who, incidentally, bore a social stigma for life. Indeed,according to this writer, slavery may have represented the one avenuefor advancement for someone from the lower classes. A clever (andhandsome) member of the lower orders might deliberately arrange tobe sold into slavery to a wealthy and powerful master.3 Then, withluck, skill, and drive, he would grow close to his owner, perhapsmanaging his financial affairs (and sometimes engaging in somehomosexual activity with him). The master then gained cachet, after asuitable period, by gra
of entrepreneurship more effectively than it can influence its supply. Historical evidence from ancient Rome, early China, and the Middle Ages and Renaissance in Europe is used to investigate the hy- potheses. It is often assumed that an economy of private enter- prise has an automatic bias towards innovation, but this
the development of an on-site non-destructive testing technique to assess the performance of sealants on building facades. Tests were carried out on various . Non-destructive Non-destructive Vertical Horizontal simulated y 1.0858x - 10.229 0.9702 Non-destructive Semi-destructive Vertical - simulated y 0.6159x 33.565 0.8375 .
To define the entrepreneurship. To explain the significance of Entrepreneurship. To explain the Entrepreneurship Development. To describe the Dynamics of Entrepreneurship Development. 1.1 Need and significance of Entrepreneurship Development in Global contexts It is said that an economy is an effect for which entrepreneurship is the cause.
The rebound (Schmitz) hammer is one of the most popular non-destructive testing (NDT) methods used to test the strength of concrete. This is due to its relatively low cost and simplicity in use (Luke, 2012). Although the non-destructive testing (NDT) results are much quicker compared to the destructive methods, they are more of an approximation .
surprise that there are differences between outcomes of destructive and non-destructive testing as well. It is important to keep the differences in mind: Table 1: Important properties compared Destructive testing (Peel decohesion) Non-destructive testing (PAUT) Tests the strength Checks for deviations Only small part of the joint is investigated.
5 AGRICULTURAL AND PRODUCTIVE USE SOLAR COMPANIES 47 . 5.1 Relevant Government and Donor Agriculture and 48 Productive Use Programs 5.2 Agriculture and Productive Use Relevant Regulations 48 . 5.3 Productive Use Applications for Off-Grid Solar Systems 49 . 5.4 Financial Products for productive users of energy 50
Natural Resources Ressources naturelles Canada Canada Destructive / Non-destructive Inspection and Failure Analysis of Diesel Particulate Filters and Catalytic Converters Brent Rubeli Natural Resources Canada 2 CANMET MINING AND MINER
reliable type of testing, while non-destructive testing is a wide group of analysis techniques used in science and industry to evaluate the properties of a material, component or system without causing damage. Non-destructive testing can be applied to both old and new structures (Jedidi Malek, 2014).
The ASM Handbook should be regarded as a set of actions implemented by the ECAC States to be used in conjunction with the EUROCONTROL Specification for the application of the Flexible Use of Airspace (FUA). The ASM Handbook should neither be considered as a substitute for official national regulations in individual ECAC States nor for the ASM Part of the ICAO European Region Air Navigation .
